Hospital and Healthcare System Strategic Planning and Financial Forecasting

1. Financial Leaders in Healthcare Summit Philadelphia, PA May 16th 2013 4 Capabilities for Aligning Hospital Strategy and Financial Forecasting Presenter: Jay Spence, Vice President, Product and Industry Solutions

2.  Evolving Role of Finance  Challenges to Effective Planning  Capabilities & Techniques to enable more effective planning: 1. Embracing Statistically Driven Approaches 2. Initiatives-Based Scenario Planning 3. Aligning Forecasts to Budgets 4. Closed Loop Performance Monitoring U N I F I E D P E R F O R M A N C E M A N A G E M E N T May 16th, 2013 Agenda

3. 2012 ® Axiom EPM All rights reserved Industry Trends  Future is uncertain  Shrinking hospital margins – promise of reduced reimbursements, demands to reduce cost structures  Recognition that ‘business as usual’ won’t deliver desired financial outcomes  Payments tied to quality and clinical outcomes  Increased competition  Increased demand for financial modeling & ‘scenario planning’  Over 90% of organizations we surveyed take at least 2 months to complete a budget – most take more than three months, many more than 4 – thus its difficult to perform scenario analysis  Only 8% of organizations surveyed perform scenario modeling & analysis today. What is the impact of Health Care Reform on Provider organizations? Do Finance practitioners have the tools to manage this change effectively?

4. 2012 ® Axiom EPM All rights reserved Evolving Role of Finance  As a Data Steward  Increasingly ‘own’ data to drive decisions  Own ‘non-GL’ systems, (i.e., cost accounting)  As a Partner to Operations  Educating managers on cost realities  Supporting the monitoring function (policing)  As a Strategic Advisor to the Organization  Being more agile and responsive to needs  Supporting data-driven decision making

5. 2012 ® Axiom EPM All rights reserved Challenges to Effective Planning  Data Challenges  Modeling sophistication is increasing  Supporting data isn’t well-integrated (Disparate systems)  Pervasive use of stand-alone excel  Process Challenges  “Intelligent” points of integration don’t exist across planning models  Models are still static (fixed), too many off-line excel models  In turn, evaluating scenarios or performing “what-if” modeling is challenging 23% 24% 25% 43% 45% 47% Deploy Rolling Forecasts Further define key performance measures Getting a better handle on measuring profitability Reduce time it takes to complete a budget Publish more relevant information to users Develop strong link between strategy, forecasts & budgets 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% What are the Office of Finance’s Top Priorities?

6. 2012 ® Axiom EPM All rights reserved Hurdles to Scenario Planning* 8% 14% 23% 45% 54% Management hasn't shown interest Our budgeting process is zero based Don't have a good handle on our drivers Our model was never properly set up We don't have enough time 0% 10% 20% 30% 40% 50% 60% 1. Bandwidth Constraints (we don’t have enough time) 2. Technology Deficiency (our model was never properly set up) 3. Configuration Deficiency (our model was never properly set up) 4. Data Deficiency (our model was never properly set up) 5. Lack of Institutional Knowledge (we don’t have a good handle on our drivers) 6. Process Conflicts (our budgeting process is zero based) 7. Cultural Conflicts (management hasn’t shown interest) * Axiom EPM Survey Results February 2012

7. Having the Proper Data & Structures Embracing Statistically-Driven Approaches U N I F I E D P E R F O R M A N C E M A N A G E M E N T 4 Capabilities for Aligning Hospital Strategy and Financial Forecasting 1

8. 2012 ® Axiom EPM All rights reserved Elements of an Integrated Model Multi-Year Planning Baseline projections to assess the impact of market and volume drivers on bottom-line results. (Outlook - 3-5 years) Rolling Forecast Evaluate and trend actual performance against defined plans, project outcomes given current situation. (Outlook – 18-24 months) Detailed Budgeting Translate defined strategies into operational budgets and plans. (Outlook – 12 months) Year 1 Year 2 Year 3 Year 4 Year 5 Next Year Budget Rolling 24 Month Trends Where are we going? (Multi-Year Planning) • Facility Level Plans • Market & Volume Plans • Reimbursement Projections • Payor Mix Shifts • Labor Rates/Efficiency • Discreet Initiatives

