Orientation to Clark Fork Valley Hospital Finance for Board Members

Report
Hospital Finance 101
The Finance Quality Connection
Introduction to Hospital Finance &
Reporting
Getting Comfortable with the
numbers
Carla Neiman
Chief Financial Officer
Clark Fork Valley Hospital
What is your F Quotient?
Discussion Topics

Why Finance?


Basic Hospital Finance & Reporting


How the goals of financial performance and quality
care are related & integrated
How to understand and use your hospital’s financial
information
Current Trends in Healthcare Finance &
Reimbursement

Affordable Care Act and coming payment reforms
Why Finance?


Margin vs. Mission
One of the most important characteristics of
ANY business is its financial performance &
condition
Financial Analysis evaluates a
business’s financial performance &
condition



Does it have the financial capacity to fulfill its
mission?
By assessing the financial health of our hospital
we can identify strengths & weaknesses
The principal of Stewardship
The Quality Connection

The financial impact of quality on your hospital
Cost of new technology and the evolving “standard
of care”
 Adverse events
 Lawsuits, insurance claims and insurance cost
 Community image – consumer assessment
 Payer impact – Never Events, credentialing &
payment reform
 Survey agencies
 Publicly reported quality data

The evolving relationship between
quality and cost in health care

The “Cost of Quality” - 1990

“…costs and quality of care cannot be separated
from each other. Higher quality often requires
increased expenditures. When this occurs,
decision makers must reconcile the desire for
higher quality with the desire for cost control.”
–Kovener & Neuhauser, 1990
The evolving relationship between
quality and cost in health care


The “Cost of Poor Quality” - 2005
Process improvement & resulting reduction in cost,
LEAN, Six Sigma

“Although health care differs in many ways from
manufacturing, there are also surprising similarities:
Whether building a car or providing health care for a
patient, workers must rely on multiple, complex
processes to accomplish their tasks and provide value to
the customer or patient. Waste – of money, time,
supplies or good will – decreases value…”
--Institute for Healthcare Improvement (2005)
The Quality Connection

High Cost does not mean High Quality

“Despite having the most costly health
system in the world, the United States
consistently underperforms on most
dimensions of performance compared with
other industrialized countries…”
–Karen Davis, President, Commonwealth Fund
Introduction to Hospital Finance
& Reporting
 How
the hospital gets and spends
its money
Financial Statements




Audited vs. Interim
Statement of Operations (Income Statement)
Statement of Financial Position (Balance Sheet)
Statement of Cash Flows
Other Financial Reports



Statistical Reports
Accounts Receivable Status
Labor Productivity Report
Statistical Reporting



Hospital revenues tend to be volume driven and
revenues are well demonstrated with statistics
Statistical reports should compare actual
statistics to budget for current period and yearto-date
One should see a reasonable correlation
between variances in statistics and
corresponding categories of revenue
Typical Statistics to Review








Average Daily Census (by unit, by category)
Patient days
Outpatient Visits
Surgery minutes
Case mix index
Emergency Room visits
Clinic visits
Revenue per day and per visit
Statistical Report example
Description Actual
Budget
Variance
Avg YTD
Hospital
ADC
4.2
4.7
(.5)
3.9
Surgery
Minutes
3709
2778
931
2636
Outpatient
Visits
1370
1483
(113)
1388
Dashboard Report
Clark Fork Valley Hospital Dashboard Report
L eg
end
rte r
Y TD
Q ua
0
2 01
10
- 20
-1 0
Se p
-1 0
A ug
10
J ul-
-1 0
J un
0
-10
0
-1
Ma y
A pr
-1
Ma r
10
-10
Fe b
J an
ar k
ch M0 10
2
Be n
3 rd
ar k
ch M0 09
2
Be n
9
2 00
-09
-0 9
N ov
D ec
Y TD
INDICATOR
Volume Indicators
Acute Care ALOS/Hrs
Acute care ADC
# ER visits
# Observation hours
Swing Bed ADC
# Total OP Visits
Surgery Minutes
Family Medicine Network - Visits
70
93
71
70
< 96
58
64
73
78
61
57
65
65
65
< 96 CAH
4.6
4.8
5.0
4.6
4.5
1.5
3.2
5.9
4.7
4.2
2.0
2.8
2.8
3.5
4.7 CFVB
221
197
180
215
221
184
201
259
186
203
190
260
260
212
218 CFVB
206
113
59
137
188
33
120
54
175
133
167
143
143
118
154 CFVB
1.6
2.9
2.9
1.8
2.6
3.5
3.2
3.6
0.7
1.3
1.6
1.0
1.0
2.1
2.0 CFVB
1398
1251
1323
1416
1500
1464
1269
1387
1452
1370
1507
1352
1352
1400
1483 CFVB
1866
3164
3172
2510
2785
2239
2059
2720
2455
3709
1424
2639
2639
2464
2778 CFVB
1542
1323
1397
1483
1711
1322
1303
1828
1616
1438
1606
1354
1354
1495
1931 CFVB
25.9
27.2
28.4
20 - 25
24.0
18.2
30.2
29.11
33.3
42.6
39.7
Financial Indicators
Days Cash On Hand
EBITDA
% S & B /NR
Days in AP
Days in AR
25 - 28 CFVS
153434
73
59
70
25.4
23.4
63
63
64
160404 CFVB
<57
73
78
57
60
56
67
57
64
<59 CFVS
31.5
<35.0
30.0
33.7
45.2
41.0
27.3
27.5
22.5
<35.0 CFVS
59
<60
57
61
62
56
57
53
55
<60 CFVS
The Statement of
Operations
Also called the “Income Statement” –
this report outlines actual revenues and
expenses, as compared to budget, and
is the most important gauge of the
positive or negative results of the
hospital’s operations for the period.
Hospital Revenues

