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									        Colorado Performance Excellence

        Healthcare Orientation

How are Hospitals Different than Other
     Corporate Organizations?

  Education and Assessment Services Team
                 April, 2010
                                  Healthcare Orientation Material Introduction

Objective: The objective of this material is to assist examiners in creating more in-depth feedback reports by providing
understanding and insights into some operational differences of hospitals and the healthcare industry. In addition, it is believed
that examiners application efforts, site visit discussions, and findings will be enhanced as a result of this material.

Disclaimer and Relationship to Baldrige Criteria: This information is a tool only and does not represent all healthcare industry
operations as an expectation of operating a successful organization, but rather some of the differences in the healthcare industry
versus other industries. This information does not have a relationship to the Baldrige Criteria. Only the Baldrige Criteria is used to
evaluate and judge an application. This orientation tool is not intended to influence examiners.

Use of this Orientation Tool: This information was piloted by a CPEx healthcare evaluation team in 2009 and was thought to be
helpful to new examiners who were not familiar with hospital operations. This orientation material is being offered to all hospital
application team leads as a trial test by the CPEx Education and Assessment Services Team. Feedback on the value to teams will
be evaluated for determination of further use.

Most importantly, the use of this orientation material is up to each individual team lead assigned to a CPEx healthcare applicant.
If the team lead feels that this information will influence evaluation efforts for any reason, the team lead may decide not to use this

Healthcare Orientation - April, 2010                                                                                   2
                        Normal Non-Healthcare Business Organizational Structure

If you look at the usual for profit company organizational chart, like a manufacturing company, it looks very clear in its structure
and direction. It is organized to produce profit from sales of services or manufactured goods.

                                                                               Normal For-Profit Corporate Structure Has
                                         Stockholders                          Stockholders Whose Primary Interests Are:
                                                                                     Profits
                                                                                     Stock Appreciation
                                       Board of Directors                            Dividends

                                                                                  Product Quality is Aligned to Cost,
                                        President / CEO                         Measurable, and Essential to Profit Goals

          Vice President –               Vice President -              Vice President –
               Sales                         Finance                    Manufacturing

  Sales             Marketing               Finance           Production            Services

Employees           Employees             Employees           Employees           Employees

Healthcare Orientation - April, 2010                                                                                    3
                                           Hospital Organizational Structure
A traditional hospital organizational chart looks very similar to the previous for profit company corporate structure with a board and
administrative structure. Health systems will have multiple hospitals that will have a system board of directors but may or may not
have an individual hospital board of directors. The system may provide centralized services for all system hospitals.

                                                                                      Common Provided System Services
                                                                                         Administration
                                    Board of Directors                                   Human Resources
                                                                                         Compliance & Regulatory
                                                                                         Strategic Planning & Marketing
                                                                                         Finance
                                       President / CEO
                                                                                         Information Technology
                                                                                         Supply Chain

       Vice President –                Vice President -               Vice President –
       Clinical Services                   Finance                    Admin Services
                                                                                                        Mission, Vision, and
                                                                                                        Values and Service
                                                                                                            Standards -
 Nursing          Other Clinical           Finance          Plant Services       Other Admin              Apply across the
Employees          Employees             Employees            Employees          Employees

      Cost Effective, High Quality of Care is the Bottom Line for All Hospitals.

Even though the delivery of quality patient care services is the primary mission and purpose for all hospitals, all hospitals must
have excessive revenues over expenses to remain financially viable and to improve clinical services, expand operations, and
maintain needed administrative and clinical support. Patient care revenues come from government contracts (Medicare and
Medicaid) and negotiated reimbursement contracts with private insurance companies. Even though patients are paying more for
their healthcare through higher insurance deductibles and co-pay amounts, direct patient payments are a low % of total revenue.

Healthcare Orientation - April, 2010                                                                                   4
                                      Hospital Operational and Financial Basics
In order to illustrate the operational differences between a hospital with a non-healthcare and non-educational industry company,
such as General Electric, the following chart indicates the most significant issues. To focus on one issue – success metrics – it is
difficult in hospitals to define, quantify, and explain to the public the quality of patient care delivered, where the bottom line profit of
a normal for profit business is easier to measure and understand.

