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What Are The True Symptoms? – Part 2

December 17th, 2012

As I mentioned in my last post, I had the enjoyment of sitting down with my sister to help her through a hypothetical hospital P&L walk. Although her interest in the subject was forced due to a Hospital Finance course she was being forced to take, it was still enjoyable to walk her through what I do on a daily basis. As with any P&L, we started at the topline and discussed revenues, or in her case, the billings a hospital would recognize in their delivery of services. I explained to her that the hospital will assemble a Budget based on certain historical trends that would likely include patient volume, service offerings, anticipated growth/decline in the surrounding community, and other similar factors. That the actual billings would be tracked against these figures and any changes would be reflected as a variance. We discussed the possibilities that might significantly affect the billings of a hospital, which might include natural disasters, significant weather impacts, major accidents (airline), or possibly a viral outbreak. While these might seem extreme, they are examples of what could drive variances in a hospital’s P&L.

We kept the walk very simple and segregated only between billings and the operating expenses of the hospital. With that in mind, we started discussing some of the common elements to a hospital P&L. The biggest factor in this portion of the walk being labor. We discussed how a hospital, based on historical activities, would likely set up a labor matrix for the staffing of the hospital, and what the effects would be if admittance rates drastically increased or decreased, and the subsequent variances this would cause. She started to see the pattern here and started drawing similar analogies to the use of supplies, as well as what the effects would be if inferior supplies were used….& the potential liabilities this would create for the hospital. I could sense that her grasp of the subject was taking hold and she was actually becoming enthused about the topic.

As we walked through a number of the other P&L elements she actually commented that I seem to have a pretty interesting job. I told her that the biggest key to executing on the original Budget, and the ability to address changing market conditions, was ongoing communication & transparency with the staff. It’s the job of the Finance department to provide the proper level of transparency and help keep the team informed and educated on the results being achieved. It’s the obligation of Finance to communicate with the rest of the staff, and as I advised my sister, it’s critical to understand what the true symptoms are of the variances that are being presented.

Thanks for reading…

Jeffrey Ishmael

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