Financial Performance Measures of Critical Access Hospitals

1. Financial Performance Measures of Critical Access Hospitals National Flex Program Meeting June 15-17, 2004 Chicago, Ill

2. Project Team University of North Carolina at Chapel Hill George H. Pink, PhD Rebecca T. Slifkin, PhD Mark Holmes, PhD J. Patrick McGee, CPA

3. Objectives Construct a set of financial performance measures that are relevant to Critical Access Hospitals (CAHs) Provide comparative information that CAH boards and managements can use to improve financial performance

4. Technical Advisory Group (TAG) Dave Berk, Rural Health Financial Services, Anacortes WA Brandon Durbin, Durbin & Company LLP, Lubbock TX Roger Thompson, Seim, Johnson, Sestak & Quist LLP, Omaha NE Gregory Wolf, Stroudwater Associates, Portland ME

5. Methods:Literature Review Undertook an extensive literature review in relation to measurement of the financial performance of small hospitals Identified dimensions of financial performance appropriate for CAHs Constructed a long list of potential indicators for each dimension, including definition, interpretation, and data requirements of each indicator

6. Methods:Indicator Selection Developed an instrument to evaluate the feasibility, importance, and usefulness of potential performance dimensions and indicators Distributed literature review, list of potential indicators, and indicator evaluation instrument to TAG TAG selected 4 performance dimensions and 20 indicators of financial performance

7. Methods:Indicator Definition Constructed indicator definitions using accounts from Medicare cost reports Produced first pass of indicators for all CAHs, including descriptive statistics and histograms. Identified outliers and searched for data errors and problems Revised indicator definitions and produced indicator reports 1) Program goals become more difficult to monitor as they move from hospital level activities to broader system impacts: a) Financial viability b) Quality c) Network development d) Access e) Community impact f) EMS development 2) Indicators and measures to assess program performance must: a) Be appropriate to the Flex Program b) Have internal and external validity c) Use indicators and data that capture changes Most state Flex programs operate under a year to year framework as driven by the funding cycle. a) PLMs can encourage longer perspective by focusing more on strategies and underlying assumptions and less on year to year activities 1) Program goals become more difficult to monitor as they move from hospital level activities to broader system impacts: a) Financial viability b) Quality c) Network development d) Access e) Community impact f) EMS development 2) Indicators and measures to assess program performance must: a) Be appropriate to the Flex Program b) Have internal and external validity c) Use indicators and data that capture changes Most state Flex programs operate under a year to year framework as driven by the funding cycle. a) PLMs can encourage longer perspective by focusing more on strategies and underlying assumptions and less on year to year activities

8. Information for CAHs In August 2004, CEOs of every CAH with post-conversion cost report data will be mailed a package that includes: A letter explaining the project Financial indicators for their CAH Median values for CAHs in their region, and CAHs in the U.S. An evaluation form

9. Information for State Flex Coordinators In August 2004, each State Flex Coordinator will be mailed a package that includes: A letter explaining the project Financial indicators for the CAHs in their state, region, and the U.S. An evaluation form

10. Indicator Format One page per indicator Simple graph and small table of several years of comparative data Indicator definition and Medicare Cost Report Account codes Interpretation, results and data quality

11. Indicators Profitability Total margin, cash flow margin, ROE Liquidity Current ratio, days cash on hand, net days revenue in accounts receivable Capital structure Equity financing, debt service coverage, long-term debt to capitalization Other Average age of plant, outpatient charges to total charges, patient deductions, FTEs per adjusted occupied bed, Medicare inpatient payer mix, Medicare outpatient payer mix, Medicare outpatient cost to charge ratio, Medicare revenue/Medicare days, ADC SNF swing beds, ADC acute care beds

12. Next Steps Receive feedback from CEOs and State Flex Coordinators Evaluate feedback and review with TAG Revise and issue second report in 2005 Investigate cost / quality relationships when quality data become available