Operating Revenue
Directly related to operations
 Volume driven


Other Operating Revenue


Indirectly related to operations
Non-Operating Revenue

Not related to operations
COMMUNITY GENERAL HOSPITAL STATEMENT OF OPERATIONS
FYE
12/31/2008
Audited
Gross Patient Service Revenues
Inpatient Revenue $ 45,685,914
Outpatient Revenue $ 52,267,576
Physician Revenue $
3,888,000
Total Patient Service
$ 101,841,490
Revenue
FYE
12/31/2009
Audited
CY As of
6/30/2010
Interim
$ 51,168,224
$ 60,107,712
$ 5,841,777
$ 117,117,714
$ 28,921,427
$ 34,762,285
$ 3,342,846
$ 67,026,557
Revenue Deductions
Contractual Allowances
$ (19,161,125)
Charity Care
$ (10,235,845)
Total Deductions $from
(29,396,970)
Revenue
$ (21,077,238)
$ (12,283,014)
$ (33,360,252)
$ (12,646,343)
$ (6,755,658)
$ (19,402,000)
Net Patient Service
$ Revenue
72,444,520
$ 83,757,462
$ 47,624,557
Other Operating Revenue
$ 1,770,569
$
$
Net Operating Revenue
$ 74,215,089
$ 85,687,382
1,929,920
964,960
$ 48,589,517
Operating Revenues


Routine – Inpatient Room & Bed Charges
Ancillary – Inpatient & Outpatient


Lab, Imaging, Pharmacy, Therapy, Supplies, ER,
Surgery, Home Health
Clinic
Deductions from Revenue
“No one pays full price…”
 Contractual
Discounts/Allowances
 Charity Care
 Policy Discounts – Employee
discounts, Administrative Discounts
 Monthly
Allowance Estimates
Net Patient Service Revenue


This is the difference between Gross Charges
and Contractual Allowances
This is the NET amount of revenue we expect
to collect after discounts to patients and
public/private payers
Hospital Service Revenue & Margin
Lab Test A
Charge/Price = $25.00
 Payment (varies w/payer) Medicare = $18.00
 Cost = $13.00



Charge – Payment = Contractual Adjustment
Payment – Cost = Contribution Margin
Payer Types & Payment
Methodology – Hospital

Medicare and Medicaid Hospital





CAH  Cost Based
Non-CAH  Prospective Payment (DRG & APC)
Commercial Insurance – Fee for service and discounts
from charges, DRG or case payments, capitation
Private Pay – Prompt pay discounts, charity care, bad
debt expense
Medicare Swingbed – Per Diem based on Cost per Day
Payer Methodology
Other Services






Medicare DME, Lab, Mammo – Fee Schedule
Medicare Home Health – Episode Based
Medicaid Nursing Home – Per Diem based on
Facility Rate set by the state
Medicare Nursing Home – Prospective payment
based on RUG coding
Medicare Rural Health Clinic – Payment per
visit @ cost
Physician – RBRVS based on rate per RVU
Evolution of Payment Methodology





