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From the June 2004 Issue |
Forging Core Strength New Jersey hospital uses fully integrated business system to improve financial management. By David Dyer
Challenging financial conditions continue to plague the healthcare industry—most notably, declining reimbursements, costly labor shortages and rising operating costs. These financial pressures collectively shrink already tight operating margins and test the viability of many healthcare organizations. Somerset Medical Center, a nonprofit community teaching hospital based in Somerville, N.J., had legacy systems with outdated processes that limited access to the timely, detailed data which managers and executives need to make critical cost-management decisions. To improve financial management and streamline complex, manual tasks, we needed a fully integrated system to enhance the efficiency of our core business processes and optimize our assets.
Islands of Information Our hospital had a legacy materials management system with a proprietary design and database arrangement. Materials, finance and HR/payroll data were housed within three separate databases, making it difficult for users to integrate pertinent data with the general ledger. A financial analyst had the daily task of trying to reconcile information within these systems. Irreconcilable data created friction between departments and resulted in a $1 million discrepancy between the general ledger and the materials system. Another factor negatively impacting our bottom line was an annual supply cost growth of nearly 17 percent. Users also were dissatisfied with the functionality of our legacy systems and manual, paper-based processes. For example, we relied on the IT department to print “green bar” financial reports. Finance managers would then break the reports apart and send them to department heads’ in-boxes, where they would sit for weeks. Creating reports was difficult, because the financial applications were spread among three vendors with separate technologies and different user interfaces. Users had no virtual desktop or other method to combine the data. As a result, we relied heavily on paper reports. Because the reports did not tie into each other, managers and directors, who had little confidence in what they were seeing, would sometimes question the data’s integrity.
Integrated Efficiencies
An evaluation team, composed of our chief financial officer, managers from various departments and me, initially reviewed several vendors and combinations of vendors in a formal evaluation process. As a community hospital, we quickly eliminated several vendors for having industry reputations of being too costly or having systems that were too difficult to install. Eventually, our options came down to St. Paul, Minn.-based Lawson Software and another reputable vendor. We then conducted product comparisons and system demonstrations through an organized product evaluation. We felt Lawson offered a true single-supplier solution and our best option to help us improve our financial management by centralizing core business systems and eliminating complex interfaces.
Multiphased Implementation We contracted with Lawson in October 2000 for the technical piece of the installation and worked with third-party consultants on the actual implementation. The consultants helped us with building and testing the applications, as well as with some business process redesign work. They also assisted with training super users: departmental staff who received an unusually high level of knowledge so that they, in turn, could train others in their departments and be the points of contact when problems or questions arose. The super users and our information services staff attended extensive classroom training off-site. We went live with the financial and materials applications in June 2001. We delayed implementation of the HR system until April 2002, so we could adequately test some new HR policies that we initiated in late 2001. Last year, we began implementing phase two with several planning and analytics applications, including proactive notification, enterprise reporting and Web-based portals. We expect to complete phase two this winter.
Improved Financial Management
Single Supplier. Somerset Medical continues to reap the benefits of moving to a single-supplier solution. We’ve gone from multiple item masters down to one, combined three databases, merged three servers and consolidated financial applications that previously ran on three disparate platforms. Without the need for complex interfaces between materials and financial systems, the integrated Lawson system enabled us to eliminate the $1 million “out-of-balance” situation between our general ledger and our materials system. The integrated system’s single database also has helped reduce the time required to close our books each month by five business days. Instead of closing on the third or fourth week of the month, we now close on the second week. Because we’re a community hospital, knowing earlier each month exactly where we are in terms of profit and loss benefits both Somerset Medical and its bondholders. Moreover, the cross-application functionality of the system offers simplified data access, resulting in increased user satisfaction and usage. From any desktop, users have a single sign-on to all of the applications. Based on their roles in the organization, they now have Web-based access to all of the information they need to make timely business decisions. Big-Picture Reporting. Perhaps the biggest benefit of our fully integrated system is “big-picture” reporting capabilities. Department managers receive and review key data through a Web browser, eliminating the need to distribute paper reports. This access to real-time information enhances the financial visibility of our organization by allowing executives to see and measure certain key performance indicators throughout the enterprise. Executives also can “drill around” for more details on transactional data behind each report. Our legacy system gave us a retrospective picture of Somerset Medical’s financial performance. Soon, our analytics capabilities will provide instant feedback through Lawson’s Enterprise Reporting or Smart Notification application as to whether, within certain pre-defined measures, there are situations requiring managerial oversight or immediate attention. This will allow managers to create more detailed revenue budgets and profit/loss statements by business type. We also can improve our competitive and financial position more rapidly, because we will be able to identify and take immediate action on changes in key metrics. Pushed Information. Improving the timeliness of financial reports by delivering them via eBroadcasting “push” capabilities has led to greater budget accountability. Department heads receive critical information online instead of on paper, and with the ability to track who opens these electronic reports, department managers are held accountable for reviewing and reacting to the information they contain. With enhanced reporting capabilities, we can see how and where we spend dollars to better manage and optimize our limited resources. The integrated system also gives us a better picture of our “books of business,” or actual purchase volumes on particular products. This enabled us to consolidate our vendor master and identify opportunities to renegotiate contracts for better pricing. As a result, we reduced our annual increase in supply costs from 17 percent to 10 percent. This ability to push information enabled managers to be more effective and achieve tangible benefits in other areas as well. For example, after implementing the HR/Payroll application, we began tracking labor distribution. These reports helped us to do more with existing staff, rather than having to hire additional full-time employees. Other key benefits include reducing agency nursing costs by $1 million and improving operating margins by shortening the average length of stay from 5 days to 4.7 days. Timely access to comparative data helped Somerset Medical to overcome many of the financial challenges inherent in a healthcare setting and to achieve revenue growth of $50 million within a three-year period. Our fully integrated system provides an enterprisewide means to view, analyze and act upon financial data. This equips our management team with the information that they need to make strategic cost-management decisions and, most importantly, to maintain the financial health of our organization.
For more information about integrated financial information systems
from Lawson Software,
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David Dyer is
vice president and chief information officer of Somerset Medical Center in
Somerville, N.J. Contact him at