Hospital Finance 101

Carla NeimanChief Financial Officer

Clark Fork Valley Hospital

The Finance Quality Connection

Introduction to Hospital Finance & Reporting

Getting Comfortable with the numbers

What is your F Quotient?

Discussion Topics

Why Finance? How the goals of financial performance

and quality care are related & integrated

Basic Hospital Finance & Reporting 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 “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 evolving relationship between quality and cost in

health care

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 year-to-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 ReportClark Fork Valley Hospital Dashboard Report

INDICATOR

Volume IndicatorsAcute Care ALOS/Hrs 70 93 71 70 < 96 58 64 73 78 61 57 65 65 65 < 96 CAH

Acute care ADC 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

# ER visits 221 197 180 215 221 184 201 259 186 203 190 260 260 212 218 CFVB

# Observation hours 206 113 59 137 188 33 120 54 175 133 167 143 143 118 154 CFVB

Swing Bed ADC 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

# Total OP Visits 1398 1251 1323 1416 1500 1464 1269 1387 1452 1370 1507 1352 1352 1400 1483 CFVB

Surgery Minutes 1866 3164 3172 2510 2785 2239 2059 2720 2455 3709 1424 2639 2639 2464 2778 CFVB

Family Medicine Network - Visits 1542 1323 1397 1483 1711 1322 1303 1828 1616 1438 1606 1354 1354 1495 1931 CFVB

Financial IndicatorsDays Cash On Hand 25.9 27.2 28.4 20 - 25 24.0 18.2 30.2 29.11 33.3 42.6 39.7 25 - 28 CFVS

EBITDA 153434 160404 CFVB

% S & B /NR 73 59 70 64 <57 73 78 57 60 56 67 57 64 <59 CFVS

Days in AP 25.4 23.4 31.5 <35.0 30.0 33.7 45.2 41.0 27.3 27.5 22.5 <35.0 CFVS

Days in AR 63 63 59 <60 57 61 62 56 57 53 55 <60 CFVS

Volume Indicators

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

FYE FYE CY As of12/31/2008 12/31/2009 6/30/2010Audited Audited Interim

Gross Patient Service Revenues Inpatient Revenue 45,685,914$ 51,168,224$ 28,921,427$ Outpatient Revenue 52,267,576$ 60,107,712$ 34,762,285$ Physician Revenue 3,888,000$ 5,841,777$ 3,342,846$ Total Patient Service Revenue101,841,490$ 117,117,714$ 67,026,557$

Revenue Deductions Contractual Allowances (19,161,125)$ (21,077,238)$ (12,646,343)$ Charity Care (10,235,845)$ (12,283,014)$ (6,755,658)$ Total Deductions from Revenue(29,396,970)$ (33,360,252)$ (19,402,000)$

Net Patient Service Revenue72,444,520$ 83,757,462$ 47,624,557$

Other Operating Revenue1,770,569$ 1,929,920$ 964,960$

Net Operating Revenue74,215,089$ 85,687,382$ 48,589,517$

COMMUNITY GENERAL HOSPITAL STATEMENT OF OPERATIONS

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/AllowancesCharity CarePolicy Discounts – Employee

discounts, Administrative DiscountsMonthly 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 MethodologyOther 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

Inpatient27%

Long Term Care8%

Swingbed4%

OP Hospital46%

Clinics15%

Hospital Service Mix

Emergency Room20%

Observation4%

Outpatient33%

Home Oxygen1%

Recurring Outpatient8%

OP Surgery9%

Plains Clinic9%

Hot Springs Clinic6%

Thompson Falls Clinic8%

Bull River Clinic1%

Outpatient Service Mix

Medicare48%

Medicaid15%

Champus2%

BCBS10%

Comm'l11%

Tribal Health1%

Workers Comp2%

Self Pay11%

Revenue Payer Mix

Other Operating Revenue

Cafeteria RevenueMedical Records RevenueRental RevenueOutreach Revenue

Non-Operating Revenue

InterestGains and Losses on Fixed

Assets and Joint VenturesGrants & 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$

Staffing60%Supplies & Other

23%

Depreciation6%

Interest4% Bad Debt

6%

Other Expense1%

Operating Expenses

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 CashCollection of Accounts Receivable

Cash ServicesInvestment IncomeSale of AssetsFinancingsUnrestricted DonationsCapital 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 AssetsInvestments

