Session 5. UPMC s Systemwide Change to Service Lines Supported by Activity-Based Costing: The Blueprint to Healthcare Improvement Efforts

Session 5 UPMC s Systemwide Change to Service Lines Supported by Activity-Based Costing: The Blueprint to Healthcare Improvement Efforts Robert Edwards, MD Professor & Chair, OB/GYN/RS Magee-Womens Hospital of UPMC Paula Lounder Director, Payer Provider Programs UPMC

Learning Objectives Define what service line means and the implications of organizing around them. Explain how service line activities integrate finance and operations and how the leadership structure needs to have expertise in both. Recognize how service line costing, reporting, and analytics can benefit an organization. Relate examples of service line initiatives through Women s Health case study. 2

We believe that organizing by service lines, supported by activity-based costing, offers a pathway to deliver life-changing medicine to our patients. 3

$9,400 per person Physicians Don t Know One in Three 4

Poll Question #1 The physicians in my organization are well aware of the cost of the care they provide and how it compares to their peers. a) True b) False c) Unsure or not applicable 5

HEALTH SERVICES INSURANCE SERVICES ENTERPRISE SERVICES INTERNATIONAL SERVICES Highly integrated system with an academic medical center hub closely affiliated with University of Pittsburgh. More than 20 hospitals with 5,100 beds and 284,000 admissions/observations. 60% inpatient market share in Allegheny County. Over 500 outpatient locations. More than 40 cancer centers. 4 million outpatient visits annually. More than 3,500 employed physicians. $457 million in NIH funding at the University of Pittsburgh and UPMC. 2.9 million lives enrolled in a portfolio of insurance products.

Magee Womens Hospital Our Vision Magee, as an integral part of UPMC, will be a regional and national leader in women s and infants health, recognized for medical excellence, outstanding patient care, education, research, standards development, and advocacy. We, at Magee-Womens Hospital, enhance the health and wellbeing of women, infants, and their families. We build on our heritage of community service through: Excellence Education Leadership Integration Maintenance

An Era of Change That was then This is now Increase Volume / Maximize Revenue. Eliminate Unnecessary Care / Highest Quality at Lowest Cost. Hospital / Department-Focused Efforts. Service Line / Regionalization / Payer-Provider Integration. Costs Using RCC Methodology. Activity Based Costing. Costs Unknown to Physicians. Transparency / Standardized Practice Variation. Systemwide service line and activity-based costing was the solution

It Worked! Formalized the Women's Health Service Line and supported it with activity-based costing. Provided leaders with visibility and oversight, leading to efficiencies and improvements. During this time, the clinical service saw a 25% improvement in its contribution margin and achieved key clinical improvements including: 20% reduction in inpatient LOS for hysterectomies. 34% reduction in open hysterectomies. 28.3% reduction in 30-day readmissions for hysterectomies. 200% increase in same-day hysterectomies, as a result of a pilot program, which led to an estimated cost savings of $250,000. 9

What is a Service Line? A Service Line represents an aggregation of services provided to patients with similar medical conditions, and has both revenue and expense components. Considerations

Example: Traditional View of Reporting Hospital Component Hospitals ($ in millions) Hospital 1 Hospital 2 Hospital 3 Total Revenue (Net of Bad Debt) $1,400 $300 $350 $2,050 Natural Classification of Expenses Operating Expenses Salaries, Supplies, & Purchased Services 750 150 200 1,100 Physician Investment 250 40 60 350 Admin & Other Expenses 110 40 40 190 Total Operating Expenses 1,110 230 300 1,640 Operating Income before Centrally Managed Expenses $290 $70 $50 $410 Centrally Managed Expenses 380 Operating Income $30 11 Sample data for illustrative purposes.

Example: Service Line Reporting ($ in millions) - Discharged Patients only Patient Service Line Components Women s Health Ortho Cardiac Cancer Neuro Sub- Total Other Medical Other Surgical Total Revenues $100 $150 $200 $250 $150 $850 $900 $300 $2,050 Operating Expenses Service Center Costs Variable Costing at Service Line Basis Full Costing at Service Line Basis Direct (a) 10 40 40 100 30 220 90 40 350 Service Center (b) 50 40 50 80 40 260 300 80 640 Total Variable Expenses 60 80 90 180 70 480 390 120 990 Operating Income before Support and Indirect Expenses $40 $70 $110 $70 $80 $370 $510 $180 $1,060 Support Expenses (c) 30 40 70 50 40 230 400 100 730 Operating Income before Indirect Expenses $10 $30 $40 $20 $40 $140 $110 $80 $330 Indirect Expenses 300 Operating Income $30 (a) Direct expenses include clinical supplies, drugs and blood (b) Service centers represent functional clinical areas including nursing, surgical, interventional and diagnostic services (c) Support expenses represent clinical support areas including physician costs, facility costs, depreciation, administration 12 Sample data for illustrative purposes.

