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Maintaining Margin

Maintaining Margin. Presentation to Floyd Boards at the GHA Trustee Institute January 11, 2014. A Quick Look at Floyd’s Financial Performance: Operating Margin and EBDITA. 07 08 09 10 11 12 13 Op Inc $ 1.6 $ 6.8 $11.2 $ 9.00 $8.10 $ 8.0 $3.5

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Maintaining Margin

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  1. Maintaining Margin Presentation to Floyd Boards at the GHA Trustee Institute January 11, 2014

  2. A Quick Look at Floyd’s Financial Performance:Operating Margin and EBDITA • 07080910111213 • Op Inc $ 1.6 $ 6.8 $11.2 $ 9.00 $8.10 $ 8.0 $3.5 • OM 0.7% 2.6% 3.9% 2.9% 2.6% 2.5% 1.0% • EBITDA $ 19.9 $25.0 $28.9 $30.1 $33.20 $36.2 $33.6 • EBITDA 8.2% 9.7% 10.0% 9.5% 10.8% 11.4% 9.8% MARGIN • FY 13 includes Polk Medical Center

  3. Fixed Asset Purchases

  4. Our Investment and good execution have paid off • Volumes are steady and increasing • We are the Market Share leader and increasing this lead • Innovation and Development occur at Floyd Breast Center, ED expansion, Polk Medical Center, IT, Urgent Care in Rockmart

  5. FMC Average Daily CensusTotal Inpatient and Observation PatientsMonth to Month Comparison Includes Babies / Excludes FBH

  6. Floyd Behavioral Health Average Daily CensusMonth to Month Comparison

  7. Total IP & OP Surgery CasesMonth to Month Comparison *Annualized Totals

  8. FMC Emergency Care Center VisitsMonth to Month Comparison *Annualized Totals

  9. Polk Emergency Care Center VisitsMonth to Month Comparison 14 *Annualized Totals

  10. Births Month to Month Comparison *Annualized Totals

  11. Floyd Primary Care Visits(Excluding Urgent Care)Month to Month Comparison *Annualized Totals

  12. Total Urgent Care VisitsMonth to Month Comparison *Annualized Totals

  13. But….Reimbursement Outlook is not good (Moody’s, Fitch, S & P) • Long term utilization is projected to decline. The recent ECG report says that our area is 50% overbedded, meaning 50% overutilization compared to norms

  14. Floyd’s Payer Mix PayerFY 11FY12FY13 FY14 YTD Month of ytdNov 13Dec 2013 Medicare 36.96 36.78 38.64 37.89 38.17 36.02 Medicaid 20.04 19.15 18.81 18.51 18.71 17.64 Commercial 32.04 32.58 30.85 32.12 31.59 35.01 Uninsured 10.96 11.49 11.70 11.48 11.53 11.33 Total 100.00 100.00 100.00 100.00 100.00 100.00 (hospital only, based upon gross revenue)

  15. Cost Coverage and Breakeven Break Even

  16. Days in Cash

  17. Average Age of Plant

  18. The Margin Imperative • Many experts are saying that hospitals must cut costs 20% and more. For Floyd this is $60+ million • How to attack this? And, specifically, when volumes are not declining. • How do you eat an elephant? One bite at a time.

  19. Our Approach: Focus on Margin. Cost is important, but Margin is more than cost alone. • Strategic Plan to date • Grow Primary Care • Grow Specialty Services • Polk Medical Center • Top 10% performance

  20. Our Approach: Focus on Margin. Cost is important, but Margin is more than cost alone. • Strategic Plan to date • Grow Primary Care • Grow Specialty Services • Polk Medical Center • Top 10% performance • Additions to Strategic Plan • Seek Regional Alliances • Pursue Clinical Integration • Practice Population Management with our own covered employees

  21. So, while we will focus on cost , We cannot take focus off of the elements of the Strategic Plan. Growth, positioning, and new services are also important to maintaining margin In addition to implementation of specific items in the strategic plan, the way that we focus organization wide on margin is with our organization wide tool for improvement -- the 120 day workout methodology and Lean and Six Sigma

  22. 120 day workouts and Lean Six Sigma • We have been using the workout methodology since 2006 and have completed over 22 workouts. Each workout now lasts 120 days with a kickoff, and then, 30 day check ins on the last Wednesday of the month until the last check in at the 120 day end. The monthly meeting of over 100 leaders creates rhythm and accountability

  23. 120 workout-continued • The workouts are not dull and boring. We select a theme, teams give reports each month and we focus on the positive • Since 2006, in these 22 workouts we have made over 2,500 changes and catalogued over $42 Million in margin improvements

  24. Results from the last 2 workouts • Summer Workout (April-August) • $5.1 million, with 485 changes • Fall Workout (August-December) • $9.6 million, with 422 changes

  25. $14.7 million and 907 changes for the 8 months of focused activity. All of this is validated by Floyd’s accounting department and will be reflected in the following year’s budget.

