It’s Not Hard to Be Right When the Odds Are With You

Back on April 6, 2011 I wrote a blog post titled, “2011-12 Budget – Possibly an Insurmountable Challenge .”  Damon Runyon famously wrote in Guys and Dolls, “It may be that the race is not always to the swift, nor the battle to the strong – but that’s the way to bet.”  (He also wrote, “One of these days in your travels a guy is going to come up to you and show you a nice brand-new deck of cards on which the seal is not yet broken, and this guy is going to offer to bet you that he can make the jack of spades jump out of the deck and squirt cider in you ear. But son, do not bet this man, for sure as you stand there, you are going to wind up with an earful of cider,” but that is a different post.)

Anyway, the question is how can Stebbins make the projections she does without totally sacrificing here credibility.  It is because she is an hopeless optimist.  Suppose you have some outcome involving a complicated process (or even a simple, but repeated process) and you want to predict what might happen.  If you take the most likely event for each step then you will undoubtedly miss the mark.  Let’s say you are 95% sure of each result going your way.  If it takes 10 correct guesses to reach the desired outcome then you only have a 60% chance of being right overall.  Lower the odds to 90% (still pretty good) and the odds drop to about 1 in 3 (35%).  And make it 80% for each individual part and you may as well give up because you are going to fall short about 9 times out of 10 (11% success).  Now suppose the number of things that have to go your way are not 10, but an even dozen; the odds drop to 54%, 28%, and 7% respectively.

 When you look at the District budget and wonder what, so spectacularly, is going wrong, you just have to understand that the budget is based on an interconnected set of events.  All of these things were predicted towards the overly optimistic side.  Stebbins had no choice really because a realistic acknowledgment of the prospects for 2011/2012 would have been admitting the Hospital’s acute care services were doomed and she was not prepared to go there.    Just some of the interconnected pieces that make up the District’s budget:

1.  Acute care census (including critical care).
2. # of ER visits.
3.  % of ER visits that become inpatient admissions.
4.  # of inpatient surgeries.
5.  # of outpatient suregeries.
6.  Sub-acute census.
7.  SNF census.
8.  Medicare vs. Medi-Cal mix in the SNF census.
9.  Accuity of Medicare patients admitted to SNF.
10. Expenses for nursing (in all units).
11.  Other expenses.
12. Insurance mix for acute care services (Medicare/Medi-Cal/3rd party insured/private pay).
13. Sick time and vacation time.
14. Efficiency of personnel (such as the business office).
15.  Case mix index.
16.  Length of Stay (ties into census so may not be strictly separate).
17.  Disproportionate cost stays.
18.  Government reimbursement policies.
19.  Outcome of labor negotiations.
20. Outcome of 3rd party payer negotiations.
21.  Wound care center schedule.
22. Wound care center budget.

That’s all I can think of off the top of my head.  Clearly, if each one of these represents anywhere from a 100,000 to 2,000,000 dollar swing in the budget and they are all estimated towards the high side  then you can have a budget which, on paper looks reasonable, but is impossible to meet.  That’s what happened with last year’s budget (2010/2011).  That’s what is happening with this year’s budget (2011/2012).  That’s the flaw in the Waters Edge project analysis/budget.


About egorelick

Gadfly. Former City of Alameda Healthcare District Board member.
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