HOW IS FINANCIAL PERFORMANCE MEASURED?
Measuring hospital financial performance is commonly performed by analyzing margins (I.e., the difference in revenue vs. expenses). Margins can be expressed by using financial ratios and as dollar amounts. OSHPD uses two financial ratios to measure a hospital’s financial performance. Both ratios compare the revenue received by a hospital against its operating expenses. The difference lies in what revenue items are included in each ratio formula. OSHPD also looks at the number of hospitals operating at a “profit” or “loss” for each of these financial ratios.
Operating Margin – The operating margin is the most commonly used financial ratios to measure a hospital’s financial performance. It compares a hospital’s total operating revenue against its total operating expenses, often referred to as net from operations. If total operating revenue exceeds total operating expenses, the hospital is operating at a profit and will have a positive operating margin; whereas, if total operating revenue is less than total operating expenses, the hospital is operating at a loss and will have in a negative operating margin. Operating Margin Formula: (Total Operating Revenue – Total Operating Expenses) / Total Operating Revenue Total operating revenue is the sum of net patient revenue and other operating revenue, where: Net patient revenue is the amount received or expected to be received from third-party payers (insurers) and patients for hospital services provided. Net patient revenue includes the payments received for routine nursing care, emergency services, surgery services, lab tests, etc. Other operating revenue is the amount received from non-patients for services related to hospital operations. This includes items such...