HFMA VIEWS

Ken Fisher
Director, Navigant Consulting

I have been in the healthcare finance field for more than 35 years. Over those years I have seen thousands of income statements or statements of operations or whatever you choose to call it. Every other industry uses an income statement that is materially different than the one used in health care. They have it correct; we have it wrong.

Other industries have learned to focus on the cost of production and the cost of overhead as two separate parts of the statement. By combining the statement into a single grouping of cost, we miss many of the uses of the statement. Other industries understand that the cost of production is the variable component of the business enterprise. By building the income statement that way, those industries build a management structure which focuses effort of management on ways to improve the variable margin. If the variable margin cannot support the overhead component of the enterprise, then there are two choices--reduce the overhead or close the business line.

Health care would be well served if we were to rethink the way that we present income statements to management teams, our governance, and investors.