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Transformation 2.0:Creating the Narrative for
Employment Success
PERSON-CENTERED, SYSTEM-WIDE
#Transformation2.0
Transformation 2.0
Changing Business Models
September and November 2016
Presented by
Laurie A. Kelley and Allan Blum
for NYSRA
Agenda
Overview
Effect of Funding Environment
OPWDD’s Integrated Business Model
Considerations for Existing Business with Program
Structure Change
Considerations for a New Business Venture
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Effect of Funding Environment
GOOD TIMES
In times of growth money is free-flowing
Banks provide loans
States provide more funding
Agencies grow
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Funding Environment
TOUGH TIMES
In tough times sources of funds dry up
Banks do not renew lines of credit
It is much harder to obtain loans
States cut back on funding and/or do not provide trend factors
Agencies contract in size
Moderate to significant budget cuts
Staff layoffs
Do more with less
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Where Are We Today?
NYS Budget deficit
Administrative efficiencies
Lack of trend factors
Decrease in state budget line items
Decrease in Medicaid dollars
Office of Medicaid Inspector General
Work Center Integrated Business Models
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Integrated Business Model
Transformation expected to be completed by 2020
Model 1
40% or < of workforce consist of employees who receive OPWDD HCBS
Waiver services
Opportunity to interact with people without disabilities (co-workers,
customers, public)
Staff who provide habilitation supports are not co-workers
Benefits are the same for all employees including schedules, breaks, lunch
times and time off
Disabled workers cannot be isolated from the public
Comply with HCBS Heightened Scrutiny standards
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Integrated Business Model II
Same as Model I except
41-76% of the workforce consist of employees who receive OPWDD HCBS
Waiver services
Business must document efforts to diversity the workforce
Provide a description of efforts to recruit employees without disabilities including
where job openings are posted and advertised
Description of how the delivery of OPWDD services are separate from the
operations of the business
Model II designed for continuation of SourceAmerica contracts
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Certain things need to change
Executive leadership thought process
Board of Directors and Board oversight
Staff alignment
Mission/Vision alignment
Impact and education on service recipients
Fiscal impact of change
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Considerations for an Existing Business to
Change its Business Structure
When considering change, how does it
affect these groups?
Executive leadership
Board involvement
Staff involvement
Community involvement
Governmental agency involvement
Private dollars
Person supported involvement
Alignment with Mission
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Business Plan
Has a business plan been created?
Communication strategies
Fiscal impact of change
Timeline
Does operating certificate need to be surrendered?
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Process for Change
Restructuring
Collaboration/Partnership
Discontinuation of service(s)
Transfer of operating certificate
Merger
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Defining the Restructuring Options
Merger – an organization’s corporate life, assets and
current/future liabilities are absorbed into another “surviving”
corporation
Name, brand, bylaws, etc. of surviving corporation may change
Consolidation – the corporate life and assets of two
organizations are combined into a newly created corporation
Requires securing new IRS exemption
Dissolution – an organization goes away and remaining assets,
if any, go to another organization with similar mission
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Defining the Restructuring Options (continued)
Affiliation* – a corporate relationship of significance short of a
merger, consolidation or dissolution
Subsidiary: one organization has membership or governing
controlling interest in another
Related Entity: membership or governing interest exists but not
controlling
Joint Venture: Single or specific project or purpose
May involve creating another corporate entity
Contractual, but no membership or governing ties
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* Note: can be not-for-profit or for-profit entities
Considerations in the Change Process
Consideration for Cost Reductions
Personnel
Administration
Program management
Staff
Property and Fixed Costs
Inventory
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Historical Costs
Personnel
Absorption of staff
Unemployment costs if reduction in staffing
Effect of administration cost redistribution
How will this affect the overall budget and fringe benefit costs?
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Financial Impact on Decision
If not reducing administration –
If total budget is $15M
Administration is 12% = annual cost $1.8M
Program Revenue is $5M
Ratio Value of Admin. for program is $600K
$600K in expense needs to be absorbed with NO associated revenue
Administrative percentage is now 18%
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Impact of Property and Fixed Assets
Property
What is it’s value and are there any program
restrictions
Physical plant operating cost – utilities and
maintenance
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Impact of Property and Fixed Assets
If property is not repurposed into another revenue source
Depreciation expense continues until asset is eliminated
Property and equipment acquired at $30M with a 15-year life –
depreciation expense is $2M/yr.
If useful life is still 5 years – $2M expense continues annually for 5
years until disposed
If disposed, immediately, without sale – impact is $10M added to
agency expense
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Impact of Property and Fixed Assets
If property is repurposed into another revenue source
Depreciation expense continues until asset is eliminated
Property and equipment acquired at $30M with a 15-
year life – depreciation expense is $2M/yr.
If remaining useful life is 5 years – $2M expense
continues annually for 5 years until disposed
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Inventory – Cost of Goods Sold
Determine cost of inventory
Can it be sold?
Does a write off for inventory need to occur?
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Other Considerations
Potential unrealized liabilities
A/R and potential write offs from subcontract vendors
Debt covenant requirements
Ability to repurpose fixed assets
Maintaining financial ratios
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Considerations for Work Center in New
Organizational Structure
Access to capital
Purchasing and A/P functions
Cost and transferability of employee benefits
Working capital
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Considerations for the New Business
Venture
Successful For-Profit business have several
common traits
Focus on profitability
Eliminate waste and inefficiency
Ability to change as necessary (strategically)
Funding (capital)
Clear business model
Low fixed costs
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Questions
Laurie A Kelley
Allan Blum
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