Incentives!
DRG’s 1983
APC’s 2000
Home Health Episodes 2000
Future… Value-based Purchasing; Accountable
Care Organizations; Payment for outcomes vs.
fee for service
Hospital Service Mix
Clinics
15%
OP Hospital
46%
Inpatient
27%
Long Term Care
8%
Swingbed
4%
Outpatient Service Mix
Thompson Falls
Clinic
Bull River Clinic
8%
1%
Hot Springs Clinic
6%
Emergency Room
21%
Plains Clinic
9%
Observation
4%
OP Surgery
9%
Outpatient
33%
Recurring
Outpatient
8%
Home Oxygen
1%
Revenue Payer Mix
Workers Comp
2%
Tribal Health
1%
Self Pay
11%
Comm'l
11%
BCBS
10%
Champus Medicaid
2%
15%
Medicare
48%
Other Operating Revenue
 Cafeteria
Revenue
 Medical Records Revenue
 Rental Revenue
 Outreach Revenue
Non-Operating Revenue
 Interest
 Gains
and Losses on Fixed Assets and
Joint Ventures
 Grants & Charitable Donations
Operating Expenses






Staffing – Salaries, Benefits, Professional Fees
Supplies & Other – Medical and Non-Medical
Supplies, Purchased Services, Insurance, Utilities,
Repair & Maintenance, Lease & Rental
Depreciation
Interest
Bad Debt
Other Expense – Postage, Travel, Dues & Subs,
Taxes
Net Operating Revenue $ 74,215,089
Operating Expenses
Salaries
$ 37,339,563
Benefits
$ 6,195,810
Professional Fees
$ 2,540,480
Supplies
$ 1,205,458
Purchased Services
$ 2,725,896
Utilities
$ 2,921,005
Insurance
$
895,600
Interest
$
423,721
Depreciation & Amortization
$ 4,693,531
Provision for Bad Debt $ 6,453,850
Other Expenses
$ 3,586,952
Total Operating Expenses$ 68,981,866
Operating Gain (Loss)
$
5,233,223
Non-Operating Gains (Losses)
Gain (Loss) on Disposal$
(452,360)
Unrestricted Contributions
$
348,000
Total Non-Operating Gain$(Loss)
(104,360)
Net Income (Loss)
$
5,128,863
Operating Expenses
Interest
4%
Bad Debt
Other Expense
6%
1%
Depreciation
6%
Supplies & Other
23%
Staffing
60%
The Balance Sheet
The Statement of Financial Position or
Balance Sheet is a snapshot of the
financial position of the organization at a
specific point in time. It can tell us a lot
about the financial health of the business.
Assets

Short Term






Cash and Investments
Accounts Receivable – gross vs. net
Other Receivables – Third Party Payers, Non-patient
receivables
Inventory
Prepaid Expenses
Long Term


Property Plant & Equipment – at cost less accumulated
depreciation
Other Assets – Restricted assets, Joint Ventures, Intangibles,
such as good will
Liabilities

Short Term
Accounts Payable
 Accrued Compensation
 Other Accrued Expenses
 Line of Credit
 Current Portion of Long Term Debt


Long Term
Mortgage & other Long Term Debt Payable
 Capital Leases

Net Assets or Fund Balance
This is the equivalent of “equity” in a non-profit



Unrestricted Fund Balance
Restricted Fund Balance
Current Year’s Operations Balance, if interim
CASH – What really keeps the
hospital ticking!
The importance of monitoring
cash flows

While Revenues and Expenses offer an
excellent assessment of the financial outcome
of operations, the bottom line is not directly
indicative of real-time financial performance,
since most revenues are not collected at the
time of service, most expenses are not paid
when incurred and non-cash expenses, while
important, do not have a direct impact on our
financial resources
The Revenue Cycle
Sources of Cash
 Collection
of Accounts Receivable
 Cash Services
 Investment Income
 Sale of Assets
 Financings
 Unrestricted Donations
 Capital Contributions
Applications of Cash
 Payments
to Employees of Accrued
Compensation
 Payments to Suppliers of Accounts
Payable
 Payments to Lenders for Principal and
Interest
 Purchase of Fixed Assets
 Investments
Statement of Changes in Cash



Net Income (Loss) Results of Operations
Add back Non-Cash Expenses (Depreciation,
Amortization)
Identifies sources & uses of cash during the
accounting period to explain the change in the
cash balance
COMMUNITY GENERAL HOSPITAL STATEMENT OF CASH FLOWS
FYE
12/31/2009
Cash Flows from Operating Activities
Operating Income
Adjustments to Reconcile Operating Income
Depreciation & Amortization
Interest Expense
Decrease (increase) in Current Assets
Accounts Receivable (net)
Other Receivables
Inventories
Prepaid Expenses
Increase (decrease) in Current Liabilities
Accounts Payable
Accrued Compensation
Other Current Liabilities
Net cash provided by operating activities
$ 7,946,517
$ 5,022,078
$
453,381
$
$
$
$
(856,000)
(150,000)
(124,000)
(35,000)
$ 1,191,000
$
500,000
$
$ 13,947,977
Cash Flows From Noncapital Financing Activities
Cash received from donations & other non-operating revenues
$
Cash Flows from Capital and Related Financing Activities
Principal Payments on long-term debt
Interest Paid
Proceeds from new debt
Payments for purchase of property, buildings & equipment
Proceeds from sale of equipment
Net cash used in capital and related financing activities
$ (1,456,360)
$ (453,381)
$
750,000
$ (7,080,613)
$
50,000
$ (8,190,354)
Cash Flows from Investing Activities
Investment in Joint Ventures
Other Investments
Net Cash Used in Investing Activities
$
50,000
$ (5,685,622)
$ (5,635,622)
Cash and Cash Equivalents, beginning of year
Cash and Cash Equivalents, end of year
$ 1,489,000
$ 2,015,000
404,000
Accounts Receivable Analysis



