By - No one could have predicted the impact COVID-19 would have on 2020, least of all healthcare executives who approved budgets and spending targets months or even a year prior to the outbreak of the novel coronavirus.
Reduced volumes, new supply needs, and other virus-related expenses put an obvious strain on traditional healthcare budgeting and forecasting, which relies on a static budget for a fixed period of time – like January 1st to December 31st.
But as the pandemic has underscored, healthcare is not static. Providers must be able to adapt to emerging, and oftentimes complex changes in healthcare, like value-based care, competition from new players in the market, or even a global pandemic.
For these reasons, more hospitals and health systems are breaking tradition by implementing rolling forecasts.
Rolling forecasts use historical data to predict future performance over a continuous period of time and are updated regularly throughout the year to inform the next period of time. And for health systems like John Muir Health in California, the more dynamic healthcare budgeting and forecasting model is creating more realistic and achievable financial goals.
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“It’s true that we’re budgeting for shorter timeframes. However, what it allows us to do is actually give managers, directors, and the folks who are actually running departments targets that they can focus on,” Chris Pass, CFO of John Muir Health, recently told RevCycleIntelligence. “And if things change drastically in the beginning of the year, say, in the first quarter, then we can give people new targets throughout the year.
The California-based health system has been using this dynamic healthcare budgeting and forecasting technique for about four budget seasons now. The decision to do that stemmed from the need to be number, and it is paying off during this highly unusual and volatile period in healthcare.
“When COVID hit and we needed to be prepared for a surge, the reduction in non-essential surgeries and procedures emptied out health systems for a period of time across the country, which completely disrupted planning. However, we were able to adjust targets to focus on the labor that might be needed with lower volumes. We could change and adapt quickly,” Pass explained. “So, dynamic budgeting and forecasting does create some flexibility, but it is also really used as a tool to help, for us, 6,000 employees to make a difference with the budget, which is fundamentally different than if a few people owned the overall budget.”
When the entire organization owns the budget
Traditional healthcare budgeting and forecasting is a very high-level process that can take six months or more to complete under normal circumstances. Providers are certainly no longer practicing under normal circumstances, but even without an ongoing pandemic, this top-down approach to crafting a budget takes away precious resources from patient care.
“The traditional budget process has been a little bit broken,” Pass asserted. “Everything was status quo. It didn’t change a lot, and we found ourselves spending months of time with leaders putting together everything they wanted, then having the meetings in which departments that went last believed they got penalized.”
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This process can create animosity between clinicians and executives, especially when clinicians feel like they do not have any ownership stake in how resources get allocated for the work they are doing every day.
To do improve, though, Pass needed access to more data. Leveraging an existing partnership with Strata Decision Technology, the CFO supported efforts to implement healthcare-specific technology that takes historical spending data, puts in into a forecast and a long-range plan, and pushes the results out to department leaders via email on a monthly basis.
“The email basically tells each leader how many metrics they've missed and where they need to provide commentary, then it's brought back up to us in both a monthly offering review and a quarterly business review,” Pass elaborated. “So, the people who know the variance are closest to the business unit and they are leaders who focus on things that are off, and not just off negatively. Something could be off positively, too, so we want that feedback.”
With better feedback from department leaders, executives can craft better budgets, Pass added. And for the CFO, it is incredible to see what 6,000 engaged employees can do to improve healthcare budgeting and forecasting.
“Frankly, in the past, you would find a lot of oddities and spider webs in the corners because people just never really looked at their information this closely,” Pass said. “Because now the process focuses accountability on a monthly or quarterly basis, people know their numbers and they really understand what's in there or what's not in there. It's allowed us to have more accuracy throughout the enterprise as well.”
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The more dynamic budgeting process has also saved the health system month of time and work, which helps the system get back to its serving its community.
“Cultural engagement is something that has been fantastic. We have a lot of folks who never really thought about how we are doing financially,” Pass stated. “There's a better understanding about the importance of why we have to do well financially to serve and reinvest in our community. The results are not just about making money or keeping a bond rating, but about enabling us to do things we need to do to care for the communities we serve.”
How to implement dynamic budgeting & forecasting
Healthcare leaders are still very much hesitant to implement dynamic budgeting and forecasting, especially when investors and boards place so much importance on quarterly earnings. Breaking with tradition in this case also requires extensive automation and staff training.
“Spend some time making sure senior leaders are in agreement, and then partner with operational leaders to make sure they’re completely behind the change,” Pass suggested. “We’ve had the pleasure of having a very strong leader and that helped us go from a budget where finance is doing this to us, to a place where clinical operations, administrative services and finance are all working together as a team.”
Having champions who work regularly with departments is also critical, Pass said. At John Muir Health, these champions are jokingly known as the “Pied Pipers of Healthcare.”
“Their job is to translate the financial numbers and concepts into the language that’s practical for their area,” Pass explained.
Finally, healthcare organizations shouldn’t just jump into dynamic healthcare budgeting and forecasting, Pass advised.
“It’s hard to implement so much change at once. So, when we first did the dynamic budgeting process, we didn't implement the monthly operator and the quarterly business reviews to the extent we probably should have,” Pass stated. “It was easy, so they liked it, but then they didn’t really appreciate what I'll say is the ownership side of it. So, the following year we implemented that.”
Each year, the process has gotten better as employees provide feedback on the new process, so Pass’ last piece of advice is: “Not expecting perfection the first year and being willing to work with the group and help them understand that it's going to be a multi-year journey where we learn and improve each year.”
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November 24, 2020 at 07:58PM
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