9. 2012 ® Axiom EPM All rights reserved Elements of an Integrated Model Multi-Year Planning Baseline projections to assess the impact of market and volume drivers on bottom-line results. (Outlook - 3-5 years) Rolling Forecast Evaluate and trend actual performance against defined plans, project outcomes given current situation. (Outlook – 18-24 months) Detailed Budgeting Translate defined strategies into operational budgets and plans. (Outlook – 12 months) Year 1 Year 2 Year 3 Year 4 Year 5 Next Year Budget Rolling 24 Month Trends How do we get there? (Detailed Budgets) • Department Level • Cascading Drivers • Reflect target budgets • Manager’s input exceptions

10. 2012 ® Axiom EPM All rights reserved Elements of an Integrated Model Multi-Year Planning Baseline projections to assess the impact of market and volume drivers on bottom-line results. (Outlook - 3-5 years) Rolling Forecast Evaluate and trend actual performance against defined plans, project outcomes given current situation. (Outlook – 18-24 months) Detailed Budgeting Translate defined strategies into operational budgets and plans. (Outlook – 12 months) Year 1 Year 2 Year 3 Year 4 Year 5 Next Year Budget Rolling 24 Month Trends Are we on track? (Rolling Forecasts) • Facility level • Or, increasingly by Dept/Group • Trended view of stats • Run rates and projections • Waterfall reporting

11. Multiple Versions and Scenarios 1 2 3 4 Incorporating Driver-Based Planning Integrate Data Global Plan Drivers Consolidated Plan Net Revenue Modeling Operational Planning Inpatient Outpatient Other Deductions • Admissions • Visits • Days • Inflation • Efficiency • Workload Updates to Gross Charges Charges Staffing Other Expenses Management Reporting • Plan to Actual • Flexible Budget • Rate/Volume • Outlier Variances • Commentary Consolidate data from financial, employee and patient-centric sources. Establish Key Drivers A statistically-driven approach enables the efficient flow-thru of volume/rate changes. Refine Calculation Logic Efficiently consolidate results of baseline projections and add-on initiatives. Validate Results Effective management reporting Elements: General Ledger Patient Single Unified Database Employee

12. Driver-Based Planning (Nursing Example) Planning Template Example: 120 – Med Surg (3 North) Nursing Template Labor Modeling by Skill Mix Modeling Gross Charges Modeling Other Variable Expenses Workload Price Increase Rate Per Hour Increase Efficiency Target OT Utilization Volume Drivers Rate Drivers Workload Inflation

13. Evaluating Multiple Business Outlooks Initiatives-Based Scenario Modeling U N I F I E D P E R F O R M A N C E M A N A G E M E N T 4 Capabilities for Aligning Hospital Strategy and Financial Forecasting 2

14. 2012 ® Axiom EPM All rights reserved Value of Scenario Planning “Scenario planning attempts to compensate for two common errors in decision making – under prediction and over prediction of change. Most people and organizations are guilty of the first error.” Paul J.H. Schoemaker Professor Wharton School, Univ. of Pennsylvania  Understand and define the key drivers of the business  Quantify the sensitivity to key drivers, creating important institutional knowledge  Produce higher quality strategic plans, budgets, and forecasts that take less time to develop  Test the strength and flexibility of a strategy under adverse conditions  Manage risk and uncertainty more effectively by modeling scenarios that break with current trends

15. Initiative Based Scenario Planning Forecasting Methods Include: Examples: • Statistically-Driven Modeling • Payor Mix and Revenue Forecasting • Labor Rate & Efficiency Targets • Expense Modeling • Re-Design ER, Flow Thru Implications • Expand Cardiac Cath Lab • Open an OP Urgent Care (Northside) Analysis Contains: 1. Income Statement 2. Balance Sheet 3. Cash Flow 4. Key Ratios Consolidated Results Base Case (Conservative) Initiative #1 Initiative #3 Initiative #2 Initiative #4 Base Case Given current trends, what is our financial outlook 3-10 years? Initiatives As we prioritize growth or cost containment initiatives, what is the incremental impact? Scenarios What is the impact on our baseline projections given the initiatives we’ve proposed?