Increased Accounts Receivable is a drain on
cash flow
Optimizing the “Revenue Cycle” means
capturing charges, generating bills and
collecting from payers as quickly as possible, so
that the resulting cash can be used to fund
operations
Accounts cannot be collected until they are
billed
Accounts Receivable Analysis
Report






Breakdown by Patient Type (Inpatient, Outpatient,
SNF) with prior month comp
Breakdown by Payer Type (Medicare, Medicaid,
Commercial, Self Pay) with prior month comparison
Aging of Accounts Receivable
Unbilled Accounts Receivable
Gross Days A/R Outstanding w/ prior month
comparison
Revenue and Revenue Day Equivalent
Days Revenue in Accounts
Receivable Outstanding



Total Accounts Receivable / Average Revenue
per day
This is a measure of how many days it takes to
collect patient accounts, on average
This will vary by payer and type of service
Medicare will pay a clean bill in 14 days
 Private Pay nursing home accounts are generally paid
in advance
 Self pay bills may take several months to a year (or
more) to be paid off

ACCOUNT
CLARK FORK V ALLEY
AND CLI NI CS
INPATIENT
1.
2.
3.
4.
5.
6.
7.
OUTPATIENT
8.
9.
10.
11.
12.
13.
14.
15.
CLINICS
16.
17.
18.
19.
20.
21.
Month Ending:
Medicare
Medicare SwingBeds
Medicaid
Comm Insur/Other
Private/Self Pay
Unbilled
Total Inpatient
0-30
53,238
0
0
14,628
(2,945)
86,699
$151,621
Medicare
Medicaid
Comm Insur/Other
Private/Self-Pay
Unbilled
Total Outpatient
233,337
11,728
129,640
49,820
329,952
$754,478
Total Hosp. Accts. Rec.
Number of Days
Medicare
Medicaid
Comm Insur/Other
Private/Self-Pay
Unbilled
Total Outpatient
NURSING HOME
22.
23.
24.
25.
26.
Medicare
Medicaid
Private
Unbilled
Total Nursing Home A/R
27.
Total Accounts Receivable
22.
Accounts in Pre Collect
31-60
1,385
0
466
41,246
22,216
61-90
0
0
882
11,715
33,193
AGI NG
JUNE 2010
91-120
6,263
0
(15,002)
8,595
9,624
121-150
1,596
0
454
0
2,697
151+
5,901
6,167
(1,818)
14,562
206,877
$65,313
$45,790
$9,479
$4,747
$231,689
32,671
10,969
58,400
107,356
31,301
5,117
17,384
79,191
10,299
4,806
10,815
89,850
12,885
54
22,634
87,351
99,500
3,518
7,789
321,329
$209,396
$132,993
$115,770
$122,924
$906,099
23
$274,709
7
$178,782
5
$125,249
3
$127,671
3
71,395
7,448
47,057
5,658
35,042
$166,600
3,289
1,294
18,141
32,718
2,279
233
4,803
25,780
$55,441
$33,094
$26,994
0
0
680
0
0
8,672
0
4,486
3,856
0
(4,441)
(6,882)
0
7,449
21,121
$680
$8,672
$8,343
($11,324)
$28,569
$275,389
$187,454
$133,592
0
10,425
(48,384)
124,421
$86,462
$992,560
R E V E N U E
INPATIENT
1.
2.
3.
4.
5.
6.
OUTPATIENT
7.
8.
9.
10.
11.
CLINICS
12.
13.
14.
15.
16.
NURSING HOME
17.
18.
19.
20.
RECEI V ABLE
HOS P I TAL
250
(49)
4,066
22,727
No. of Days
Total
3 Months
Revenue
559,213
74,548
107,423
284,299
38,199
$1,063,682
515
74
1,828
19,133
$21,550
$116,348
Medicare
Medicare SwingBeds
Medicaid
Comm Insur/Other
Private/Self Pay
Total Inpatient
May
Revenue
178,765
30,725
30,580
133,876
36,158
$410,105
Apr
Revenue
204,994
12,025
67,364
122,742
14,825
$421,950
Medicare
Medicaid
Comm Insur/Other
Private/Self-Pay
Total Outpatient
434,990
57,642
224,174
107,344
$824,150
553,686
66,527
225,390
69,063
$914,666
426,274
67,866
189,120
77,435
$760,695
1,414,950
192,035
638,684
253,841
$2,499,511
$15,380
$2,087
$6,942
$2,759
$27,169
Medicare
Medicaid
Comm Insur/Other
Private/Self-Pay
Total Clinics
116,690
26,535
94,406
36,970
$274,601
128,316
22,842
77,441
31,558
$260,157
124,284
23,301
85,803
25,513
$258,900
369,290
72,678
257,650
94,040
$793,657
$4,014
$790
$2,801
$1,022
$8,627
Medicare
Medicaid
Private
Total Nursing Home
0
121,687
5,298
$126,984
0
131,279
10,596
$141,875
0
117,647
14,137
$131,784
0
370,613
30,030
$400,643
$0
$4,028
$326
$4,355
Prior
Month
145,591
102,345
16,209
141,134
310,599
143,236
$859,113
Cur
Days
11
8
(13)
29
654
44
521,758
32,791
246,999
698,706
344,148
$1,844,401
27
17
36
266
$432,136
419,994
36,191
246,662
734,897
329,952
$1,767,697
$663,825
17
$2,276,335
59
$2,703,514
63
59
78,722
8,094
80,601
161,176
35,042
$363,635
77,455
10,604
88,656
153,362
34,508
$364,585
5
4
12
58
0
17,918
(20,938)
124,421
$121,401
0
12,295
(15,050)
139,284
$136,529
994
(905)
4,707
55,161
$59,956
$692,394
92 Total AR O/S
Average Total AR Unbilled
Daily
Revenue
$6,078
$810
$1,168
$3,090
$415
$11,562
June
Revenue
175,454
31,797
9,478
27,681
(12,784)
$231,628
Current
Month
68,383
6,167
(15,018)
90,746
271,662
86,699
$508,639
$2,761,372
$3,204,627
65
42
#DIV/0!
4
(64)
28
53
$3,273
$3,379
0
2,764,645
576,114
3,208,006
661,176
53
11
The approximate net cash in Accounts Receivab
$1,962,898.01
Questions to ask about Accounts
Receivable Performance


