Agile Planning for Healthcare Providers

White paper
Agile Planning™ for
Healthcare Providers
by Rand Heer and Tom Hartman

Forces old and new are buffeting healthcare providers. Medicaid,
accounting for 17% of state budgets, is being cut. America is get-
“The old way of thinking ting grayer, and living longer. The reality for healthcare provid-
ers is that the average Joe and Jane will need more services than
— you run the facility
before and will use those services for longer than any prior gen-
through the once a year eration. The Affordable Care Act will bring some 32 million peo-
ple into ranks of the insured with unclear impacts on provider
budget process — is on capacities, payer mix, hospital-physician alignment and many
other variables.
the way out in favor of
These and other socio-economic trends are pressuring healthcare
new concepts and system provider finance teams to make planning systems more immediate
and responsive. The old way of thinking — you run the facility
approaches characterized
through the once a year budget process — is on the way out in
by more forecasting and favor of new concepts and system approaches characterized by
more forecasting and incorporation of “agile planning” tech-
incorporation of “agile niques into the forecasting and planning processes.

planning” techniques This white paper explores the concepts and practices of agile
planning for healthcare providers with a focus on defining soft-
into the forecasting and ware application requirements for scenario analysis, driver-
based modeling and integrating actuals — the three foundations
planning processes.”
of an agile planning system where the goals are insight, options
for action, and decisions, rather than budgetary control.

Agile Planning for Healthcare Providers

Ray Wolfe, CFO of Pitts- ance review process with a real-time understand-
burgh Mercy, strode into ing of how their own groups’ results impact overall
the conference room. results and a clarification of short term priorities.
Everyone was seated and Then, back to the basics of running the clinics.
ready to roll for the fore-
cast review—Shelley and It wasn’t always so smooth. Just two years earlier
Dave from finance, five when Ray was appointed CFO, the organization was
heads of community in trouble. After a painful disposition of an under-
treatment centers, the performing inpatient facility, the remaining organi-
service coordinator, and heads of acute case man- zation—60 outpatient facilities providing mental
agement and emergency care—including Ray, health, retardation, drug/alcohol rehab and home-
eleven persons total. less services—was “operationally challenged”: ser-
vice demands were increasing at a 20% annual rate;
Who attended this particular session of the review budgeting was spreadsheet-based with all the at-
was carefully coordinated, though Ray often shuf- tendant problems—linking and formula errors, too
fled forecasting group membership based on com- much wasted time consolidating the pieces; and no
parability of underlying data and key measures, and efficient way to import actuals and compare re-
the corporate reporting hierarchy. From the finance sults. In addition, budgeting was a ritual without
side, Dave was the planning administrator who ran meaning—full year totals with no seasonality, no
the planning application in real time during the operational integration, no P&L visibility for the
forecast review session. The seven line managers hundreds of revenue/cost centers, and worst of all,
were a subset of 100+ managers in the organization no real manager buy-in.
with revenue and cost management responsibility
across 25 treatment programs. Now, a year and a half later, the forecast review
meetings are working with remarkable results.

Ray choreographs the  Ray choreographs the agenda and participa-
tion which is based on relevancy and congru-
agenda and participation in ent interests. Groups and participation dynam-
forecast sessions based on ics are reshuffled regularly to optimize sharing
of common experiences.
relevancy and shared inter-
 Data is presented with an overhead projector
ests... The planning tool is in real time. The planning tool is also the pres-
also the presentation tool. entation tool. Forecast assumption changes,
such as forecasting collection rates based on
latest averages, immediately ripple through the
Each quarter Ray conducts fifteen such planning financial statements and cash flow.
sessions. Each session includes the same finance
team and combinations of line managers whose  The presented data, both historical actuals and
responsibilities are functionally similar or overlap forecast, incorporate operational activity driv-
in service requirements. The agenda kicks off with ers such as number of outpatient transactions,
Ray updating the room on global trends, overrid- payer types, and collection rates. The availabil-
ing budget issues and community dynamics. Then ity of operational information integrated with
the fun begins: a review of prior meeting commit- financial results forms the basis of the line
ments including a focus on what worked and what manager dialog for understanding and sharing
didn’t; an open exchange of information with a of best practices.
focus on best and worst practices; and a real-time
 Fundamental to the process is multiple scenar-
update of commitments and financial plans.
ios. The team learning experience and forecast
For the most part, the process works. In just a few commitment process is based on creating and
hours each quarter, mental health practitioners comparing working scenarios in real time.
without business or finance training have the op-
portunity to participate in a planning and perform-

2


The unit/rate/amount structure of the planning application lets the finance staff and community treatment team members
understand underlying driver relationships and project forward based on historical rates and visible trends. For example
in the screenshot, the average year to date actual Revenue and Allowance rates for each Treatment Team are the basis for
forecasting forward into May and later timeframes. These rates are automatically computed from the underlying units and
general ledger amounts.

