1. What the CAHFIR can do for you ORHP Grantee Partnership Meeting, September 1 2009 CAH Financial Indicators Report Team North Carolina Rural Health Research and Policy Analysis Center Cecil G. Sheps Center for Health Services Research 725 Martin Luther King, Jr. Boulevard Chapel Hill, NC 27514 CAH.finance@schsr.unc.edu Funded by: Cooperative Agreement for the National Evaluation of the Rural Hospital Flexibility Program. Technical and Non-Financial Assistance for the Office of Rural Health Policy, HRSA, U.S. DHHS (PHS Grant No. U27RH01080), 9/1/2008- 8/31/2012, $1,480,000.

2. 22 CAH Financial Indicators Report Team University of North Carolina at Chapel Hill Mark Holmes, PhD George H. Pink, PhD Rebecca T. Slifkin, PhD Technical Advisor Roger Thompson, Seim, Johnson, Sestak & Quist LLP

3. 3 Evolution of the CAH Financial Indicators Report How to measure CAH performance 1 –Indicator selection principles, data quality and availability, and performance metrics How to compare CAH performance 2 –Peer groups as a meaningful basis for performance comparisons How to evaluate CAH performance 3 –Relative (medians) or absolute (benchmarks) 1. Pink GH, Holmes GM, D’Alpe C, McGee P, Strunk. L, Slifkin RT. Financial Indicators for Critical Access Hospitals. Journal of Rural Health 22(3):229-236, Summer 2006 2. Pink GH, Holmes GM, Thompson RE, Slifkin RT. Variations in Financial Performance Among Critical Access Hospitals. Journal of Rural Health 23(4), 299-305, Fall 2007 3. Pink GH, Holmes GM, Slifkin RT, Thompson RE. Developing Financial Benchmarks for Critical Access Hospitals,Health Care Financing Review 30(3), 55-69, Spring 2009 3

4. 44 Objectives of the CAH Financial Indicators Report To select and construct a set of financial performance measures that are relevant to Critical Access Hospitals (CAHs) To provide comparative information that CAH boards and managements can use to improve financial performance To improve the quality of Medicare Cost Report data reported by CAHs (our goal)

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7. 77 Ratios in the CAH Financial Indicators Report Profitability indicators measure the ability to generate the financial return required to replace assets, meet increases in service demands, and compensate investors Liquidity indicators measure the ability to meet cash obligations in a timely manner Capital structure indicators measure the extent of debt and equity financing

8. 88 Ratios in the CAH Financial Indicators Report Revenue indicators measure the amount and mix of different sources of revenue Cost indicators measure the amount and mix of different types of costs Utilization indicators measure the extent to which fixed assets (beds) are fully utilized

9. 9 How can State Flex Coordinators use the CAHFIR? Examine performance of CAHs in your state: –Over time –Compared to neighboring state –Compared to U.S. –Compared to benchmark Investigate indicator values that are: –Trending in the wrong direction –Far above or below U.S. median or benchmark –Highly erratic (data quality?) Design interventions to improve areas of weakness and maintain areas of strength

10. 10 Cash flow margin (median) Net income – (Contributions, investments, and appropriations + Depreciation expense + Interest expense) Net patient revenue + Other income – Contributions, investments, and appropriations

11. 11 Cash flow margin: Percent meeting benchmark >5% Net income – (Contributions, investments, and appropriations + Depreciation expense + Interest expense) Net patient revenue + Other income – Contributions, investments, and appropriations

12. 12 A Tale of Three States Let’s look at data for Nevada/Utah and Michigan. What reasons might account for the differences? What actions might the State Flex Coordinators consider to help hospitals in their states improve profitability?

13. 13 2006 Total Margin

14. 14 2006 Days Revenue in Accounts Receivable

15. 15 Possible Reasons for Differences Gross charges are relatively lower (less volume, lower rates, poorer payer mix, Medicaid LTC rates?) Allowances are relatively higher (more competition?) Costs are relatively higher (wage rates, bad debt, charity care, diseconomies of scale?) Greater reliance on contributions, investments and appropriations (county / state support?) Depreciation and interest are relatively lower (older facilities, less debt?) Other income is relatively lower (poorer investment returns?)

16. 16 Possible SFC Actions Consultation, education, networks, facilitation, policy to help hospitals to: –Increase revenues (better data capture, fewer referrals, fewer denials, new services, new markets, more physicians?) –Control expenses (wage rates, staffing patterns, group purchasing, 340B, equipment management, information technology?) –Improve negotiation policy with third party payers –Increase investment returns –Reduce charity care and bad debt –Improve revenue cycle

17. 17 CAHFIR Products Available to SFCs CAH Financial Indicators Report for every CAH in your state a PowerPoint Presentation of the Report an Excel Calculator that produces Report indicator values using data that you enter a PowerPoint Primer about ratio analysis and the Report an Acrobat (pdf) summary of State Medians by indicator and state an Acrobat (pdf) document of Hospital Graphs by indicator and your state (hospitals are not identified in the graph) an Excel Hospital Spreadsheet that has the indicator values for all CAHs in your state.