  26. Top changes from the Summer Workout • Increase outpatient MRI capacity $332,000 • Change non emergency ambulance spec $300,000 • Convert to reusable pulse ox $264,000 • Decrease contract labor in a department $172,000 • Reprocessing of EKG leads $167,000 • Resident slot, replace with a transition resident $164,000 • Marshall Steele $1,320,000 • DCI non narcotic drug distribution $240,000 • Dual supplier for cardiac cath $81,000

  27. Top Changes from the Fall Workout -Food Service contract RFP process $800,000 -NICU, add NNP’s to take transport call, and high risk $270,000 deliveries -Collections agencies, from 3 to 2 $265,000 -Staffing Change $250,000 -Reprocessing in Surgery $240,000 -Adding Echo Capacity $234,000 -Reduction in Chemo Agent $175,000 -Renegotiate contract with EHR $100,000

  28. We need to keep looking for ways to improve margin • Three steps forward, two steps back • Maybe 5 steps forward, 4 back • Sometimes 5 forward and 7 back!

  29. Two New Areas for Floyd to Pursue Pension Expense Labor Expense

  30. Current Retirement Plans 2 Defined Benefit Pension Plans 1-FMC Retirement Plan-frozen benefit, closed group, Non ERISA 2-FHMI Retirement Plan-benefits accruing, but closed to new participants 10/2005, ERISA 401(k) for all new employees as of January 2006 and those who elected to change

  31. Current Retirement Snapshot, 12/31/2013 Approximately 2800 employees, 2500 full time/part time, 300 PRN/Temporary 1000 participate in 401(k) 700 receive full Floyd 4% match 300 receive partial match 387 in DB plan 759 do not participate.

  32. Demographic Snapshot of 759 Employees With No 401k Savings/Retirement

  33. Recommendation • Freeze the DB plans, and shift 387 to 401(k). Why? 1-Save up to $2 million per year, $10 million for 5 years 2-Predictability and reduced volatility in pension expense 3-Disparity in benefits

  34. Considerations • The $2 M/$10M assumes we do not • 1 Improve the match • 2 Provide any transition A) 759 FT employees who do not participate B) 387 who we expect would like to keep the current plan C) 435 who chose to switch to the 401(k) before 10/2005 D) Employees working side by side with disparate benefits.

  35. Working Solution • Take 25% of the savings to address the valued long term employees to create transition solutions • 105 Employees > 62 are protected • Consider creating a 1% additional employer contribution, contingent upon financial performance and also factoring in vesting and other considerations. This could cost $1.5 M in a year when it is earned.

  36. Working Solution-continued • The 25% transition changes savings to $7.5 million over 5 years • Management will work on details and present the plan to the board within the next two months.

  37. Labor Expense • The Spring 2014 120 workout will have several areas of emphasis: reprocessing of surgical supplies, clinical opportunities, the initiation of the A3 model at Polk Medical Center, and labor expense. • Teams will be chartered in each area with Executive Team members as champions and chairpersons.

  38. Labor Expense • In the labor expense team, the challenge is to get to performance levels other hospitals have achieved by asking such questions as: • Can you operate with one or more less people? • Can you combine or eliminate functions? • Have you performed an in quality staffing exercise to see if you are optimally staffed?

  39. Labor Expense • We will establish a policy to guide us when a job is slated for elimination to address severance and the opportunity to find another position at Floyd within a certain time period. • We do not have a targeted number of FTE’s to reduce, but we will be looking to reduce.

  40. Why is this necessary?First of all, 1% margin 2013-14 improvements • $14.7 million in Summer and Fall workouts • $1.75 projected pension changes • $2.0 If we consolidate EMS with Redmond • $2.0 Health insurance benefit changes. • Total: $20.45 million

  41. Why is this necessary?First of all, 1% margin 2013-14 improvements Steps Backward $6 million Blue Cross State Merit $6 million 2 Midnight Rule $3 million reduction in surgeries $3 million in payer mix changes $18 million Plus $8 million DSH changes to come and other government cuts • $14.7 million in Summer and Fall workouts • $1.75 pension changes • $2.0 EMS • $2.0 Health insurance benefit changes. • $20.45 million

  42. Messages to our workforce • We instituted No Merit Raises in FY 2014. We hope to have them in July 2014 for the start of FY 15 • The Spring Workout has as a major focus reducing FTE’s • Pension Changes, for some, less of a benefit • Positive message to 2000+, Potential 1% retirement contribution

  43. The Market is relentless, and we must continue to find ways to maintain margin • We need your support and direction • 1 For the recommended action on the pension • 2 For the approach to labor costs as a major element in the Spring 120 day workout

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