Since abandoning spreadsheets for a database plan- ing forecast process described here. When budget
ning application, Ray and Pittsburgh Mercy have presentations are made to the Board, Ray reports
successfully renovated its planning processes and on the latest and most credible forecast. With a
culture by implementing Agile PlanningTM: line forecast accuracy of 2%, nobody cares or questions
managers have a renewed sense of participation that the process is not more structured and does
and energy; $600,000 in revenue enhancements and not go to the lowest level of detail in the chart of
cost efficiency improvements have been redirected accounts.
to improve services; and forecast accuracy at the
bottom line is now 2% quarter to quarter. As Ray says, “We have a whole new culture for
planning and analysis. It’s agile and truly real-time
Pittsburgh Mercy no longer budgets. All planning collaboration.”
and decision making derive from the two year roll-

3


Healthcare, an Industry Under Pressure
Forces old and new are buffeting healthcare pro- insured, and significant change is happening in the
viders. General economic malaise, state financial industry with uncertain results for each provider.
disorders, demands for lower charges concurrent
with higher quality—the list goes on. One aspect of The Act is a reduction in government
payments for medical care. Offsetting this, to some
At the state level, budgets are strained; cuts of dis-
turbing proportion are being made across all
spending areas. Medicaid, accounting for 17% of Can you say “Baby Boomer”?
state budgets, will surely be a victim of some cost The reality for healthcare
cutting. In 2010 states received some relief through
Recovery Act (Stimulus) funds to make ends meet. providers is that the average
That federal buffer will not be there in the future. Joe and Jane will need more
To compound the situation, the faltering economy
of 2008 and 2009 moved many formerly employed services than before, and will
persons with commercial health insurance into the use those services for longer
ranks of the unemployed enrolled in Medicaid.
While there are signs that the economy is rebound- than any prior generation.
ing, unemployment remains at stubbornly high
levels. State tax receipts should be on the rise with extent, will be a reduction in uncompensated care,
the economic recovery, but will it be enough? as the 32 million shift to insured status in 2014.
Healthcare Insurance Exchanges also lead to uncer-
Can you say “Baby Boomer”? America is getting
tainty, as they will be open and available even to
grayer, and living longer. While that may be a
those currently insured.
good omen for the country (increased wisdom
comes with increased age, right?), the reality for The concept of Accountable Care Organizations
healthcare providers is that the average Joe and (ACO’s), coupled with the mandate for value-
Jane will need more services than before, and will based reimbursement for evidence-based quality
use those services for longer than any prior genera- service, will certainly lead to hospital-physician
tion. The irony here is that advances in healthcare alignment. The ACO concept will likely lead to
are the primary cause of the increased longevity. greater affiliation between acute care hospitals and
community hospitals as well.
Numerous challenges and opportunities spring
from the historic Affordable Care Act (The Act). It will be critical for healthcare providers to analyze
The interpretation of purported benefits from The shifts in the Payer Mix (or erosion of the mix, as some
Act differ depending on whether you are Democrat have labeled it) to government programs, primarily
or Republican, young or old, currently insured or Medicaid. Also key will be analyzing reductions in
uninsured, healthcare provider or healthcare in- payments. As always, providers will need to con-
surer, government entity or private industry. stantly monitor their cost efficiency efforts in both
Where there is general consensus: some 32 million staffing and supplies, and keep a strong focus on their
people are likely to be added to the ranks of the Revenue Cycle improvements.