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

FYE12/31/2009

Cash Flows from Operating ActivitiesOperating Income 7,946,517$ Adjustments to Reconcile Operating Income Depreciation & Amortization 5,022,078$ Interest Expense 453,381$ Decrease (increase) in Current Assets Accounts Receivable (net) (856,000)$ Other Receivables (150,000)$ Inventories (124,000)$ Prepaid Expenses (35,000)$ Increase (decrease) in Current Liabilities Accounts Payable 1,191,000$ Accrued Compensation 500,000$ Other Current Liabilities -$ Net cash provided by operating activities 13,947,977$

Cash Flows From Noncapital Financing Activities Cash received from donations & other non-operating revenues 404,000$

Cash Flows from Capital and Related Financing Activities Principal Payments on long-term debt (1,456,360)$ Interest Paid (453,381)$ Proceeds from new debt 750,000$ Payments for purchase of property, buildings & equipment (7,080,613)$ Proceeds from sale of equipment 50,000$ Net cash used in capital and related financing activities (8,190,354)$

Cash Flows from Investing Activities Investment in Joint Ventures 50,000$ Other Investments (5,685,622)$ Net Cash Used in Investing Activities (5,635,622)$

Cash and Cash Equivalents, beginning of year 1,489,000$ Cash and Cash Equivalents, end of year 2,015,000$

COMMUNITY GENERAL HOSPITAL STATEMENT OF CASH FLOWS

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

A C C O U N T R E C E I V A B L E A G I N G C L A R K F O R K V A L L E Y H O S P I T A LA N D C L I N I C S Month Ending: JUNE 2010

Current Prior CurINPATIENT 0-30 31-60 61-90 91-120 121-150 151+ Month Month Days1. Medicare 53,238 1,385 0 6,263 1,596 5,901 68,383 145,591 112. Medicare SwingBeds 0 0 0 0 0 6,167 6,167 102,345 83. Medicaid 0 466 882 (15,002) 454 (1,818) (15,018) 16,209 (13)4. Comm Insur/Other 14,628 41,246 11,715 8,595 0 14,562 90,746 141,134 295. Private/Self Pay (2,945) 22,216 33,193 9,624 2,697 206,877 271,662 310,599 6546. Unbilled 86,699 86,699 143,2367. Total Inpatient $151,621 $65,313 $45,790 $9,479 $4,747 $231,689 $508,639 $859,113 44OUTPATIENT8. Medicare 233,337 32,671 31,301 10,299 12,885 99,500 419,994 521,758 279. Medicaid 11,728 10,969 5,117 4,806 54 3,518 36,191 32,791 1710. Comm Insur/Other 129,640 58,400 17,384 10,815 22,634 7,789 246,662 246,999 3611. Private/Self-Pay 49,820 107,356 79,191 89,850 87,351 321,329 734,897 698,706 26612. Unbilled 329,952 329,952 344,14813. Total Outpatient $754,478 $209,396 $132,993 $115,770 $122,924 $432,136 $1,767,697 $1,844,401 65

14. Total Hosp. Accts. Rec. $906,099 $274,709 $178,782 $125,249 $127,671 $663,825 $2,276,335 $2,703,514 5915. Number of Days 23 7 5 3 3 17 59 63CLINICS16. Medicare 71,395 3,289 2,279 250 515 994 78,722 77,455 517. Medicaid 7,448 1,294 233 (49) 74 (905) 8,094 10,604 418. Comm Insur/Other 47,057 18,141 4,803 4,066 1,828 4,707 80,601 88,656 1219. Private/Self-Pay 5,658 32,718 25,780 22,727 19,133 55,161 161,176 153,362 5820. Unbilled 35,042 35,042 34,50821. Total Outpatient $166,600 $55,441 $33,094 $26,994 $21,550 $59,956 $363,635 $364,585 42

NURSING HOME 22. Medicare 0 0 0 0 0 0 0 0 #DIV/0!23. Medicaid 10,425 0 0 4,486 (4,441) 7,449 17,918 12,295 424. Private (48,384) 680 8,672 3,856 (6,882) 21,121 (20,938) (15,050) (64)25. Unbilled 124,421 124,421 139,28426. Total Nursing Home A/R $86,462 $680 $8,672 $8,343 ($11,324) $28,569 $121,401 $136,529 28

27. Total Accounts Receivable $992,560 $275,389 $187,454 $133,592 $116,348 $692,394 $2,761,372 $3,204,627 53

22. Accounts in Pre Collect $3,273 $3,379 0

R E V E N U E No. of Days 92 Total AR O/S 2,764,645 3,208,006 53Total Average Total AR Unbilled 576,114 661,176 11