How many days unbilled?
What action have we taken to manage/optimize
our revenue cycle?
Monitor physician chart completion
 Monitor transcription and coding turnaround
 Electronic billing
 Ensure clean claims
 Collection practices

Labor Productivity Analysis






Helps to analyze and justify variances in labor cost by
relating labor cost to service volume or other relevant
statistics
Overtime Hours by department
Non-Productive Hours (PTO, Vacation, Sick Leave)
“Target” is actual units of service x budgeted hours
per unit
Efficiency measures actual hours per unit of service to
budget
Productive % measures worked hours compared to
total paid hours
ytd
CLARK FORK VALLEY HOSPITAL
P RODUCTIV ITY M A NA GE M E NT RE P ORT
for the year-to-date period ended
Jun-10
COL #
*
*
*
*
1
2
3
4
5
STATISTICS
------------PRODUCTIVE-----------ACTUAL
BUDGET OT HRS TOT HOURSF.T.E.
AC #
DEPT NAMEUNITS
601000
607000
607500
607800
608000
617000
620010
621000
633000
701000
702000
703000
704000
705010
707000
726008
712000
713000
714000
714200
714300
714400
717000
718100
718500
720000
723000
726001
726002
726003
726006
731000
732000
735000
740600
820010
832000
835000
836001
843100
846000
848000
851000
853000
861100
861301
865000
869000
872000
874000
ICU/CCU PD
31
MED/SURG
PD
540
PEDS
PD
12
OBSTETRICS
PD
39
HOSP_PHYSICIAN
A/SWB_PD
1019
NURSERY PD
26
SNF
PD
4772
SWINGBEDS
PD
418
HOSPICE PD
827
L& D
DEL
18
OR
MIN
14606
RECOVERY
MIN
11850
ANESTH UNITS
1473
C.S
APD
2490
LAB
TESTS
20122
CARDIOLOGY
PROC.
CLI
1317
MRI
PROC
190
CT
PROC.
602
XRAY
PROC.
1679
ECHOCARDIOGRAPHY
PROC.
367
ULTRA
PROC.
344
MAMMO PROC
306
RX
APD
2490
CARDIO PULMONARY
PROC
1838
HOME OXYVISIT
415
P.T.
PROC
7338
ER
VISIT
1223
PLS CLINIC
VISIT
4184
TF CLINIC VISIT
2625
HS CLINIC VISIT
1628
WE CLINICVISIT
676
OCC THERPROC
826
SPEECH PROC
114
OBS
HOUR
708
HHA EPISODES
EPISODE
49
DIABETIC VISIT
8
DIET
MEAL
29869
LAUNDRY TOTPD
5300
ACTIVITIESSN/SWPD
5190
PLANT
SQFT
63,500
HOUSEKEEPING
SQFT
63,500
INFORMATION
DEVICES
SRVC
906
FISCAL
TOTPD
5838
PBS
TOTPD
5838
ADMIN.
TOTPD
5838
COMMUNITY
TOTPD
REL
5838
HUM RES FTE
168.8333
MED REC.EQ REG
19611
NURS ADMCAL DAY
181
EDUCATION
APD
& PI
2499
48
702
6
66
1242
54
4860
366
1116
30
16668
12960
1644
2886
22872
1494
234
774
2256
510
396
348
2886
2514
396
8940
1308
5118
3252
2358
858
750
204
924
54
0
33036
6096
5220
63650
63650
972
6096
6096
6096
6096
268
20364
180
2862
0
367
0
0
0
0
77
0
0
0
102
0
0
0
45
20
0
0
7
0
0
0
0
0
0
52
0
22
67
4
0
0
0
0
0
0
17
35
0
16
278
0
8
40
0
0
0
4
0
0
-
TOTAL PD
6857
0
19155
0
0
3052
0
19192
0
1035
0
3435
0
1038
2511
6738
2823
0
0
6185
36
0
0
0
2082
250
5310
1634
10223
5909
4276
2679
515
0
0
3524
0
8886
1964
1136
4492
8892
754
3650
12207
2893
920
2526
8658
1789
894
-
1161
=
=
6
7
8
9
10
TARGET TARGET VARIANCE % EFF
