Financial Indicators

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Flex Monitoring Team Briefing Paper No. 7

Financial Indicators for Critical Access Hospitals

May 2005

The Flex Monitoring Team is a consortium of the Rural Health Research Centers located at the Universities of Minnesota, North Carolina at Chapel Hill, and Southern Maine. Under contract with the federal Office of Rural Health Policy (PHS Grant No. U27RH01080), the Flex Monitoring Team is cooperatively conducting a performance monitoring project for the Medicare Rural Hospital Flexibility Program (Flex Program). The monitoring project is assessing the impact of the Flex Program on rural hospitals and communities and the role of states in achieving overall program objectives, including improving access to and the quality of health care services; improving the financial performance of Critical Access Hospitals; and engaging rural communities in health care system development. The authors of this report are George H. Pink, Ph.D., Associate Professor in the Health Policy and Administration Department at the University of North Carolina at Chapel Hill and Senior Research Fellow at the Cecil G. Sheps Center for Health Services Research (Sheps Center), G. Mark Holmes Ph.D., Research Fellow for the North Carolina Rural Health Research and Policy Analysis Center (NC RHR & PAC) at the Sheps Center, Cameron D’Alpe, M.S.P.H., Postgraduate Administrative Fellow for Kaiser Permanente Northern California Region, Lindsay A. Strunk, BSPH, Research Assistant at the Sheps Center, Patrick McGee, M.S.P.H., C.P.A., Research Assistant at the Sheps Center and Rebecca Slifkin, Ph.D., Director of the NC RHR & PAC at the Sheps Center. Flex Monitoring Team http://www.flexmonitoring.org University of Minnesota Division of Health Services Research & Policy 420 Delaware Street, SE, Mayo Mail Code 729 Minneapolis, MN 55455-0392 612.624.8618 University of North Carolina at Chapel Hill Cecil G. Sheps Center for Health Services Research 725 Airport Road, CB #7590 Chapel Hill, NC 27599-7590 919.966.5541 University of Southern Maine Muskie School of Public Service PO Box 9300 Portland, ME 04104-9300 207.780.443

Acknowledgments: The authors gratefully acknowledge Dave Berk, Brandon Durbin, Roger Thompson, and Greg Wolf for their guidance and advice throughout this project.

EXECUTIVE SUMMARY The purpose of this project was to develop and disseminate comparative financial indicators specifically for Critical Access Hospitals (CAHs) using Medicare Cost Report (Healthcare Report Information System) data. A Technical Advisory Group of individuals with extensive experience in rural hospital finance and operations provided advice to a research team from the University of North Carolina at Chapel Hill. A literature review identified 114 financial ratios that have proven useful for assessing financial condition. Twenty indicators deemed appropriate for assessment of CAH financial condition were chosen. In September 2004, the CEOs of 853 CAHs were mailed a CAH Financial Indicators Report© (the Report) that included values specifically for their CAH and national median values. State-level reports were sent to State Flex Coordinators. Results showed that over the six years since 1998, CAHs generally became more profitable and increased utilization of beds. However, while on average CAHs with long-term care became more liquid and reduced their use of debt over time, those without long-term care became less liquid and increased their use of debt. In the most recent year for which we have data (2003), CAHs without long-term care generally were more profitable, were more liquid, had less debt, and had higher utilization of beds in comparison to CAHs with long-term care. An evaluation form queried respondents regarding the overall usefulness of the Report and of individual indicators. Among 180 respondents, 82 percent rated the report as either very useful or useful. Net days revenue in accounts receivable, FTEs per adjusted occupied bed, and total margin were...
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