J une May Apr 3 Months DailyINPATIENT Revenue Revenue Revenue Revenue Revenue The approximate net cash in Accounts Receivable is1. Medicare 175,454 178,765 204,994 559,213 $6,078 $1,962,898.012. Medicare SwingBeds 31,797 30,725 12,025 74,548 $8103. Medicaid 9,478 30,580 67,364 107,423 $1,168 4. Comm Insur/Other 27,681 133,876 122,742 284,299 $3,0905. Private/Self Pay (12,784) 36,158 14,825 38,199 $4156. Total Inpatient $231,628 $410,105 $421,950 $1,063,682 $11,562OUTPATIENT7. Medicare 434,990 553,686 426,274 1,414,950 $15,3808. Medicaid 57,642 66,527 67,866 192,035 $2,0879. Comm Insur/Other 224,174 225,390 189,120 638,684 $6,94210. Private/Self-Pay 107,344 69,063 77,435 253,841 $2,759 11. Total Outpatient $824,150 $914,666 $760,695 $2,499,511 $27,169CLINICS12. Medicare 116,690 128,316 124,284 369,290 $4,01413. Medicaid 26,535 22,842 23,301 72,678 $79014. Comm Insur/Other 94,406 77,441 85,803 257,650 $2,80115. Private/Self-Pay 36,970 31,558 25,513 94,040 $1,02216. Total Clinics $274,601 $260,157 $258,900 $793,657 $8,627NURSING HOME17. Medicare 0 0 0 0 $018. Medicaid 121,687 131,279 117,647 370,613 $4,02819. Private 5,298 10,596 14,137 30,030 $32620. Total Nursing Home $126,984 $141,875 $131,784 $400,643 $4,355

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

ytdCLARK FORK VALLEY HOSPITAL

P R O D U C T I V I T Y M A N A G E M E N T R E P O R Tfor the year-to-date period ended Jun-10 AVERAGE DAILY CENSUS-YTD 3.44

* * * * *COL # 1 2 3 4 5 6 7 8 9 10 11 12 BUDGET VARIANCE

STATISTICS ------------PRODUCTIVE------------ TARGET TARGET VARIANCE % EFF PAID % PROD PAID INAC # DEPT NAME UNITS ACTUAL BUDGET OT HRS TOT HOURS F.T.E. HRS/STAT HRS/STAT HRS 1*7 Col. 8-4 Col. 9/8 HOURS COL 4/11 HOURS PAID HRS