HRS/STATHRS/STATHRS 1*7 Col. 8-4
Col. 9/8
0.00
18.57
0.00
0.00
2.96
0.00
18.61
0.00
1.00
0.00
3.33
0.00
1.01
2.43
6.53
2.74
0.00
0.00
6.00
0.03
0.00
0.00
0.00
2.02
0.24
5.15
1.58
9.91
5.73
4.15
2.60
0.50
0.00
0.00
3.42
0.00
8.62
1.90
1.10
4.36
8.62
0.73
3.54
11.83
2.80
0.89
2.45
8.39
1.73
0.87
-
161263
0.00
35.47
0.00
0.00
3.00
0.00
4.02
0.00
1.25
0.00
0.24
0.00
0.70
1.01
0.33
2.14
0.00
0.00
3.68
0.10
0.00
0.00
0.00
1.13
0.60
0.72
1.34
2.44
2.25
2.63
3.96
0.62
0.00
0.00
71.92
0.00
0.30
0.37
0.22
0.07
0.14
0.83
0.63
2.09
0.50
0.16
14.96
0.44
9.88
0.36
-
156
=
AVERAGE DAILY CENSUS-YTD
0.00
28.18
0.00
0.00
1.56
0.00
4.16
0.00
1.04
0.00
0.20
0.00
0.63
0.84
0.34
1.84
0.00
0.00
3.07
0.81
0.00
0.00
0.00
1.06
0.70
0.62
1.30
2.25
2.01
2.35
3.52
0.70
0.00
0.00
58.11
0.00
0.28
0.25
0.33
0.07
0.10
0.71
0.60
2.05
0.63
0.16
10.79
0.43
10.47
0.33
-
171
=
0
15217
0
0
1590
0
19836
0
858
0
2955
0
930
2097
6799
2428
0
0
5158
298
0
0
0
1943
289
4521
1593
9432
5279
3832
2383
575
0
0
2847
0
8235
1335
1694
4358
6471
643
3488
11952
3666
925
1822
8500
1894
817
-
142
=
0
-3938
0
0
-1462
0
644
0
-177
0
-480
0
-108
-414
61
-395
0
0
-1027
262
0
0
0
-139
39
-789
-41
-791
-630
-444
-296
60
0
0
-677
0
-651
-629
558
-134
-2421
-111
-162
-255
773
5
-704
-158
105
-77
-
146660
=
3.44
*
11
PAID
HOURS
0.00%
74.12%
0.00%
0.00%
8.05%
0.00%
103.25%
0.00%
79.37%
0.00%
83.76%
0.00%
88.39%
80.26%
100.90%
83.73%
0.00%
0.00%
80.09%
187.92%
0.00%
0.00%
0.00%
92.85%
113.49%
82.55%
97.43%
91.61%
88.07%
88.41%
87.58%
110.43%
0.00%
0.00%
76.22%
0.00%
92.09%
52.88%
132.94%
96.93%
62.59%
82.74%
95.36%
97.87%
121.09%
100.54%
61.36%
98.14%
105.54%
90.58%
0
20891
0
0
3150
0
20838
0
1035
0
3622
0
1038
2747
7492
2951
0
0
6872
36
0
0
0
2301
250
5629
1633
11267
6371
4837
2808
524
0
0
3774
0
10062
2133
1261
4780
9322
756
4197
13339
3158
942
2877
9646
2070
1038
-
-14603
=
12
BUDGET
% PROD PAID
COL 4/11 HOURS
NO HRS
91.69%
NO HRS
NO HRS
96.89%
NO HRS
92.10%
NO HRS
100.00%
NO HRS
94.84%
NO HRS
100.00%
91.41%
89.94%
95.66%
NO HRS
NO HRS
90.00%
100.00%
NO HRS
NO HRS
NO HRS
90.48%
100.00%
94.33%
100.06%
90.73%
92.75%
88.40%
95.41%
98.28%
NO HRS
NO HRS
93.38%
NO HRS
88.31%
92.08%
90.09%
93.97%
95.39%
99.74%
86.97%
91.51%
91.61%
97.66%
87.80%
89.76%
86.43%
86.13%
0
21,750
0
0
1,980
0
21,696
0
1,158
0
3,630
0
1,038
2,880
8,316
3,018
0
0
7,284
414
0
0
0
2,706
276
6,030
1,704
12,480
6,858
6,036
3,330
0
0
0
3,606
0
10,464
1,734
1,818
4,722
6,960
834
4,158
13,668
4,074
1,008
3,114
9,774
2,076
1,056
-
175647
=
VARIANCE
IN
PAID HRS
0
859
0
0
(1,170)
0
858
0
123
0
8
0
0
133
824
67
0
0
412
378
0
0
0
405
26
401
71
1,213
487
1,199
522
(524)
0
0
(168)
0
402
(399)
557
(58)
(2,362)
78
(39)
329
916
66
237
128
6
18
-
181650
=
6003
=
How are we doing?
 How
are we tracking against our
budget?
 Ratio Analysis
Ratio Analysis