4


Requirements for Agile Planning
The above trends in healthcare are pressuring fi- agile planning in terms of basic goals, process areas
nance teams in provider organizations to make and common features:
planning systems more immediate and responsive.
The old way of thinking—that you run the facility  Goals—Basic resource management is an im-
through the budget process—is on the way out in portant goal of all planning processes. For
favor of alternate approaches such as Agile Plan- budgeting and forecasting there is the added
ningTM as practiced by Ray Wolfe and the Pitts- “control” element of setting standards for
burgh Mercy organization. measuring performance which is presumably
achieved through precision of the data in
Historically, budgeting has been the command and budgets and monitoring the accuracy of projec-
control foundation for managing organizations— tions in the forecasting process. In contrast to
that once-a-year Uber-process that produces every- budgeting and forecasting, however, the goals
thing you need for reporting and control: revenue of Agile Planning are to achieve higher level
targets, headcount and spending details, capital management effectiveness by gaining insights
budgets, and more. The budgets may or may not into the current business situation resulting in
be supplemented monthly or quarterly by a fore- greater clarity about what actions can be taken,
cast process whereby managers theoretically have including the financial impacts of each, and
the opportunity to re-allocate resources based on more timely decision making as a result.
changing conditions and new information. Fore-
casting, though, more often turns into a politically  Key Process Areas—In their quest for preci-
charged exercise for testing target achievement— sion and accountability, all line managers par-
focusing on the sensitive question “will individual ticipate in budgeting if they have any level of
organizations make their top and/or bottom line revenue or spending responsibility regardless
financial objectives for the fiscal year”? How and of materiality. The process is one of meticulous
when individual organizational units answer the submission and approval of versions which
question, of course, is the foundation for many po- causes budget development to span many
litical games. months; thank goodness it’s done only once a
year. By contrast, forecasts must be put to bed
The table below lays out a comparison of tradi- within days or just a couple of weeks because
tional budgeting and forecasting processes com- of the month/quarter end reporting cycle.
pared to Agile Planning as illustrated by the Ray Thus, forecasting tends to be more finance-
Wolfe/Pittsburgh Mercy case study. Here are the driven with a less formal, more ad hoc partici-
highlights comparing budgeting, forecasting and pation of line management.

5


By contrast again Agile Planning, which is asking how they can deliver more immediate and
more often driven by business events (e.g. responsive financial plans including incorporating
shifting payer mix) or strategic initiatives (e.g. a agile planning elements into forecasting processes.
major capital equipment purchase), is a real-
time collaborative activity or series of activities The accompanying challenge for finance is to find
requiring the relevant managers, meaning those ways to make forecasting less political. In health-
who are players, either information providers care, the evolution to agile planning has been
or decision makers, in the business event or slower, principally due to the lack of flexible plan-
strategic initiative. Unlike budgeting and fore- ning tools.
casting, the cycle time for planning sessions
In the materials that follow, we walk through three
and decision making is typically hours, or at
software feature/function areas that are central to
most, days.
all planning applications, but especially critical for
 Common features—Both budgeting and fore- moving up in planning maturity to achieve the Ag-
casting are financial-data driven at the lowest ile Planning goal of real-time insights leading to
level of detail of natural class accounts (e.g. all actionable knowledge with financial impacts
Travel sub-accounts rather than Travel in total) which, in turn, lead to faster, better decisions.
and departments. This level of focus results
 Robust Scenario Analysis—the issue is not
from the passionate need to produce variance
whether an application supports versions and
reports and analyses—actual versus budget
scenarios; they all do. The issue is maintaining
and forecast to forecast—which is presumed
the scenarios, visibility into the underlying ac-
not possible if the lowest level GL structure is
tivity drivers of each scenario, and response
not adhered to. The result of this low-level fi-
times.
nancial focus is that for budgeting and fore-
casting, there are a lot of input cells that need  Driver Based Modeling—the issue is not
to be filled in. The focus is data entry with whether an application includes modeling
minimal modeling of interrelationships. By tools; all of them do. The issues are how flexi-
contrast, Agile Planning is frequently done at a ble are the tools for building complex driver-
higher level of detail than budgeting and fore- based models and how easy is it for the super
casting—e.g. a summary level of accounts such user to build and maintain the models.
as Travel rather than Travel Sub-accounts.
 Integrating Actuals—the issue is not whether
Despite the problems, few healthcare finance or- an application can import actuals data; all of
ganizations are ready to dump budgets per se. them do. The issue is how well imported actu-
However, many are looking critically at their als can be integrated into the financial plan.
spreadsheets or canned budgeting applications