Poll Question #2 Is your organization structured along service lines with service line financial reports? a) No service lines b) Fewer than 4 service lines c) 5 to 9 service lines d) All clinical specialty areas are service lines e) Unsure or not applicable 13

Service Line: A Finance or Operational Led Initiative? Formal Structure Service Line Team Operational Leaders Finance Team Lead A collaborative group of UPMC clinicians and administrators from across the system serving as champions within the Service Line. Executive team consisting of a physician leader along with the Executive Administrator and the hospital CNO (at the Center of Excellence). Serves as the primary point of contact for all financial matters for the assigned area, and collaborates with other finance areas such as supply chain.

What Are the Goals of the Women s Health Service Line? Enhance the quality of care. Utilize a systemwide approach. Provide competitive, patient-centered, value-based care. Establish Service Line financial reporting, metrics, and measurable goals.

Transforming Volume to Value within Women s Health Involved the Integration of Three Strategic Targets Resource Utilization/Capacity Management MD/Provider coverage. Staffing optimization. Market share expansion. Identify new revenue stream opportunities. Integration & navigation resources. Enhance Quality & Cost for Appropriate Care New models of care. Reduction in variation of care and cost. Enhance patient safety & satisfaction. Leverage technology. Optimal Structure for Maximum Efficiency Regionalize care. Enhance telemedicine. Expand APP model. Develop medical home model. 16

What Is a Service Line Finance Lead? A Service Line/Service Center Lead is the primary point of contact for all financial matters related to the assigned area. Role of Service Line Lead

Improvement Initiative Process Flow Data assessment and opportunity identification Clinician created protocols and pathways Pilot design and implementation Pilot assessment Process improvements selection and launch Metrics & reporting, ongoing evaluation 18

Key Report #1: Service Line P&L Sub-Service Lines Case Study Example Current efforts to improve quality & reduce costs Women's Health Contribution Margin ($ in 000 s) Deliveries Non-Cancerous Other Other OP Other OP Hospital Mother Baby Hysterectomy Inpatient Procedures Services Total Volume 12,100 1,730 2,500 7,500 285,000 308,830 Revenue $ 62,900 $ 64,650 $ 11,690 $ 21,000 $ 20,000 $ 77,000 $ 257,240 Expenses Direct $ 2,760 $ 895 $ 2,590 $ 2,540 $ 4,500 $ 6,300 $ 19,585 Supplies 590 20 2,170 1,400 3,900 170 8,250 Pharmacy 1,530 825 350 820 500 5,720 9,745 Blood 640 50 70 320 100 410 1,590 Service $ 23,050 $ 25,950 $ 3,630 $ 7,440 $ 5,095 $ 23,885 $ 89,050 Med Surg 16,580 6,500 830 2,550 260 1,420 28,140 ICU CCU NICU 160 11,600 40 440 5 5 12,250 Laboratory 580 480 200 570 450 6,940 9,220 Outpatient Clinic 650 - - 30 20 6,430 7,130 Imaging 120 220 10 190 80 6,210 6,830 Premium Tax 1,650 3,200 130 700 - - 5,680 Operating Room 20-1,400 1,020 1,750 10 4,200 Other Services 3,290 3,950 1,020 1,940 2,530 2,870 15,600 Subtotal, Variable Expenses $ 25,810 $ 26,845 $ 6,220 $ 9,980 $ 9,595 $ 30,185 $ 108,635 Unit Supporting 14,670 14,600 4,030 5,590 5,050 13,200 57,140 Subtotal, Total Expenses less Indirect 40,480 41,445 10,250 15,570 14,645 43,385 165,775 Hospital Contribution Margin $ 22,420 $ 23,205 $ 1,440 $ 5,430 $ 5,355 $ 33,615 $ 91,465 Identification of significant variable expenses Continuum of care costs & stand-alone visits Sample data for illustrative purposes.

Key Report #2: Sub-Service Line P&L ($ in 000 s)

Sub-Service Line Report: Average Cost per Case PER CASE LAPAROSCOPIC VAGINAL ROBOTIC OPEN TOTAL HYSTERECTOMIES CASES 870 250 330 280 1,730 REVENUE $ 6,207 $ 10,480 $ 5,152 $ 7,036 $ 6,757 VARIABLE & SUPPORITNG EXPENSE $ 5,397 $ 4,400 $ 6,803 $ 7,893 $ 5,925 CONTRIBUTION MARGIN $ 810 $ 6,080 $ (1,651) $ (857) $ 832 Hysterectomy Quality Outcomes IP Average LOS 43.3% 3.51 2.7% 18.8% 6.2% 8.1% 6.1% 10.1% 12.5% 2.3% 20.2% 0.3% 1.4% 0.0% 0.0% 0.4% 4.0% 7.2% 4.9% 4.8% 4.7% 1.38 1.63 1.18 2.10 Complications Transfusions (IP Only) Surgical Site Infections 30 Day Returns Laparoscopic Open Robotic Vaginal Total IP ALOS Laparoscopic Open Robotic Vaginal Total Sample data for illustrative purposes.

