1. The Business Case for CUSP William J. Ward, Jr., MBA Associate Professor of Health Finance and Management Associate Professor of Nursing Director, Master of Health Administration Degree The Johns Hopkins Bloomberg School of Public Health

2. Framing the Business Case How hospitals operate Revenue and expense behavior Connecting the dots The valid business case Why CUSP matters: The financial pay-off Questions and answers

3. The Process of Hospital Care l The orchestrated application of caregiver knowledge, skills, and expertise; technologies; supplies and medications l A process, as opposed to a single intervention or a series of isolated events

4. The Process of Hospital Care l The orchestrated application of caregiver knowledge, skills, and expertise; technologies; supplies and medications l A process, as opposed to a single intervention or a series of isolated events A System

6. How Hospitals are Paid Fee for Service – Payments for individual services rendered – Per lab test, patient day – Less work equals less revenue DRG or Case Based – Payment for a case regardless of work performed – Less work equals more profit

7. How Hospitals are Paid Hospital ChargesCase 1Case 2Case 3 Room & Board $ 4,500 $ 5,000 $ 5,500 Laboratory 500 600 700 Diagnostic Imaging 400 500 600 Medications 800 1,000 1,200 Other Charges 800 900 1,000 Total Billed $ 7,000 $ 8,000 $ 9,000 DRG Payment $ 8,000

8. How Hospital Costs Behave Fixed costs – Hold constant regardless of volume Variable costs – Rise and fall along with volume Semivariable – Fixed over a range of volume, then vary sharply, then fixed again – “Step costs”

9. Profile of Fixed & Variable Costs Expense Category Percent of Total Cost Fixed Proportion Variable Proportion Salary & Benefits65%60%5% Supplies & Services 15%10%5% Interest10% 0% Depreciation10% 0% Total100%90%10%

10. How Hospital Costs Behave Fixed costs – Hold constant regardless of volume Variable costs – Rise and fall along with volume Semivariable – Fixed over a range of volume, then vary sharply, then fixed again – “Step costs”

11. Semivariable Costs 010 1 20 2 3

12. Semivariable Costs and Revenue 010 1 20 2 3

13. Semivariable Costs and Revenue Profit Loss

14. Connecting the Dots (From Fewer Infections to More Profit) Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits ??? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

15. Connecting the Dots (From Fewer Infections to More Profit) Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits

16. Connecting the Dots (From Fewer Infections to More Profit) Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits

17. Connecting the Dots (From Fewer Infections to More Profit) Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits

18. Connecting the Dots (From Fewer Infections to More Profit) Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits

19. Connecting the Dots (From Fewer Infections to More Profit) Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits

20. “An ounce of prevention is worth a pound of cure.” Benjamin Franklin

21. Importance of Infection Control DISCHARGEDISCHARGE ADMISSIONADMISSION Infections Nursing Care Ancillary Services Support Services Other Factors

22. Connecting the Dots (From Fewer Infections to More Profits) Improvements in quality and patient safety can yield – Cost efficiency – Real cost reduction – Revenue enhancement – Balance sheet improvements – Intangible improvements

23. Cost Efficiency Model Improved HAI rate yields – Increased capacity – Increased work output – No change in total cost Same Cost ÷ Increased Work Output = Reduced Cost Per Unit of Work

24. Real Cost Reduction Improved HAI rate yields – Increased capacity – No change in work output – Reduction in staffing levels Workload Reduction ÷ Original Workload = Potential Percentage Staff Reduction

25. Hospital Throughput Improved HAI rate yields – Increased patient throughput – Reduced OR case cancellations – Increased surgical cases – Reduced ER divert hours – Increased ER visits and admissions – Increased follow-up visits and procedures – Increased revenue and increased cash

26. Balance Sheet Improvement Improvements in HAI rate leads to improved throughput – Maximized brick and mortar investments – Additional funds available for capital purchases – Reduced need for cash or borrowing to increase capacity

27. Intangible Hospital Benefits Reduced malpractice claims Higher satisfaction scores – Patient, family and staff Better reputation Better market position

28. Getting Down to Cases 66 years old Medicare patient Grandmother of two Diabetic, hypertensive, obese, nonsmoker Elective admission for CABG

29. Getting Down to Cases 66 years old Medicare patient Grandmother of 2 Diabetic, hypertensive, obese, nonsmoker Elective admission for CABG  Day 5 – fever of 103 o  Day 9 – 15 vent dependent  Day 22 – transferred to LTAC

30. Revenue Impact Day 1 Day 22 Case # 1 – DRG payment $12,689 Case # 1 – $12,689 Case # 2 – $12,689 Case # 3 – $12,689 1 case with complications vs. 3 cases without complications Revenue of $ 12,689 vs. Revenue of $ 38,067 1 case with complications vs. 3 cases without complications Revenue of $ 12,689 vs. Revenue of $ 38,067

31. Headlines

32. Journals

33. Source: NEJM Archive / NEJM.org / December 15, 2011 / Copyright © 2010 NEJM Journals

34. “… they are disappointed when the reduction in the number of HAIs does not yield the anticipated cost savings.” “… and, so, seek the opportunity cost …” April 2010

35. The Real CUSP Payoff Average Length of Stay - CLABSI Cases (days)28.8A Average Length of Stay - All Cases (days)4.8B Reduction in ALOS (days) (1)24.0C Potential Incremental Case Throughput5.0D = C / B Average Net Revenue per Case (2) $7,078.00E Potential Incremental Net Revenue Opportunity per Avoided CLABSI$35,390F = D x E Potential Annual Avoided CLABSI Cases100G Potential Annual Incremental Profit Opportunity$3,539,000H = F x G Values shown are strictly for purposes of illustration and are not meant to approximate real results Sources: 1. CDC 2. HFMA (William O. Cleverley and James O. Cleverley)

36. Questions and Answers