Ratio analysis is a technique used in both
financial statement and operating indicator
analyses
It combines values from the financial statements
(and elsewhere) to create single numbers that
Have easily interpretable financial significance
 Facilitate comparisons

Using Ratios

A single ratio value has little meaning
One point in time may not be representative
 We can’t judge whether it is good or bad


Two techniques are commonly used
Trend – Time series analysis
 Comparative – Cross Sectional analysis with
comparisons to industry benchmarks and peers

Ratios help to identify



Questions to ask
Issues to address
Problems to solve
They do not necessarily provide

Answers

Explanations

Solutions
*That’s the job of management!
Profitability Indicators

Measure the ability to generate the financial
return required to replace assets, meet financial
obligations, meet increases in service demands,
and compensate investors (or in the case of a
nonprofit, build reserves for stability & growth

Total margin, cash flow margin, return on equity,
operating margin, debt service coverage
Liquidity Indicators

Measure the ability to meet cash obligations in a
timely manner

Current ratio, Days cash on hand, Days Revenue in
Accounts Receivable, Days in Accounts Payable
Capital Structure Indicators

Measure the extent of debt and equity financing

Equity financing, debt service coverage, long-term
debt to capitalization
Sources of Comparative
Information





Finding a suitable comparison – Peer groups,
similar facilities (type, size, service mix, location)
Moody’s and other Debt Rating Agencies
Healthcare Financial Management Association
MHA Databank
National CAH Flex Team Benchmarking
Flex Monitoring Team
CAH Financial Indicators Report
61
Beyond the numbers…

Understand your Hospital’s Operating
environment and its impact on the financial
picture
External environment – economic, regulatory,
human resource, payers, competition, investment
performance, donor support
 Internal environment – management control, staff
vacancies, case mix, payer mix, physician practice
patterns

Environmental Analysis (cont)

Retrospective


How do environmental factors help to explain past
financial performance?
Proactive
Anticipating change in the environment and its
associated impact on future performance
 Taking action to minimize negative influences and
maximize opportunities presented by positive
change


Planning!
The Budget


A budget is an operating plan expressed in dollar
amounts that acts as a road map to carry out an
organization’s objectives, strategies and
assumptions.
Translating operating plans and assumptions
into their expected financial results ensures
those plans and assumptions are financially
realistic
Budget Process




