Page 35 - CEO Orientation

flow but were seeing trending over the past five years in declining revenues and increasing
expenses. Review was also completed on major liabilities including St. Michael’s capital
redevelopment project (called St. Michael’s 3.0) and pension plan obligations at the three
organizations. The analysis also considered how revenues for an integrated organization would be
affected through the Ministry of Health and Long-Term Care’s Health System Reform Funding
(HSFR) model. Our modelling is based on expenses experienced in 2015-16 and funding results for
2016-17. Escalation factors related to cost eliminations/avoidance were not included.

KEY CONSIDERATIONS FOR INTEGRATION ANALYSIS
The financial analysis used well-established provincial metrics to assess benchmarks for the
organizations across peers to validate efficiency targets and to measure and compare resource
utilization across support services. Then the analysis involved modelling those targets, net of one-
time and ongoing costs, within the HSFR formula to capture any possible revenue impacts.

ONE-TIME AND ONGOING COSTS
There are one-time legal, capital and ongoing human resource costs associated with transitioning to
a new health network from three separate organizations. These costs primarily relate to
governance, information technology and workforce management with one-time costs being
absorbed in years 1 and 2 of the new health network. The one-time costs are estimated to be
between $29.7 and $33.7 million. We are not requesting any additional operating funds to support
the transaction.

EFFICIENCY TARGETS: CORPORATE SUPPORT / BACK OFFICE
Using the identified benchmarks and factoring in the one-time and ongoing costs, there are two
levels of efficiency targets (six and eight per cent) to help predict savings opportunities across the
in-scope administrative or corporate / back office support areas (cost centres) at the three
organizations. This modeling included three years of transition savings to the network’s budget as
one-time costs were incurred.

The total value of the support service budgets under review was almost $240 million. Out-of-scope for
the analysis was frontline clinical and related frontline support services. The following table illustrates
the efficiencies calculated under each scenario.

6% scenario 8% scenario

Corporate Support / Back Office Efficiencies $ 15 million $ 20 million

FINANCIAL PROJECTIONS: HEALTH SYSTEM FUNDING REFORM IMPACTS
The next step in the financial analysis was to determine how the savings or efficiencies, including the
one-time costs plus ongoing incremental cost would impact the revenue received from the Ministry
of Health and Long-Term Care. The six and eight per cent efficiency targets of $15 and $ 20 million

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