November 30, 2005
Putting a finger on the pulse of your healthcare organization's financial state can be a bit tricky -- especially given the complexity of business functions and today's dynamic payment environment and increasing competition. Reviewing the appropriate financial performance indicators on a regular basis and getting these reports into the right hands are key to maintaining financial viability.
Hospitals, of course, use various kinds of data to monitor performance. Traditional financial statements provide some of the most common indicators. Going beyond figures like net revenues and costs and using meaningful financial reporting that delves into areas such as product lines can offer an even deeper and ultimately more effective analysis. A new educational supplement prepared by HFMA and Innovative Health Solutions examines how to do this, starting with what data to collect.
Sticking to the Budget
Clearly, at the broadest level, profitability is measured by the income statement. Everyone wants to know what the net revenues and costs are.
"Like many organizations, we do have what you call hospital-wide financial reporting, which examines our performance as a system in terms of how we do on the budget, our gross and net revenue, etc.," says Michael Boblitz, senior planning analyst in the Department of Planning and Marketing for Martha Jefferson Hospital in Charlottesville, Va. "We also have departmental reports that go to the department managers to help them assess how their department is doing, especially compared to budget. Also, on a monthly basis, we monitor the volumes and the case mix index for all service lines to help management understand where the hospital is growing or declining during the year."
Sticking to the budget is especially important for MJH, however, because the not-for-profit community hospital with 176 licensed beds is in the midst of a 10-year strategic plan to replace the old hospital with a brand new facility.
"It's that 10-year strategic financial plan that serves as both the foundation for financial decision making as well as the framework against which we measure our financial performance," says Anna Buchanan, MJH's manager of financial planning. Some of the regular financial data that Buchanan and her staff use include such key measures of cash generation as operating and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins and cash flow. Other reports consist of data on collection performance, such as days in accounts receivable. Balance sheet measures that the hospital monitors closely are days cash-on-hand and cash-to-debt ratios.
At the department level, performance data include a responsibility report, which contains gross revenues, direct expenses, and key volume statistics for a specific department, along with several key ratios, such as paid hours per statistic, which shows levels of staffing relative to each unit of volume that occurs in that department.
"We provide a wide range of financial reporting to help management at all levels make appropriate decisions and drive a successful business," Boblitz says.
Beyond the Financial Statement
Likewise, keeping a strict eye on margins is a given at Community Health Systems, a for-profit, publicly traded chain of 71 hospitals with $3.5 billion in revenue based in Brentwood, Tenn.
While CHS uses multiple measures to gauge the level of financial performance, some of the key indicators include inpatient admissions, emergency department visits, and inpatient and outpatient surgeries, says Kerry Gillespie, vice president of operations for CHS. "We look at these things daily," he explains. "Based on that information, then we manage our costs on a daily basis, as well."
The number of emergency department visits is particularly important, Gillespie says, because that's where trends are identified. "The ED really determines what the pulse of the community is related to being sick."
At Your Fingertips
What's important to understand is that most, if not all, the information needed to gauge a hospital's financial performance is essentially data that the hospital already has available. It's a matter of taking the various datasets and merging them into useful information upon which decisions can be formed.
SOURCE:
Are You Keeping an Eye on Your Organization's Financial Pulse?, an educational supplement by HFMA and Innovative Health Solutions.
Additional Resources
- Financial Performance Reports and Indicators in HFMA's Resource Center (Accessible to members only. Not a member? Join today!)
- Cost Control and Six Sigma: Using Lean Six Sigma to Reduce Operating Costs, HFMA 2005 Fall Seminar (December 7-8, Chicago)
- Turning Data into Useful Information: How to Effectively Collect, Analyze, and Report Financial and Clinical Data to Enhance Decision Making in Health Care, HFMA 2005 Fall Seminar (December 5-6, Chicago)
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble.
HFMA Wants You to Know ISSN: 1540-0697. Volume IV, Issue 23. Copyright 2005, Healthcare Financial Management Association. All rights reserved.