Data Driven Decision-Making (3D)

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					Data Driven Decision-Making (3D)

                   D. Craig Brater, M.D.
                     Walter J. Daly Professor
        Indiana University School of Medicine

                              June 23, 2004
Background and Rationale
    As all of you know, we as a School are embarked           Interestingly, when we went through our
on a process that we are calling Data-Driven              strategic planning process in 1999, one of the major
Decision Making, or 3D for short. I want to offer         recommendations was that we implement mission-
some background so that everyone understands              based management. Recall that this strategic
the context of this process and its ultimate aim.         planning process was one that sought broad faculty
                                                          input and was vetted through each department and
     You may have heard of “mission-based                 various committees of the School. Thus, I have
budgeting.” This is a methodology that has been           assumed that it represents the will of the faculty
developed through the AAMC to help schools of             and that it represents a guide for the Dean’s office.
medicine make better decisions about how to               Many if not most of the recommendations of the
allocate resources.                                       strategic plan have been implemented, but we have
                                                          lagged on the 3D project. It is time to rectify that
     In its simplest form, mission-based budgeting        shortcoming.
entails allocating and distributing specific categories
                                       Why did the faculty make this recommendation?
of resources for specific programs. For example, if a
                                                       There was a belief that the
                                                       current system is not as
  When we went through our strategic                   effective as it should be and in
  planning process in 1999, one of the major           particular, it is not sufficiently
  recommendations was that we implement                robust to meet our future
                                                       needs. This makes sense if one
  mission-based management…but we have                 thinks about it.
  lagged on the 3D project. It is time to rectify
                                                                                    The current system of
  that shortcoming.                                                            allocating resources relies on
                                                                               patterns that were established
state like ours declared that the money it provides                            so long ago that no one
to the School of Medicine can only be used to             remembers their logic or basis. We are a very
support education of medical students, then one           different medical school today than we were a
simply adds up the number of hours of medical             decade ago, much less compared to when the
student teaching that are done by each department         current system evolved. It would be a miracle if a
and the state revenue pie is sliced accordingly.          methodology that evolved so long age were relevant
                                                          to today’s school in today’s environment. Said in
    Obviously nothing is that simple. For example,        another fashion, if asked if I am confident that the
how does one enumerate the hours of teaching              allocation of resources from the School to each
that a department does? One can easily count              Department is fair, based on each department’s
lecture time, but how much preparation time is            commitment to and success in each of our missions,
appropriate? For clinical venues where patient            I cannot answer in the affirmative.
care is occurring as well as resident teaching, in
a four-hour session, how much time was devoted                What scares me is that this may mean that
to students per se? How does one incorporate              some departments are not getting the resources
development of new courses or course materials?           they need and deserve—in turn, individual faculty
How does one incorporate quality of teaching?             may not be getting the resources they need and
Thus, what seems simple on the surface can be             rewards that are appropriate. In short, we must
extremely complicated.                                    have systems that meet the needs of a new era;
                                                          these systems must be fair, they must promote
    One might ask why we should even ponder               and reward success and they must be open and
walking down this path in the first place if the          transparent.
challenges are so great. Said in another fashion, is
the current system broken such that we need new               Without transparency, we risk every individual
methodology; if not, why risk upsetting everyone’s        and department thinking that everyone else has
apple cart.                                               a special deal and that the other person’s deal is

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better. That kind of environment is not conducive        we strive for is informed decision making that
to the collegial, interactive and multidisciplinary      is data-driven, participatory and transparent. I
environment that we want to be the essence of our        hope you agree with me that there is more than
School. This then, is our call to action.                a semantic difference here—in fact, I view 3D as a
                                                         methodology that is at the same time an expression
    Importantly, I do not see this as “management”       of philosophy.
per se, as in mission-based management. What