Key Report #3: Physician Variability Non-Cancerous Hysterectomies By physician detail Attending Physician Average LOS Average OR Minutes per Case Average Direct Cost per Case Average Unit Operating per Case Laparoscopic Open Robotic Laparoscopic Open Robotic Laparoscopic Open Robotic Laparoscopic Open Robotic Physician Group 1 4.50 1.00 232 132 180 $ 1,300 $ 2,167 $ 1,600 $ 3,000 $ 4,450 $ 2,900 Physician 1 5.00 128 $ 2,500 $ 5,300 Physician 2 4.50 1.00 232 142 180 $ 1,300 $ 2,000 $ 1,600 $ 3,000 $ 4,500 $ 2,900 Physician 3 3.00 130 $ 2,000 $ 3,600 Physician Group 2 1.09 2.50 1.00 157 133 197 $ 1,650 $ 750 $ 1,900 $ 2,300 $ 3,100 $ 2,700 Physician 4 1.25 2.67 115 178 $ 1,200 $ 550 $ 2,100 $ 3,300 Physician 5 1.00 132 $ 1,120 $ 2,200 Physician 6 1.00 2.75 224 106 $ 1,700 $ 425 $ 3,000 $ 3,000 Physician 7 1.00 1.00 162 240 $ 2,400 $ 1,800 $ 2,500 $ 3,000 Physician 8 1.00 175 $ 2,000 $ 2,600 Physician 9 3.00 127 $ 600 $ 3,300 Physician 10 1.00 1.00 244 175 $ 1,400 $ 1,900 $ 1,800 $ 2,500 Physician 11 1.00 2.00 130 216 $ 2,100 $ 1,700 $ 2,100 $ 3,800 Physician 12 2.00 98 $ 450 $ 2,100 Physician Group 3 1.00 3.00 188 226 $ 1,130 $ 510 $ 2,100 $ 3,380 Physician 13 1.00 188 $ 1,130 $ 2,100 Physician 14 3.00 226 $ 510 $ 3,380 Physician Group 4 2.00 247 $ 1,300 $ 3,200 Physician 15 2.00 247 $ 1,300 $ 3,200 Total 1.36 3.33 1.00 206 164 189 $ 1,345 $ 1,150 $ 1,750 $ 2,650 $ 3,600 $ 2,800 Metrics and costs physicians can impact Sample data for illustrative purposes.

Opportunities within the Women s Health Service Line Gynecology Reduce Open Hysterectomies. Increase Same Day Hysterectomies. Decrease Hysterectomy Utilization. Physician Variability in Supply Usage. Obstetrics Reduce Length of Stay. Reduce Cesarean Sections. Reduce NICU costs. Physician Variability in Prenatal Care. Enhanced Education. Solutions: 1. Clinical Pathways. 2. Awareness and Monitoring of Cost and Quality. 3. Engaging Physicians.

Improvement Initiative Process Flow Data assessment and opportunity identification Clinician created protocols and pathways Pilot design and implementation Pilot assessment Process improvements selection and launch Metrics & reporting, ongoing evaluation 24

Solution #1: The Hysterectomy Clinical Pathway Evidence-based clinical decision pathway Series of clinical questions that lead to a recommendation for the type of hysterectomy to be performed. Decision support is driven by flow sheet data and evidence-based literature published by the American Congress of Obstetricians and Gynecologists (ACOG). Able to palpate uterus and judge size? Yes No What is the size of the uterus? 6-8cm 8-10cm 10-12cm 12-14cm <14cm Suspicion of extrauterine disease? Yes No

Improvement Initiative Process Flow Data assessment and opportunity identification Clinician created protocols and pathways Pilot design and implementation Pilot assessment Process improvements selection and launch Metrics & reporting, ongoing evaluation 26

Solution #2: Monitoring Progress What gets measured, gets done! Physician incentives and evaluations include criteria for the following: 80% Pathway Adherence Cost and Quality Physician Dashboard COST QUALITY