16. Linking Strategy to Operational Plans Align Forecasts to Budgets U N I F I E D P E R F O R M A N C E M A N A G E M E N T 4 Capabilities for Aligning Hospital Strategy and Financial Forecasting 3

17. 2012 ® Axiom EPM All rights reserved Two Techniques  Service Line Based Forecasting – Align market and volume forecasts to more refined Service Line Categories to “flex” revenue & departmental plans.  “Initiatives” as a Planning Dimension – Layer the impact of discrete initiative-based plans; inputs are cross-departmental. As the demands in hospital providers to control costs, the need to accurately (and efficiently) reflect changes to operational plans is increasing. Two techniques are being used to intelligent link ‘top level’ plans to operational budgets:

18. 2012 ® Axiom EPM All rights reserved Service Line-Based Forecasting NET REVENUE PLAN CONSOLIDATED RESULTS OPERATIONAL BUDGETS Consolidated the impact of volume, rate and efficiency changes. IP Orthopedics Total Hips Knee Replacement IP Cardiac Heart Failure Stents Align market and strategic projections using a consistent set of volume drivers. Volume Projections 4800 –Laboratory 4500 -Radiology Medicare Commercial Derives the impact of each additional case Understand the historical relationship of adding ONE additional case. Payor Profile (historical rates) Workload (historical usage) 4500 -Radiology IP Orthopedics Commercial IP Cardiac IP Orthopedics Knees Incorporate key drivers into detailed planning. Revenue Drivers (Rates/Cases by Payor) Department Workload (Impact by Service Line)

19. 2012 ® Axiom EPM All rights reserved 0 22 25 Incorporate Budgeting Initiatives Baseline V2 Baseline V1 New Ortho Docs (6/1) Expand Cath Lab v1 Expand Cath Lab v2 Jan Feb Mar Reduce Purchase Services ER Expansion ER Expansion 15 15 15Expand Cath Lab v1 496 448 496Baseline V2 511 485 536Total Workload (Pat Days) 511 485 536Total Workload (Pat Days) 16 16 16Target Staffing Hours $35 $35 $37Rate Per Hours $15k $15k $15kPurchased Services $25k $25k $25kBaseline V2 -$10k -$10k -$10kReduce Purchased Services $268k $245k $293kTarget Staffing Dollars DEPARTMENT WORKLOAD STAFFING OTHER EXPENSES FY 2014 Operating Budget 120 – Med Surg (3 North)Manage the flow-thru of Planning Initiatives on Operating Budgets. BASELINE PROJECTIONS PLANNING INITIATIVES

20. Trusted information delivered in context for better decisions. Closed Loop Performance Monitoring U N I F I E D P E R F O R M A N C E M A N A G E M E N T 4 Capabilities for Aligning Hospital Strategy and Financial Forecasting 4

21. Promote Collaboration & Alignment Grow Profitable Services Expand Sports Med (N Campus) Acquire Home Health (Berwick) Process Improvement Reduce ER Wait Times Acquire Home Health (Berwick) Consolidated Reporting Objective/Initiative Improve Visibility to Initiatives across the Organization. Promote Accountability and Ownership by Project Owners. Deliver consistent and timely feedback on Initiative progress. Initiative Owners Workflow Alerts & Notifications Stakeholders Workflow Alerts & Notifications • Workflow Notifications (email) • Initiative Specific Status Forms • Milestone Updates include commentary, goal achievement • Consolidated Feedback • Highlights Outliers • Reveals Underperforming Initiatives that require attention.

22. Improve Performance Monitoring 1. Automate the Data Collection Function • Reports become near real-time • Scorecards are easily ‘refreshed’ 2. Provide Flexible Reporting Tools • Tailored by Role • Drillable to Underlying Details 3. Support Multiple Access Methods • Interactive On-line Views • Access via Mobile Devices (i.e., iPad) 4. Have Off-Line Publishing Capabilities • PDF Formats • XLS Formats What we’ve heard - Top initiatives related to reporting and information delivery:

23. 23 Demonstration Scenario Planning

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Hospital and Healthcare System Strategic Planning and Financial Forecasting

Hospital and Healthcare System Strategic Planning and Financial Forecasting

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Hospital and Healthcare System Strategic Planning and Financial Forecasting