The Current Situation
     Our 3D initiative offers the opportunity to         substantially over the last decade. Tuition for in-
explain some of the economics of the School. To          state students (about $18,000) is a bit below the
many of you, this area is likely a big black box         median for Big Ten schools of medicine and for
about which you have no clue. The way I have             Midwest schools of medicine; the same applies
educated myself is to consider the different sources     for our out-of-state-students (about $37,000).
of revenues for the School and their intended uses.      The total amount of funds that we derive from
Imagine first that you are the Dean and you have a       tuition and fees is about $31 million. These data
bank account. The funds that are the “income” for        also mean that all other schools in our region have
this account are:                                        been increasing their tuition at about the same rate
                                                         that we do. The “cost” of these increases is the
State appropriation:                                     increasing debt burden of our students, now on
                                                         average about $100,000. We cannot continue to
    This occurs through the state budget-                increase our tuition and inflict even greater burdens
making process that occurs every two years. If           on our students; thus, this source of funding has
the State increases the budget by X%, then IU            limited upside potential.
passes along that percentage to us. However,
our parent university itself has a fee structure
                                                         Indirect cost recovery:
that is applied to all Schools. These assessments
are used to support the administrative structure              Grant dollars per se go to the individual faculty
of the University as a whole—the financial and           in departments; the School receives the so-called
administrative functions, the architect’s office, etc.   indirect costs. These dollars are a fixed percentage
                                                         of grants that are funded. Our highest indirect cost
      As you are likely aware, the State
budget allocation to IU has changed              The dollars we have to spend from
little over the past decade; moreover,
expenses that comprise the fee structure         the state have changed little in the
have increased—for example, a large              past decade…we should not plan our
component is health care costs for
employees. The net result is that the
                                                 future around substantial increases
dollars we have to spend from the state          in state funding.
have changed little in the past decade.
                                                         recovery is for federal grants and is 51.5%.
    Our allocation from the State last year (less
                                                             How is the indirect cost recovery rate
assessments) was about $50M. Do we have reason
                                                         determined? It is the result of a periodic negotiation
for optimism that this will increase meaningfully
                                                         between IU and the federal government. The
in the future? I do not. I presume that we will
                                                         University tabulates all of the infrastructure costs
retain approximately the same amount of absolute
                                                         that are relevant to research and then the federal
dollars, but that we should not plan our future
                                                         government negotiates downward. In other words,
around substantial increases in state funding. I
                                                         even our highest indirect cost rate does not cover
hope that I am wrong.
                                                         our true infrastructure costs.
Tuition and fees:                                            Lower indirect costs are applied to some areas
   Students pay tuition and fees and those dollars       of research; for example, clinical research, since
remain with the School. Our tuition has increased        theoretically this type of research consumes less