601000 ICU/CCU PD 31 48 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0607000 MED/SURGPD 540 702 367 19155 18.57 35.47 28.18 15217 -3938 74.12% 20891 91.69% 21,750 859607500 PEDS PD 12 6 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0607800 OBSTETRICSPD 39 66 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0608000 HOSP_PHYSICIANA/SWB_PD 1019 1242 0 3052 2.96 3.00 1.56 1590 -1462 8.05% 3150 96.89% 1,980 (1,170)617000 NURSERYPD 26 54 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0620010 SNF PD 4772 4860 77 19192 18.61 4.02 4.16 19836 644 103.25% 20838 92.10% 21,696 858621000 SWINGBEDSPD 418 366 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0633000 HOSPICE PD 827 1116 0 1035 1.00 1.25 1.04 858 -177 79.37% 1035 100.00% 1,158 123701000 L & D DEL 18 30 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0702000 OR MIN 14606 16668 102 3435 3.33 0.24 0.20 2955 -480 83.76% 3622 94.84% 3,630 8703000 RECOVERYMIN 11850 12960 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0704000 ANESTH UNITS 1473 1644 0 1038 1.01 0.70 0.63 930 -108 88.39% 1038 100.00% 1,038 0705010 C.S APD 2490 2886 0 2511 2.43 1.01 0.84 2097 -414 80.26% 2747 91.41% 2,880 133707000 LAB TESTS 20122 22872 45 6738 6.53 0.33 0.34 6799 61 100.90% 7492 89.94% 8,316 824726008 CARDIOLOGY CLIPROC. 1317 1494 20 2823 2.74 2.14 1.84 2428 -395 83.73% 2951 95.66% 3,018 67712000 MRI PROC 190 234 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0713000 CT PROC. 602 774 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0714000 XRAY PROC. 1679 2256 7 6185 6.00 3.68 3.07 5158 -1027 80.09% 6872 90.00% 7,284 412714200 ECHOCARDIOGRAPHYPROC. 367 510 0 36 0.03 0.10 0.81 298 262 187.92% 36 100.00% 414 378714300 ULTRA PROC. 344 396 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0714400 MAMMO PROC 306 348 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0717000 RX APD 2490 2886 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0718100 CARDIO PULMONARYPROC 1838 2514 0 2082 2.02 1.13 1.06 1943 -139 92.85% 2301 90.48% 2,706 405718500 HOME OXYVISIT 415 396 0 250 0.24 0.60 0.70 289 39 113.49% 250 100.00% 276 26720000 P.T. PROC 7338 8940 52 5310 5.15 0.72 0.62 4521 -789 82.55% 5629 94.33% 6,030 401723000 ER VISIT 1223 1308 0 1634 1.58 1.34 1.30 1593 -41 97.43% 1633 100.06% 1,704 71726001 PLS CLINICVISIT 4184 5118 22 10223 9.91 2.44 2.25 9432 -791 91.61% 11267 90.73% 12,480 1,213726002 TF CLINIC VISIT 2625 3252 67 5909 5.73 2.25 2.01 5279 -630 88.07% 6371 92.75% 6,858 487726003 HS CLINICVISIT 1628 2358 4 4276 4.15 2.63 2.35 3832 -444 88.41% 4837 88.40% 6,036 1,199726006 WE CLINICVISIT 676 858 0 2679 2.60 3.96 3.52 2383 -296 87.58% 2808 95.41% 3,330 522731000 OCC THERPROC 826 750 0 515 0.50 0.62 0.70 575 60 110.43% 524 98.28% 0 (524)732000 SPEECH PROC 114 204 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0735000 OBS HOUR 708 924 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0740600 HHA EPISODESEPISODE 49 54 0 3524 3.42 71.92 58.11 2847 -677 76.22% 3774 93.38% 3,606 (168)820010 DIABETIC VISIT 8 0 0 0 0.00 0.00 0.00 0 0 0.00% 0 NO HRS 0 0832000 DIET MEAL 29869 33036 17 8886 8.62 0.30 0.28 8235 -651 92.09% 10062 88.31% 10,464 402835000 LAUNDRY TOTPD 5300 6096 35 1964 1.90 0.37 0.25 1335 -629 52.88% 2133 92.08% 1,734 (399)836001 ACTIVITIESSN/SWPD 5190 5220 0 1136 1.10 0.22 0.33 1694 558 132.94% 1261 90.09% 1,818 557843100 PLANT SQFT 63,500 63650 16 4492 4.36 0.07 0.07 4358 -134 96.93% 4780 93.97% 4,722 (58)846000 HOUSEKEEPINGSQFT 63,500 63650 278 8892 8.62 0.14 0.10 6471 -2421 62.59% 9322 95.39% 6,960 (2,362)848000 INFORMATION SRVCDEVICES 906 972 0 754 0.73 0.83 0.71 643 -111 82.74% 756 99.74% 834 78851000 FISCAL TOTPD 5838 6096 8 3650 3.54 0.63 0.60 3488 -162 95.36% 4197 86.97% 4,158 (39)853000 PBS TOTPD 5838 6096 40 12207 11.83 2.09 2.05 11952 -255 97.87% 13339 91.51% 13,668 329861100 ADMIN. TOTPD 5838 6096 0 2893 2.80 0.50 0.63 3666 773 121.09% 3158 91.61% 4,074 916861301 COMMUNITY RELTOTPD 5838 6096 0 920 0.89 0.16 0.16 925 5 100.54% 942 97.66% 1,008 66865000 HUM RES FTE 168.8333 268 0 2526 2.45 14.96 10.79 1822 -704 61.36% 2877 87.80% 3,114 237869000 MED REC.EQ REG 19611 20364 4 8658 8.39 0.44 0.43 8500 -158 98.14% 9646 89.76% 9,774 128872000 NURS ADMCAL DAY 181 180 0 1789 1.73 9.88 10.47 1894 105 105.54% 2070 86.43% 2,076 6874000 EDUCATION & PIAPD 2499 2862 0 894 0.87 0.36 0.33 817 -77 90.58% 1038 86.13% 1,056 18

- - - - - - - - - -TOTAL PD 6857 1161 161263 156 171 142 146660 -14603 175647 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

61

Flex Monitoring TeamCAH Financial Indicators

Report

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

Financehttp://www.accessproject.org/downloads/Hospital_Finance.pdf Guidestar: Data on non-profits including

IRS F990 infohttp://www2.guidestar.org/ Montana Attorney General Report on

Montana’s Hospitals and Charitable Purpose

http://doj.mt.gov/consumer/consumer/hospital/hospitalreport2010.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 &

financewww.hfma.org/reform

Healthcare Costs & Spendingwww.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