                    Issue                                         Hospital                      Non-Healthcare and Non-Education Business

                   Mission                               Service Quality and Cost                        Product Quality and Profit

                                                    Clinical Quality; Patient / Physician
               Success Metrics                                                                  Product Quality and Profit; Shareholder Value
                                                    Satisfaction; Budget Management
                                               Some Metrics Difficult to Measure and Assess       Easy to Evaluate and Determine Effect on
           Ability Measure Metrics
                                                           Effect on Success                                      Success
                                               Multiple Structures                    (Admin,
           Organizational Structure                                                                                Single
                                                            Medical, Academic)
   Relationship of Service / Product Quality
                                                                  Minimal                                          Strong
                   and Price
    Relationship of Service / Product Price
                                                                 Moderate                                          Strong
                 and Demand

            Definition of Customer                 Multiple (Patient, Physician, Family)               By Product or Line of Business

              Access to Capital                  Borrow; Philanthropy; Operations; Stock                 Stock; Borrow; Operations

Healthcare Orientation - April, 2010                                                                                            5
                           Hospital and Medical Staff Organizational Structures
In most hospitals, especially community, non-academic hospitals there are separate hospital administrative and medical staff
organizational structures that report to the Board of Directors. The Medical Staff organization has established officer, clinical
specialty department, and committee structures that are responsible for physician credentialing and for reviewing, maintaining,
and enhancing the quality of physician services practiced in the hospital. Many hospitals have employed physicians who abide by
Medical Staff structure as well as hospital administrative authority. Both the hospital and medical staff report to the Board
Directors who are responsible of the clinical and financial operation of all hospital operations and services.

                                   Board of Directors                                         With a dual administrative
                                                                                                  and medical staff
                                                                                              organizational structure,
                                                                                                committees are used
          Hospital President                                      Medical Staff President        extensively to reach
                                                                                             consensus on major clinical
                                                                                               and operational issues.
                                           Hospital and Medical

           Hospital Officers                                      Medical Staff Officers
                                            Staff Committees

                                                                                                In community hospitals
                                                                                                 with residency training
                                                                                               programs, private practice
         Hospital Departments                                      MS Clinical Services         physicians direct patient
                                                                   and Service Chiefs           care services, supervise
                                                                                              residents, and participate in
                                                                                                 the academic training
                                                                     Private Practice              programs and care
         Hospital Employees
                                                                       Physicians                     conferences.

                                                                        Residents             Residency Program Direction

In many academic medical centers the medical staff responsibility is divided between the traditional medical staff structure and the
  formal medical school academic and research structure. Residency training is more formalized underneath the medical school.

Healthcare Orientation - April, 2010                                                                                 6
                                     Hospital Operational and Financial Basics
This overview of hospital finance will be to illustrate some of the clinical service statistics that are the basis or product lines for the
development of an annual hospital budget. The left hand chart identifies each clinical service and the number of patient days
estimated for a given fiscal year. The right hand chart gives an indication of market share, aggregate inpatient and outpatient
statistics, and the estimated revenues and expenses in thousands associated with these projected volumes.

               Clinical Services                        Ave Daily                                                Current FY
                                           2005                                           Market Share
              Pediatric Medicine:                        Census                                                     2005
         Allergy / Immunology               1,460           4.0                 (1) Primary                        74.6%
         Cardiology                         2,115           5.8                 (2) Secondary                      68.0%
         Critical Care Medicine             5,660          15.5                 (3) State                          57.0%
         Gastroenterology                   3,285           9.0                     Annual Service Volumes       Current FY
         General Pediatrics                 8,760          24.0                 (1) Inpatient Days                 69,065
         Hematology / Oncology              5,110          14.0                     Average Length of Stay           6.3
         Neonatology                       11,612          31.8                 (2) Clinic Visits                 150,000
         Neurology                          1,095           3.0                 (3) ER Visits                      85,000
         Pulmonology                        1,555           4.3                 (4) Inpat Surg Procedures           2,500
         Other                              6,935          19.0                 (5) Outpt Surg Procedures           1,500
         Total Medicine                    47,587         130.4                        Financial Estimates       Current FY
              Pediatric Surgery:                                                 Inpatient Revenue             $      397,595
         Cardiothoracic                     3,145           8.6                  Outpatient Revenue                    215,843
         General Pediatric                  4,728          13.0                  Other Patient Service Revenue          21,276
         Neurosurgery                       4,100          11.2                 Gross Revenue                  $      634,714
         Ophthalmology                      2,190           6.0                  Deductions                          (380,210)
         Orthopedic                         1,042           2.9                 Gross Revenue After Deductions$       254,504
         Otolaryngology                     1,825           5.0                  Other Operating Revenue                26,849
         Plastic                            1,460           4.0                 Other Operating Revenue                 26,849
         Urology                            2,920           8.0                 Total Operating Revenue        $      281,353
         Other                               68             0.2                 Total Expenses                 $      261,293
         Total Surgery                     21,478          58.8                 Operating Margin               $       20,060
         Total - All Services              69,065         189.2
         % Bed Occupancy (250 Beds)                       75.7%