6


Robust Scenario Analysis
Budgeting is about managing versions, not scenar- The functionality you need for effective scenario
ios. As the budget is developed, finance keeps analysis goes beyond simple budget versioning.
track of versions to understand who changed what Here are our criteria:
and to make sure the right amounts are approved.
Once a version is superseded, there is rarely a need  Real time feedback. Whether you’re a finan-
to look back at the old numbers or change them. cial analyst working through the numbers late
at night or the CFO answering questions live in
By contrast, rolling forecasts and agile planning an operations review, scenario analysis should
should be about scenarios, lots of them. If you can’t be delivered by the planning tool in real time.
predict the future, the next best thing is to set up That is, when you change a value, all elements
scenarios that let you explore how you might be- of the financial model—the statement of activi-
have (or decide) if things are better or worse or just ties, balance sheet, cash flow, financial ratios,
different. Unlike budgeting where you care about performance metrics—should update in sec-
who changed what number, scenario analysis is onds, not minutes or hours. In short, scenario
about understanding what’s behind the numbers— analysis must satisfy the need for speed we’re
the most critical assumptions, volume and rate im- used to with Excel. Scenario analysis must be
pacts, and especially what’s driving material an interactive process responsive to questions
changes to the Statement of Activities and Cash and testing of assumptions on-the-fly. Agile
Flow. planning needs tight feedback loops on the
numbers.
The goals of agile planning— a) insights about the
business; b) actionable knowledge and c) decision
making—are achieved through scenario analysis:
by analyzing a specific scenario and comparing it
to a baseline case or other scenarios, the manage-
ment team is better able to understand what’s go-
ing on and then evaluate best courses of action.
Where there is an immediacy to the issues—e.g. to
proceed with a capital project or change suppli-
ers—the deliverable is decision making. Because it
is decision and action focused, robust scenario
analysis is the most critical underpinning of agile
planning. Unlike budgeting applications, in Alight you can
change values of line items across multiple scenar-
ios. Clicking the Scenario button lets you choose
which Scenarios you want to apply the new values to.
Updates to financials are immediate

7


Why the Variance?
Alight lets you compare scenarios at any level of detail including analysis of underlying units, rates and amounts. Below is a
Variance Analysis comparing the Affordable Care Act Impact to the Base Case Scenario. Unlike standard variance reports that
show only dollar amounts, this Volume-Rate Variance report automatically computes the volume and rate components by line
item — that is, the unfavorable impacts of a payer mix shift to Medicaid and a declining rate of government payments. The con-
clusion is obvious: the shift to Medicaid is the primary contributor to the Variance.

 Maintenance across scenarios. Budget ver-  Robust comparison at the line item level.
sions don’t require ongoing maintenance be- Budgeting and to a considerable extent, rolling
cause old versions are superseded by new forecasts focus on amounts in accounts. Agile
ones. Scenarios do. The planning application planning is about in-depth comparison of sce-
should support adding, modifying and delet- narios and differences in values at any level of
ing line items across selected scenarios in a sin- detail, especially at the line item level where
gle operation. Calculation and update of finan- the most significant driver inputs and model-
cials after structure changes should take only a ing occur.
minute or two, at most.

8


Driver-Based Modeling
Budgeting focuses on gathering static inputs from In our experience, there are two make-or-break
users, principally for headcount and expenses. Lit- functionalities in the modeling interface needed to
tle modeling is involved— typically just calculation make driver-based planning work:
of payroll taxes and benefits.
 Visibility into driver relationships. This re-
Such a process is not workable for agile planning. quires object based linking where the modeler
The cycle time for completing a forecast after establishes data relationships based on the
month-end close is too tight to accommodate broad names of things—e.g. Patients Days are linked
-based user involvement on the scale done for to Admissions and the Average Length of Stay—
budgeting. As well, user-based planning involves versus cell-based linking in Excel with formu-
high volumes of static inputs in order to achieve las like = Stats! C45 * $L$15. Object-based link-
precision. By contrast, forecasting that incorporates ing makes auditing and visibility into activity
agile planning reduces the volumes of data, focus- driver relationships significantly easier to
ing instead on fewer but truly material forecast track, thus eliminating many errors, speeding
elements. up development and reducing maintenance
time.
The objective of reducing data volume is achieved
in substantial part through “driver-based plan-
ning”, a type of financial modeling where the most
material items in a financial plan are linked to op-
erational drivers or quantifiable activities of the
business —e.g. volume measures such as patient
admissions, length of stay, patient days, number of
procedures, number of tests, and the like.

