Ferreting out the Admin Expenses
Posted: Fri May 22, 2015 12:25 pm
If I am a small business, my overhead expenses will be low compared to a similar business that is 500 times as big. If they were to allocate a portion of their overhead to me, and tell me that's how much my overhead ought to be, I would say - no way. A smaller business can run with smaller-scale expenses and overhead.
Same with a hospital. A hospital with 1100 employees does not have the same overhead needs as a hospital with 10,000 employees.
The Clinic tries to justify their high allocation of shared services:
"Apart from economies of scale, consolidating these services also helps with:
Standardization and consistency
Increased efficiencies."
Really? What efficiencies? What is efficient if your income is $125 million and this admin expense is $25 million?
If I were an accountant (which I am) and I were trying to charge as much administrative expense as possible to my subsidiaries, this is what I would include in the Cleveland Clinic's boilerplate categories:
"Shared Administrative Services (about 77% of $25 million or about $19 million)"
Information Technology: All computer staff (salary and full benefits), equipment, wi-fi, cables, fiberoptic networks including at main campus and elsewhere (even if not in place at Lakewood); the floor space that all of this takes; the heat and light and light bulbs; monthly network fees; all IT infrastructure being built in Avon or other facilities, Twinsburg, Brunswick, or other. All research departments (salary and benefits and space) in the basement of Main Campus.
Marketing: All Public Relations staff (salary and full benefits), floor space used by department; heat, electricity, light bulbs, maintenance, all news releases, Economic Impact Study (even though there obviously is NO marketing expense spent to build up Lakewood Hospital); travel for Dr. Cosgrove and/or NY Times reporter for feature article
Supply Chain: Full cost of Purchasing and Accounts Payable departments staff (salary and full benefits), the floor space these departments take, utilities, heat, electricity, maintenance to change light bulbs. Take all quantity-price breaks at main campus, charge the subsidiaries full price for all purchases of hard equipment, supplies, pharmaceuticals.
Legal: Full cost of in-house legal department, salary, benefits, floor space (even if they're fighting Save Lakewood Hospital); utilities, heat, electricity; all outsourced legal and retainers (including rewrite of Definitive Agreement even if it gets rejected); allocated wages, taxes, benefits and retirement contributions of legal staff for every meeting they attend at Lakewood City Council or LHA board meetings or anything remotely connected to Lakewood.
HR: Full cost of HR department, salary, benefits, floor space, utilities; severance pay of people terminated from other divisions; preparation of employee manuals whether in-house or outsourced; training of employees so they don't allow other employees to talk about closure of Lakewood Hospital with anyone (staff or otherwise)
Executive Team: Really? Allocate part of all high-paid chief honchos' enormous wages, payroll taxes and luxurious benefits, company cars and drivers, part of the depreciation of the entire space of their luxurious office suites, utilities. Include all staff who are not charged out by medical procedure. Be sure to include everybody you can.
Revenue Cycle: Entire staff of in-house or outsourced Accounts Receivable, salary, benefits, floor space, utilities. Legal fees for collection attorneys firm. Computer system for billing. (If this were allocated based on the number of invoices sent, per hospital, it might be OK.)
Internal Audit: Entire staff of internal audit accountants and managers, salary, benefits, floor space, utilities.
Regional Administration: Executives, support staff, salary, benefits, floor space for everybody working on projects to oversee Cuyahoga County and expand into Lorain County, Medina County, Summit County and others. (Even though this entire category obviously does not support Lakewood in any way.) I would allocate a part of all the "common area" at Main Campus and others, the huge wide open hallways with high ceilings and high utility bills.
Finance: Executive and accounting staff, salary, benefits, floor space, utilities. Cost of EY audits and other consulting fees. Be sure to include any accounting work this group does to prepare intercompany allocations of administrative expense, it is probably substantial.
"Transfers/Chargebacks" (about 17% of $25 million or about $4 million)
This would be mostly for clinical services that Cleveland Clinic staffs at Lakewood Hospital - anesthesia coverage, house staff coverage, etc. This amount may be reasonable, it is about $4 million on top of about $60 million salary. They say "the cost of these services varies by size/scope of the program offered at the respective sites." On the surface, sounds reasonable.
"Other" (about 7% of $25 million or $2 million)
Consulting Fees (is Subsidium's $500,000 in here, or did LHA pay it directly?)
Legal Fees (Any fees directly related to Lakewood? to moving business out of Lakewood and to Fairview or Avon? In-house legal department, Mr. Meehan attending meetings at Lakewood City Council or other? Salary, benefits, travel, mileage, other?
Special Projects (Does Avon count as a "special project"?
Travel expenses (Dubai? Executives traveling to places that have no connection with Lakewood?)
Dues and Licenses (country clubs? dues or overall licenses for Clinic that cover services not provided at Lakewood?)
And for good measure, I would be sure to add a factor of maybe 10% to cover anything that I had missed. (Parking lots, floor sweepers, maintenance of fancy outside fountains, etc.)
Does this seem reasonable to you?? For a small hospital that doesn't need multi-million-dollar executives to run it, that doesn't need the huge infrastructure of a behemoth like Cleveland Clinic?