Data-Driven Decision Making (3D)                                                                        Page 3
laboratory space and therefore less infrastructure       activity have resulted in anything that might have
expense. These lower rates also do not cover our         commercial potential. If so, ARTI is poised to help
true costs.                                              us take advantage of it to the benefit of the School
                                                         and the individual.
    Do we anticipate increases in this revenue
source? Indeed we do as according to our strategic       Clinical revenues:
plan we have set a goal of doubling our research
                                                             Last year our overall clinical activity brought in
grants from about $200M to $400M. It should be
                                                         about $276 million. This does not include additional
apparent, though, that research does not cover
                                                         support from our hospitals in the form of medical
its own costs. One can realize this through the
                                                         directorships or outright gifts. Of this, IUMG-SC
discussion of indirect costs above. In addition, there
                                                         assesses a 2.5% tax and the School assesses 1%.
are direct costs that grants do not cover because of
                                                         The residual remains in each clinical department.
federal salary caps, not paying for administrative
support and not paying for start up of new faculty.
                                                        The 1% tax captured by the School has
When one takes all these expenses into account,
                                                    traditionally been allocated to the library and to
                                                                         the basic science departments.
   Research is a cost to schools of medicine.                            The School expects each
                                                                         department to use its clinical
   This represents a clear cross-subsidy that                            revenues to cross-subsidize
   we must address head on.                                              education and research—after
                                                                         all, that is one of the few
                                                                         sources for investing in
research costs about 20%. This figure holds for us
                                                    these missions and the feature that distinguishes
and for other medical schools.
                                                    academic medical centers. How much subsidy
                                                    should occur? That is a philosophical question
     To reiterate, research is a cost to schools of
                                                    but one that cannot be properly addressed in a
medicine. So, why do we do it? We pursue research
                                                    thoughtful fashion unless we know how much the
for a number of reasons that include creating a
                                                    subsidy is.
better learning environment for our students, the
satisfaction of expanding the knowledge base of
                                                        At present we have no clue as to the degree
medicine, etc. It is the way that academic medical
                                                    of subsidy that is occurring. The need for that
centers define themselves.
                                                    data in order to make intelligent decisions is one
                                                    of the major drivers for the 3D project. Said in
     We have chosen to be a full-fledged academic
                                                    another fashion, if some departments are investing
medical center, meaning we are always challenged
                                                    heavily in education and research and others are
to find the resources to support our research
                                                    not, shouldn’t that influence the distribution of
mission. This represents a clear cross-subsidy that
                                                    resources from the Dean’s office? If you agree that
we must acknowledge and address head on. This
also means that the more
research we do, the more it
costs. Again, we must accept
                                    The School expects each department to
this fact and use our collective    use its clinical revenues to cross-subsidize
wisdom to figure out how to         education and research ... at present we have
make it happen. That is one of
the goals of the 3D project.        no clue as to the degree of the subsidy .
Royalties:                                               the answer to that fundamental question is “yes”,
    Any intellectual property that derives from          then you are tacitly agreeing to the need for the
faculty efforts, whether copyrights, patents, or         type of data that we must generate with the 3D
material transfer agreements, results in income          project.
that is shared with the inventor, the University
and the School. Last year we received about                  Another important consideration is our
$365,000. This is an area of considerable upside         anticipation of the future of this revenue source. No
potential. To realize it, faculty must be constantly     one believes that it is going to increase substantially
asking themselves if their research and scholarly        and in fact, I would argue that it may even be a
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struggle to maintain these revenues at their current         You may be interested in knowing that the
level. Thus, the upside potential for this resource     School spends about $2.5 million per year to run our
is low.                                                 Development Office. We monitor the “performance”
                                                        of this investment on a regular basis and continue
                                                        to conclude that we benefit considerably more than
Philanthropy:                                           this activity costs; for example, about $14 million
     We have done extremely well in our fund-           last year.
raising. In fact, as you have undoubtedly noted
from the above, our other revenue streams have              What is the upside potential here? No one
been relatively static. The major source of fuel for    knows, but we will certainly try to maximize it,
the growth of the School that has occurred over the     because it is one of the few resource areas with
past few years has been philanthropy.                   potential.

Directing Our Revenue Streams
     In summary, the Dean’s office has the above        matter what the case, clinical dollars that remain
sources of revenue that comprise my “checkbook”.        in departments should be used to cross subsidize
From this checkbook, the School allocates revenues      education and research. The question is to what
to each department. An important question to ask        degree—again a charge to the 3D process.
is the purpose of each of these revenue streams:
                                                        Tuition and fees:
State appropriation:                                These dollars should clearly only be used to
     The State dollars are primarily to support  support medical student education.
medical       student     education
and secondarily research. In         Residency program administration,
particular, State dollars are not to
support our clinical mission. Note   recruitment and stipends for clinical
also that these funds are not        fellows require subsidies that need to be
for the support of residents and
clinical fellows as these trainees
                                     quantified through the 3D process.
are considered to be part of the
clinical enterprise.                             Indirect cost recovery from grants:
     For those who are unaware, stipends for                 These funds are for the infrastructure expenses
residents are paid by our hospital partners. In         of research; therefore, they should only be used to
turn, the hospitals (except the VA) receive funds       support the research mission.
from Medicare to pay these stipends. What is not
covered by the hospitals is the administration of       Royalties:
residency programs, resident recruitment, and                These funds derive from research efforts and
stipends for clinical fellows. Thus, these additional   logically should be used to support that mission.
expenses are another area that requires subsidy.
We need to quantify that subsidy through the 3D         Philanthropy:
process to make intelligent decisions about what
is the appropriate degree of subsidy that should            The vast majority of philanthropy is directed by
occur.                                                  the donor for specific purposes. Most often it is to
                                                        be used for research, sometimes education (usually
                                                        scholarships), and occasionally for a clinical
Clinical revenues:
                                                        program. Thus, in most cases the use of these
     These funds, that are small in amount owing        revenues is not at the discretion of the School.
to our having one of the lowest clinical taxes in
the country, could arguably be used to support               It should be clear from the above that some of
the clinical mission. However, since academic           the School’s resources should be plowed into the
institutions are expected to use clinical revenues to   education mission, others into the research mission,
cross subsidize education and research, one could       and virtually none into the clinical enterprise. Do we
also argue use of these funds for other missions. No    distribute funds accordingly? No, we do not, and

