Banoy: Ms. Chamberlain, thank you for agreeing to meet with me this morning. As you know, I have worked here as a nurse while pursuing my nurse practitioner degree. Now that I am licensed, I am looking to set up my own clinic. However, I performed a self-assessment and realize that I am really not as knowledgeable as I would like to be in regards to the financial aspect of healthcare. Would you mind answering a few questions that I have?
Wanda: Please, call me Wanda. After all of these years in corporate finance, I know that this subject can be very intimidating. I would be more than happy to answer your questions.
Banoy: Great! Can you tell me what trends and challenges in health care costs have occurred in the past 2–5 years?
Wanda: There have been plenty of challenges in the past 2–5 years. I honestly don’t even know where to start. I suppose the most obvious challenges for our hospital, and all hospitals really, has been the shutdowns from the covid pandemic and supply issues caused by the cargo ship crisis from California, including drug shortages. These problems stand out in my mind as the most glaring. They have both caused us to have to expand our use of different suppliers that we never used before. Staffing is another of our challenges. This is not just for nursing staff, the hospital as a whole has been hit with short staff leading to hiring agency, offering crisis pay and many overtime hours Our facility has been through major short staffing within the last year, our nurses have been working 60–70 hours a week, with no added help since the hospital has tried to rid agency staff. While a huge way to save money, this risked our core staff getting fed up and quitting.
Banoy: Interesting…I have heard my colleagues discuss this as well. I know these are issues that span the entire country. How does volume purchase impact costs of the services you are responsible for?
Wanda: Purchasing, another issue for the unit to stay on budget. Volume purchasing is a cost saving method for hospitals. Through buying in bulk, our hospital's corporate office has negotiated discounted pricing available through specific vendors, this helps keep our costs down and gives us leverage as a large system to get the best pricing. The difficult part is when a physician or staff member wants a specific item that is not on our contract, because it is difficult to obtain approval for those items. Additionally, without being able to purchase them in bulk greatly increases the pricing of the objects. This adds extra burden to the budgets. However, we need to ensure our providers, nurses, and staff all have what they need to stay happy and care for our patients.
Banoy: I agree, especially with them seeking employment elsewhere! I do understand how much more expensive it is to replace a nurse or provider and how it is financially responsible to retain those you have already. I learned a bit about needing bids for materials. How are bids for providing services evaluated?
Wanda: For capital expenditures, as defined as a cost of more than $5,000 per item, there must be quotes, or “bids” from three different manufacturers. These quotes can be obtained by the unit manager, purchasing department, or myself. For non-capital purchases the purchasing department will obtains bids for items that are not on contract. These items can be approved by a director at any time.
Bids are used to save money in our facility. Our facility sends a request for a proposal to the company (typically a vendor we have used in the past or a sister facility has used) then a committee is formed. Each company submits their bid, the committee then votes on the vendor to use for the purchase. This is done so the facility can use different vendors and get the best price possible for the items.
Banoy: That must save the facilities money! What types of problems have been encountered in using the bid and/or volume purchasing processes?
Wanda: Problems do arise with the purchasing process, like mentioned before with specific items needed that are not in the contract. Another issue is that not all facilities get a vote/representation during the bidding process. Bidding is also used in staffing and hiring of nurses, while our facility has tried to eliminate agency staff this has not been able to happen with our current staffing shortage. When having people bid on jobs, they need to know other bids are being considered, this can help lower the bid, but at the same time keeping the process fair.
Banoy: This is really great to know. Now I have a few questions about billing and profits. What factors figure into the billing that you oversee?
Wanda: Patient access involves verifying the patient insurance and benefits prior to the patient procedures, this helps ensure we get payment and not denials from the insurance company. We also help those who can qualify for resources like Medicaid, payment plans and other payment options. Case management works with patients on the length of stay, reducing hopefully the amount of days a patient stays in the hospital that are not medically necessary, this reduces the cost of bills, opens beds for additional patients and revenue. The facility takes the insurance information and processes the claim and after the insurance has paid its portion the patient is then responsible for the remaining balance.
Banoy: Is there a specific target profit margin for this facility?
Wanda: The profit margin typically seen for cost-based reimbursement is three percent. This represents a large profit from some medications. For example, the outpatient chemotherapy budget dwarfs the budget for inpatients. In a perfect world 50% is the ideal profit margin, each dollar of revenue is expected to have about $0.50 in costs bring the other $0.50 down to the bottom line. Now multiple things end up affecting the “perfect world”, utilities/supply, current staffing challenges creating OT, and premium pay, inhouse contracts, these all increase the $0.50 in costs expected with no additional reimbursement provided.
Banoy: What are the differences in payment methods? I have never really understood them.
Wanda: There are some things Medicaid will not pay for period, and in private insurance, you have to consider authorization for services, or the service provider might not be reimbursed at all. Many people choose private pay even with their insurance because their deductibles and copays are so high, and others do not have insurance because the premiums are so high now; many hospitals and clinics offers lower rates for those who choose private pay. Private pay is not a common practice at our facility, but some clinics are set up for certain procedures to pay us, for like an imaging study or lab testing, at a set rate.
Banoy: Thank you for your time today, Wanda. I know how busy you must be. I want you to know that I appreciate your time and the information you have given me today.
Wanda: You are more than welcome. I would be happy to serve as your financial mentor as you get started. My advice is to be sure you immediately employ a CPA that is familiar with healthcare and make sure you have reliable and experience billers and coders. If you have any questions, feel free to send me an e-mail. I am always happy to help.