Wouldn't we be better off without them?
For far less than $2 million a month, we surely could fill all of our needs from the list above.
Same with a hospital. A hospital with 1100 employees does not have the same overhead needs as a hospital with 10,000 employees.
The Clinic tries to justify their high allocation of shared services:
"Apart from economies of scale, consolidating these services also helps with:
Standardization and consistency
Increased efficiencies."
Really? What efficiencies? What is efficient if your income is $125 million and this admin expense is $25 million?
If I were an accountant (which I am) and I were trying to charge as much administrative expense as possible to my subsidiaries, this is what I would include in the Cleveland Clinic's boilerplate categories:
"Shared Administrative Services (about 77% of $25 million or about $19 million)"
Information Technology: All computer staff (salary and full benefits), equipment, wi-fi, cables, fiberoptic networks including at main campus and elsewhere (even if not in place at Lakewood); the floor space that all of this takes; the heat and light and light bulbs; monthly network fees; all IT infrastructure being built in Avon or other facilities, Twinsburg, Brunswick, or other. All research departments (salary and benefits and space) in the basement of Main Campus.
Marketing: All Public Relations staff (salary and full benefits), floor space used by department; heat, electricity, light bulbs, maintenance, all news releases, Economic Impact Study (even though there obviously is NO marketing expense spent to build up Lakewood Hospital); travel for Dr. Cosgrove and/or NY Times reporter for feature article
Supply Chain: Full cost of Purchasing and Accounts Payable departments staff (salary and full benefits), the floor space these departments take, utilities, heat, electricity, maintenance to change light bulbs. Take all quantity-price breaks at main campus, charge the subsidiaries full price for all purchases of hard equipment, supplies, pharmaceuticals.
Legal: Full cost of in-house legal department, salary, benefits, floor space (even if they're fighting Save Lakewood Hospital); utilities, heat, electricity; all outsourced legal and retainers (including rewrite of Definitive Agreement even if it gets rejected); allocated wages, taxes, benefits and retirement contributions of legal staff for every meeting they attend at Lakewood City Council or LHA board meetings or anything remotely connected to Lakewood.
HR: Full cost of HR department, salary, benefits, floor space, utilities; severance pay of people terminated from other divisions; preparation of employee manuals whether in-house or outsourced; training of employees so they don't allow other employees to talk about closure of Lakewood Hospital with anyone (staff or otherwise)
Executive Team: Really? Allocate part of all high-paid chief honchos' enormous wages, payroll taxes and luxurious benefits, company cars and drivers, part of the depreciation of the entire space of their luxurious office suites, utilities. Include all staff who are not charged out by medical procedure. Be sure to include everybody you can.
Revenue Cycle: Entire staff of in-house or outsourced Accounts Receivable, salary, benefits, floor space, utilities. Legal fees for collection attorneys firm. Computer system for billing. (If this were allocated based on the number of invoices sent, per hospital, it might be OK.)
Internal Audit: Entire staff of internal audit accountants and managers, salary, benefits, floor space, utilities.
Regional Administration: Executives, support staff, salary, benefits, floor space for everybody working on projects to oversee Cuyahoga County and expand into Lorain County, Medina County, Summit County and others. (Even though this entire category obviously does not support Lakewood in any way.) I would allocate a part of all the "common area" at Main Campus and others, the huge wide open hallways with high ceilings and high utility bills.
Finance: Executive and accounting staff, salary, benefits, floor space, utilities. Cost of EY audits and other consulting fees. Be sure to include any accounting work this group does to prepare intercompany allocations of administrative expense, it is probably substantial.
"Transfers/Chargebacks" (about 17% of $25 million or about $4 million)
This would be mostly for clinical services that Cleveland Clinic staffs at Lakewood Hospital - anesthesia coverage, house staff coverage, etc. This amount may be reasonable, it is about $4 million on top of about $60 million salary. They say "the cost of these services varies by size/scope of the program offered at the respective sites." On the surface, sounds reasonable.
"Other" (about 7% of $25 million or $2 million)
Consulting Fees (is Subsidium's $500,000 in here, or did LHA pay it directly?)
Legal Fees (Any fees directly related to Lakewood? to moving business out of Lakewood and to Fairview or Avon? In-house legal department, Mr. Meehan attending meetings at Lakewood City Council or other? Salary, benefits, travel, mileage, other?
Special Projects (Does Avon count as a "special project"?
Travel expenses (Dubai? Executives traveling to places that have no connection with Lakewood?)
Dues and Licenses (country clubs? dues or overall licenses for Clinic that cover services not provided at Lakewood?)
And for good measure, I would be sure to add a factor of maybe 10% to cover anything that I had missed. (Parking lots, floor sweepers, maintenance of fancy outside fountains, etc.)
Does this seem reasonable to you?? For a small hospital that doesn't need multi-million-dollar executives to run it, that doesn't need the huge infrastructure of a behemoth like Cleveland Clinic?
Wouldn't we be better off without them?
For far less than $2 million a month, we surely could fill all of our needs from the list above.