Period Period 1 1 Physician Physician Group Group No Yes No Yes Total Total Adherence Adherence Physician 1 Group 1 Group 1 1 6 1 6 0% 0% Physician Group 2 4 4 0% Physician 2 Group 2 1 1 0% Physician 3 Group 2 2 2 0% Physician 34 Group 2 Group 2 4 4 No Volume 0% Physician 45 Group 2 Group 2 11 1 12 No Volume 8% Physician 6 Group 3 1 1 100% Physician 5 Group 3 1 1 0% Physician 7 Group 3 1 1 100% Physician 68 Group 4 Group 3 2 2 2 2 4 50% Physician 79 Group 5 Group 3 3 3 No Volume 100% Physician 10 Group 3 4 2 6 33% Physician 8 Group 5 1 1 0% Physician 11 Group 3 8 8 0% Physician 912 Group 6 Group 3 2 3 2 3 0% 0% Physician 10 13 Group 7 Group 413 13 No Volume 0% Physician 14 Group 5 1 6 7 86% Physician 11 Group 7 10 10 0% Physician 15 Group 5 1 3 4 75% Physician 12 16 Group 8 Group 5 7 19 26 No Volume 73% Physician Physician 13 17 Group 9 Group 5 5 11 16 No Volume 69% Physician 18 Group 5 6 9 15 60% Physician 14 19 Group 10 Group 5 4 6 10 No Volume 60% Physician 15 20 Group 11 Group 5 1 28 5 1 33 0% 15% Physician 21 Group 6 No Volume Physician 16 Group 11 No Volume Physician 22 Group 7 5 3 8 38% Physician No Adherence 23 Group 7 1 1 0% Physicians24 Group 732 0 7 32 7 0% 0% Physician Grand Total 25 Group182 8 270 452 No Volume 60% No Adherence Physicians 32 0 32 0% Grand Total 182 270 452 60% Period 2 Total Adherence Period 2 Total Adherence Adherence Adherence No No Yes Yes Total Total Adherence% No No Yes Yes Total Total Adherence % No No Volume Volume 4 110 14 12 0% 8% 2 2 100% 6 3 9 33% No Volume 2 0 2 0% 4 4 100% 4 2 6 33% 1 1 3 1 4 0% 75% 1 60 21 8 25% 0% 1 1 2 1 3 0% 67% 1 170 51 22 23% 0% 1 1 0% 0 1 1 100% No Volume 3 0 3 0% 2 5 7 71% 1 2 3 67% 1 1 No Volume 2 50% 2 60 62 12 50% No Volume No Volume 1 4 0 3 1 7 43% 0% 2 4 6 67% 8 5 13 38% 2 3 No Volume 5 60% 1 170 51 22 23% 0% No Volume No Volume 4 50 14 6 17% 0% 3 3 100% 1 3 4 75% 19 19 0% 57 0 57 0% 9 16 25 64% 4 20 24 83% 10 9 29 10 38 0% 76% 27 40 527 9 56% 0% 33 12 45 No Volume27% 2 420 502 92 54% 0% 12 2 14 14% 26 27 53 51% 1 1 0% 1 0 1 0% 2 2 100% 30 30 60 50% 3 21 24 No Volume88% 1 230 81 31 26% 0% 1 1 6 1 7 0% 86% 2 950 172 112 15% 0% No Volume 5 1 6 17% 1 3 No 4 Volume 75% 1 11 0 10 1 21 48% 0% 5 1 6 17% 7 1 8 13% 33 2 0 33 2 0 0% 110 220 110 1 23 0% 4% No Volume 0 2 2 100% 134 320 454 70% 753 771 1524 51% 33 0 33 0 110 0 110 0% 134 320 454 Sample 70% data for 753illustrative 771 1524 purposes. 51% Total pathway adherence Total c Hysterectomy Pathway Adherence by Physician

Physician Dashboard: Cost & Quality Sample data for illustrative purposes.

Solution #3: Engaging Physicians Initial results ~24%. Feedback from physicians. Resolution of concerns. Support by physician leadership. Focused efforts: 200% increase in adherence! Hospital 30

Lessons Learned: Critical Success Factors Quality, safety, and patient satisfaction at a reduced cost leads to increased value. Engagement of clinical leadership. Clinical pathways. Collaboration with operational leadership and other stakeholders. Setting time expectations appropriately. Need for cost and quality measurement tools. User acceptance testing.

Future Plans Reduce hysterectomy surgeries performed by low-volume surgeons and proceduralists, using quality metrics and group incentives. Reduce physician variability in OR utilization and supply usage for hysterectomies. Expand same-day hysterectomy to other providers and hospitals. Expand focus on the obstetric population to reduce variability in prenatal care, develop protocols for inpatient management, reduce Cesarean sections, reduce NICU costs, and enhance education. 32

Future Plans With a winning combination of service line management and activity-based costing, UPMC will continue to improve patient care and set an example for other healthcare systems to follow. 33

Analytic Insights Questions & AnswersA 34

What You Learned Write down the key things you ve learned related to each of the learning objectives after attending this session

Thank You 36