Such driver-based modeling has three focuses: 1)
revenue forecasting based on the volume measures
and driver relationships between revenue areas—
e.g. contractual rates by payer type, 2) variable and
Alight’s modeling interface is based on object-based
semi-variable headcount and expenses driven by linking where you create data relationships by linking
the volume measures or identified underlying ac- to the names of other line items or totals, e.g. drug
tivity levels—e.g. admissions, patient days, etc.; expense for ICU is based on average drug cost per
and 3) for cash planning, balance sheet items such stat X ICU stat (patient days)
as accounts receivable and accounts payable, each
based on their respective income and expense driv-  Modeling across dimensions. Planning appli-
ers at a relevant level of detail. cations should support custom dimensions—
e.g. department, payer, stat, facility, job type,
Healthcare organizations moving to an agile plan- grade level, etc. The modeling environment
ning discipline should closely evaluate the model- should then allow tapping into the custom di-
ing environment of the planning application they mensions for building specialized activity-
are buying into. Modeling and model maintenance driver models—for example, aggregating in-
should be fast, flexible, and (unlike Excel) provide patient and out-patient data across depart-
clear visibility into linking relationships.
ments and payers. Applications without mod-
eling based on dimensions do not have the
flexibility required for driver-based planning.

9


Integrating Actuals
Virtually all budgeting applications support im-
For actuals, however, the data is typically amount
porting actuals from the general ledger, typically
and units. Therefore, for an apples-to-apples com-
based on rigid chart of accounts structures. As
parison, the actuals data must be modeled to back-
well, you can usually import headcount and sala-
calculate the reimbursement rate:
ries from the HR system. Once imported, budget
applications also support comparing actuals to Gross Revenue
budget based on levels in the chart of accounts
/ Patient Days
with computation of amount and percentage vari-
ances. = Reimbursement Rate

Outside the safety of the accounting structures, $250,000 / 250 = $1000
however, lining up actual and plan data in a con-
sistent format for a rolling forecast is typically a
zoo, principally because it is difficult to get actuals
data apples-to-apples with plan data at the line
item level.

For example, for basic revenue planning:

Patient Days
* Reimbursement Rate
= Gross Revenue

250 * $1000 = $250,000

Alight includes a section for Key Measures with custom dashboards for displaying actual and plan measures of the
organization such as admissions, patient days, denial and collections rates, payer mix, headcount analysis, balance
sheet ratios and more.

10


As the examples illustrate, actuals data frequently Finally, for robust agile planning, you must have
need modeling different from plan data to get valid the capability of truly integrating actuals into the
comparisons and trends. For maximum flexibility, financial plan. That means: 1) being able to model
the planning application should allow modeling of actuals as an activity driver and 2) spreading actu-
actuals with algorithms and linking separate from als data into plan time periods—e.g. the historical
modeling of plan data. average cost per stat into future months, and fur-
ther, being able to modify those costs going for-
ward to reflect, for example, inflation or cost con-
trol initiatives.

Summary
Agile planning requires special features that extend
beyond the capabilities of spreadsheets and many
budget applications. Scenario analysis should be
real time with maintenance across scenarios. Mod-
eling tools must be robust and provide transpar-
ency into underlying activity drivers. Actuals data
must be available for driving forecast values.

In an agile planning environment, the return on
Alight includes separate tabs for modeling actuals investment is not from reducing time spent on
and plan at the line item level. In the example, plan
units * rate = amount. For actuals, amount / units = planning. The ROI comes from better financial per-
rate. formance as a result of a more responsive planning
environment and improved decision making.
In addition, actuals data need to be imported from Agile Planning is a pending trademark of Alight, LLC.
any source at any level of detail, not just the general
ledger. The actual revenue amount is imported
from the general ledger, but units for back-
calculating average charge rate are typically im-
ported from a data warehouse or an ERP or EMR
system.

Rand Heer is CEO of Alight and the creative
force behind Alight Planning. He was also the
founder of Pillar and designer of Hyperion
Pillar, the first enterprise software for budgets
and forecasting.

Tom Hartman, a twenty year veteran of the
planning software space, is Director of Sales at
Alight, driving the company’s Healthcare sales
and marketing programs.

Web: AlightPlanning.com
Tel: (530) 622-5485.

Special Thanks to Ray Wolfe, CFO of Pitts-
burgh Mercy Health System , Don Koenes,
VP of Services at Alight and Linda Hull,
Director of Sales Support at Alight.

11

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