Based on the Strategic Plan
Allows adequate time for staff and board input,
review and approval
Has some basis in current year’s results
Provides for department level involvement

and accountability
Current Trends in Healthcare
Finance & Reimbursement

The “unsustainable” cost curve
Spending on Healthcare as a Percentage of GDP, 1966 – 2005
Source: Congressional Budget Office (2007)
Current Trends in Healthcare
Finance & Reimbursement
Projected Spending on Health Care as a Percentage of GDP, 2007-2082
Source: Congressional Budget Office (2007)
Current Trends in Healthcare
Finance & Reimbursement
Sources of Projected Growth in Spending on Medicare & Medicaid
Source: Congressional Budget Office (2007)
Current Trends in Healthcare
Finance & Reimbursement


A growing emphasis on “VALUE”
“Value is defined as the relationship of quality to cost.
High quality at inappropriately high cost does not
produce value. Likewise, low quality at low cost also does
not produce value. Relentlessly driving toward both high
quality and low cost is what produces value. Given our
current environment, it is critical for healthcare
organizations to make achieving value a key strategy.”
--Dick Clarke, HFMA President (2009)
Current Trends in Healthcare
Finance & Reimbursement





Consumer Driven Health Care
Empowered consumers
Widespread availability of information
Third party payer scrutiny – RAC Audits
Never Events
From the OIG Adverse Events
Report




Studied representative sample data in one month
of 2008 to extrapolate annual estimates
1 in 7 Medicare beneficiaries admitted to a
hospital is harmed
Adverse events add $4.4 Billion to government
health care cost annually and contribute to the
deaths of 180,000 patients each year
Most adverse events are preventable
Patient Protection & Affordable Care
Act (PPACA)


Healthcare Reform using “Healthcare Payment
Reform” as incentives
Intended to drive a shift from “fragmented
care” to “coordinated care”
Trends in Healthcare Finance &
Reimbursement

Payment for Outcomes vs. Services

“You may regard as a Utopian dream my hope to
see all our hospitals devoting a reasonable portion
of their funds to tracing the results of the treatment
of their patients and analyzing these results with a
view to improving them. You may prefer to ponder
over the voluminous discussions now appearing in
our journals and in the lay press about the pros and
cons for state medicine and who is to pay the cost
of medical care. I read these discussions, but they
seem to be futile, until our hospitals begin to trace
their results.”
--E. A. Codman, 1935
Trends in Healthcare Finance &
Reimbursement

Reduced ability to “cost shift”


With health care reform, more people will have
coverage under government programs which
traditionally do not cover the full cost of care, due to
the expansion of coverage and the aging of the
population
Coverage expansion & access to services
Shortage of primary care providers
 Adequate supply of facilities & services

“Changing Economics in an Era of
Healthcare Reform”

“As health systems prepare for healthcare reform, they are
focusing significant resources on developing accountable
care organizations and medical homes and on preparing for
bundled payments and population-based reimbursement.
However, current economic trends combined with an
analysis of the impact of key healthcare reform initiatives
will require health systems to take significant cost out of
their systems to maintain positive financial performance.
Few organizations have the culture or the expertise to
implement a cost-reduction effort of this magnitude.”
--Nathan S. Kaufman, Managing Director, Kaufman Strategic Advisors,
LLC (Journal of Healthcare Management, January/February, 2011)
Questions?
Helpful Resources
A Community Leader’s Guide to Hospital Finance
http://www.accessproject.org/downloads/Hospital_Fina
nce.pdf
 Guidestar: Data on non-profits including IRS F990
info
http://www2.guidestar.org/
 Montana Attorney General Report on Montana’s
Hospitals and Charitable Purpose
http://doj.mt.gov/consumer/consumer/hospital/hospita
lreport2010.pdf

More Resources
Databank: Financial data repository for all hospitals across
the state of Montana; ability to print comparative reports
for your hospital to various peer groups, all hospitals in the
state, and selected hospitals
www.databank.org
 Flex Monitoring Team: Comparative financial data on
CAH hospitals with trending
*Hospital specific reports for CAH accessible by CEO &
CFO
*Educational resources – how to read the reports and
interpret ratios & comparative data
http://flexmonitoring.org/
 Rural Assistance Center: Various resources, publications
and funding information related to rural health
http://www.raconline.org/

More Resources



Information on healthcare reform & finance
www.hfma.org/reform
Healthcare Costs & Spending
www.kff.org
www.cbo.gov/ftpdocs/87xx/doc8758/MainText.3.
1.shtml
Adverse Events in Hospitals
www.oig.hhs.gov/oei/reports/oei-06-09-00090.pdf
Contact Me





Carla Neiman, CFO
Clark Fork Valley Hospital
P. O. Box 768
Plains, MT 59859
(406)826-4851

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