Hospital integration and alignment with Medical Staff physicians in the promotion and management of clinical service lines is a key
success factor and challenge for all hospitals.
Healthcare Orientation - April, 2010                                                                                        7
                                   Hospital Operational and Financial Basics
The inpatient care area is the area where you will make the greatest impact on hospital operations. Over 70% of hospital revenue
is generated from inpatient services. The following chart describes how a patient care unit budget is normally broken down.

     Patient Care Unit Operating Expense Budget
                                                                                            Physician Impact
   Revenue Budget (18.75 ADC)           Days        Revenue                         Unnecessary lengths of stay
                                                                                    and over-utilization of resources
         Acute Care Days                6,160       $11,088,000
                                                                                    (drug, lab, x-ray, etc) create
     Intermediate Care Days              684          1,915,200
                                                                                    additional    non-    competitive
      Total Revenue Budget              6,844       $13,003,200                     hospital expenses, which may
     Labor and Salary Budget            FTEs       Salary Cost                      not be reimbursed by third party
         Administrative                   1              $85,000                    payors, and are controlled by
                                                                                    Medical physicians. Hospitalist
           Supervisors                    6              390,000
                                                                                    MDs are employed to provide
        Registered Nurses                37            1,850,000
                                                                                    added patient care management
              LPNs                        4              120,000
                                                                                    support and service control.
            Assistants                   12              300,000
             Clerical                     5              125,000
              Other                       2              120,000
                                                                                                Labor Cost
           Total Labor                   67           $2,990,000
                                                                                    The greatest expense on an
  Benefit Budget (22% of Salary)                        $657,800                    inpatient unit and in the entire
                                                                                    hospital is labor. $2.9 million of
    Supply and Other Budget                         Expenses                        the total $3.7 million expense
         Medical Supplies                                $9,125                     budget is related to personnel
               Office                                     3,650                     cost. Over 50% of total hospital
         Floor Stock Drugs                                7,300                     expense is labor related.
         Minor Equipment                                  1,500
     Training and Education                              16,750
               Other                                      1,000
                                                                                           Hospital Revenues
                                                                                     70 to 80% of total revenue is
  Total Supply and Other Budget                         $39,325
                                                                                     generated by inpatient care.
    Total Operating Expenses                          $3,687,125

Healthcare Orientation - April, 2010                                                                             8
                                             10 Key Issues in Healthcare
The following are considered some of the most important issues that hospitals face today and are not listed in terms of their
importance priority.

1.     Leadership - How will healthcare leaders (Board, Executives, Physicians, Management) continue to be developed and
strengthened to provide the direction, guidance, and management necessary to meet internal and external healthcare
opportunities and challenges?

2.     Healthcare Reform - What effects will possible healthcare reform have on hospital operations and the delivery of existing
and future services?

3.    Reimbursement - Will federal, state, and private insurance reimbursement be reduced, affecting hospital operations?

4.    Quality of Care - How will hospitals continue to enhance their systems for improving, monitoring, and communicating
improvements in patient care and other customer services?

5.   Staffing Capacity and Capability - Will the number and quality of trained key healthcare professionals be available to staff
and manage important hospital operations? How will contract labor affect hospital operations and finance?

6.   Labor Productivity - How will hospitals improve the labor productivity in order to improve hospital labor costs and keep
competitive in the healthcare market?

7.    System Safety and Efficiency - How are patient care and other hospital processes evaluated, improved, and monitored to
ensure patient safety, quality of service delivered, and cost effectiveness?

8.    Physician Relations - Can hospitals and their medical staffs be integrated sufficiently to make hospital system and work
process improvements, to support strategic and operational strategies, and to meet external challenges?

9.     Technology - How can hospitals use technology to improve patient care, decision making, work efficiency, and service
cost effectiveness? How will the development and implementation of an electronic medical record system affect patient care and

10.   Work Systems Focus - Will hospitals be able to instill a comprehensive focus on its work systems and processes in order
to support strategic and operational goals and meet internal and external challenges?

Healthcare Orientation - April, 2010                                                                                 9

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