1. Background and purpose
Evaluating administrative costs as a ratio to revenue (or value) is a common business evaluation. Administrative costs in healthcare are particularly important as they are both high relative to revenue (value) and have significant variance. In fact , managing administrative costs is one central issue in the United States healthcare reform and the Affordable Healthcare Act. The Military Healthcare System (MHS) is no different with administrative costs averaging 30 percent of value with very wide variance between medical facilities. Though it is easy to calculate the ratio for military medical facilities determining a standard is challenging because of the impact of diseconomies of scale and other operational factors.
Figure 1. Revenue vs. Support Expenses & Revenue vs. Ratio
(Expenses / Revenue) for Baseline 12-month period
Figure 2. ANCOVA Model for Baseline Period
Log (Ratio) = Log(Revenue) + MTF_type
(Prediction Equation in Red box)
Setting the Baseline Model
Using the “Fit Model” platform in JMP, log-transformed REVENUE and RATIO values were used to create a baseline period ANCOVA model, with MTF_type (Clinic, Hospital, or Medical Center) utilized as a treatment variable (Fig. 2).
MTF’s with actual Log_RATIO values below their predicted Log_RATIOs receive a positive grading (A or B), while those MTFs with actual ratios above their predicted ratios receive a lower grade (C or D). The standard deviation of the expected-predicted residuals was used to determine difference between A/B or C/D grades (Fig.3)
Data Sources and Processing
Workload REVENUE was calculated using monetized DoD-standard workload production measures commonly used in ambulatory clinical encounters (Relative Value Units), ambulatory procedures (Ambulatory Procedure Classification weights), and inpatient admissions (Relative Weighted Product OR Mental Health Occupied Bed Days).
Support EXPENSES are defined as those administrative expenses which are allocated to clinical expense accounts in the Military Health System’s Medical Expense & Performance Reporting System (MEPRS).
Data was obtained from DoD Military Health System databases using a rolling 12-month extraction process to adjust for seasonality. For each MTF, the total workload REVENUE, Healthcare support EXPENSES were collected and the RATIO of Support expenses to Workload revenue was calculated. (Fig. 1)
A facility TYPE was assigned to each MTF, based on its capabilities:
CLINIC: Provides ambulatory services only (no inpatient)
HOSP: Community hospital with basic inpatient capabilities– limited specialty services
MEDCEN: Medical Center, with tertiary inpatient and sub-specialty services.
Figure 3. ACE Grade based on Actual vs. Expected Log_RATIO distance
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2. Army Community Hospitals
Figure 5. Comparison of Baseline vs. Recent ACE Performance (by MTF cohort)
Visual Display of Trend Data
Several JMP visual display tools are used to communicate information regarding the ACE metric performance over time. Using the bubble plot feature, observers can track changes in REVENUE, Support EXPENSES, and the overall ACE grade over multiple, rolling 12-month periods (Fig. 4), or track long-term changes of MTF TYPE cohorts (Fig. 5). To track overall MEDCOM performance, A “Grade Point Average” metric was created, using all MTF ACE Grades, weighted by Workload REVENUEs (Fig. 6). Over the first 28 months of the metric, the MEDCOM weighted GPA improved from a GPA of 2.3 (C+) to 3.0 (B).
Army Health Clinics
Army Community Hospitals
Army Medical Centers
Figure 4. One MTF’s performance over time
Figure 6. MEDCOM ACE Grade determination based on Actual vs. Predicted Log(Ratio)
Conclusions / Next Steps
* The use of JMP for modeling has enabled the US Army Medical Command to establish a valid model and establish goals for the ACE Ratio and management of administrative overhead.
* JMP’s data visualization has helped to communicate the model and performance to leaders and managers.
* Next steps will include evaluation of performance and determination of changes in unwanted variance.
GPA based on MTF Grade using a 4.0 scale, weighted by MTF Revenue
Impacts of ACE Metric
MTFs can improve their ACE metric grade through increasing workload REVENUE and/or decreasing support EXPENSES. Using the ACE model as a guide, MTFs have successfully improved their grade by using some of the following techniques:
Improving access to care and workload volume
Accurate clinical documentation to ensure proper workload credit/value
Scrutinizing support expenses-- ensure accurate accounting documentation and/or reviewing hiring actions.
References:
Goodman, R., Campbell, K., Cook, J., et al (1998). The Economic Efficiency Factor and its use in service line evaluation. Army Medical Department Journal. July: 2-8.
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