Data-Driven Decision Making (3D)                                                                       Page 5
that is why we need the 3D project to help better       of funds to departments in a data-driven and
guide us as to fair and thoughtful distribution         transparent manner.

Resource Distribution Currently
     As noted above, resource distribution currently    distribution. For example, among the clinical
is according to historical trends. There are several    departments, a few receive about $25,000 per
logical clusters of departments and centers: centers    faculty member, several are in the $40,000-$50,000
for medical education that in general have small        range and some are much higher (while the average
numbers of faculty and large teaching loads; basic      was $39,253).
science departments that have large teaching loads
as well as expectations of successful research               Is this distribution according to teaching
programs; two “hybrid” departments (Pathology           responsibilities; is it according to research
and Medical Genetics) that have both basic science      productivity? The answer is “no.” Should the
responsibilities and also clinical programs; and the    distribution be linked in some way to contributions
clinical departments.                                   and commitments in each of our academic missions?
                                                        I hope that you agree with me that the answer to
    When analyzed within a cluster, I would             that question is a resounding “yes.” Therein lies the
challenge anyone to create sense out of the             value and purpose of the 3D project.

3D Methodology
     If we are to somehow link resources with           in determining appropriate reward mechanisms
strategic planning and with contributions by            for individuals. A more general dataset is what is
different departments and centers, we must then         needed at the School level.
develop methods for quantifying attributes in each
of our missions that we value. This needs to be an         Gathering these data can only be done at
iterative process and one that does not get bogged    the level of each individual, the data for each
down in minutiae. We will learn as we go and          department and center being a composite. Doing
constantly refine this approach; to think that we     so requires each individual to decide how their time
can get it perfect at the start is unrealistic.       is being spent in each mission in which they are
                                                      involved as a percent of their overall time. This will
    We have different teams that are discussing our   not be easy at the start, but it should become easier
various missions. In so doing their task is to decide with time. For a first iteration, we need to start
what things should                                                                        somewhere. One
be quantified as                                                                          of my biggest
a first step but        The goal is to use our resources wisely                           fears is that this
to also articulate      and fairly. There are no hidden agendas.                          process is deemed
other     attributes                                                                      to be a “big
that we value but                                                                         brother” exercise.
that may not be readily quantifiable at present. For  I hope that by reading the above, you understand
example, in teaching, it is easy to quantify lecture  the rationale and agree with the need. The reality is
and staffing hours. We also value the quality of      that it cannot be done at any other level than that
teaching in all venues. If we do not currently        of the individual.
have methods for accurately measuring quality,
should we forestall the 3D process until those are         As we embark on this project, remember that
in place? The answer is “no,” because we can still    the ultimate goal is to use our resources wisely and
generate informative data as we develop additional    fairly. There are no hidden agendas. The intention
parameters we deem important. When new data           is to be transparent in the process as is reflected in
are available, they can be used to constantly refine  the data that have been shared in this dialogue. If
the process.                                          you have questions about any of the information I
                                                      have tried to impart, please feel free to contact me
    In addition, it is important to realize that the  or anyone else in the Dean’s office. Thank you for
highly granular and detailed data are likely best     your help in assuring a more solid future for the
used at the department level in annual reviews and    School of Medicine.

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