CAH Financial Indicators Report: Summary Of Indicator .
Flex Monitoring Team Data Summary Report No. 31:CAH Financial Indicators Report:Summary of Indicator Mediansby StateApril 2020
The Flex Monitoring Team is a consortium of the Rural Health Research Centerslocated at the Universities of Minnesota, North Carolina at Chapel Hill, and SouthernMaine. Under contract with the federal Office of Rural Health Policy (PHS Grant No.U27RH01080), the Flex Monitoring Team is cooperatively conducting a performancemonitoring project for the Medicare Rural Hospital Flexibility Program (Flex Program).The monitoring project is assessing the impact of the Flex Program on rural hospitals andcommunities and the role of states in achieving overall program objectives, includingimproving access to and the quality of health care services; improving the financialperformance of Critical Access Hospitals; and engaging rural communities in health caresystem development.The authors of this report are the CAH Financial Indicators Report Team at the NorthCarolina Rural Health Research and Policy Analysis Center, Cecil G. Sheps Center forHealth Services Research. Email: monitoring@flexmonitoring.orgFlex Monitoring Teamhttp://www.flexmonitoring.orgUniversity of MinnesotaDivision of Health Services Research & Policy420 Delaware Street, SE, Mayo Mail Code 729Minneapolis, MN 55455-0392612.624.8618University of North Carolina at Chapel HillCecil G. Sheps Center for Health Services Research725 Martin Luther King, Jr. Boulevard, CB #7590Chapel Hill, NC 27599-7590919.966.5541University of Southern MaineMuskie School of Public ServicePO Box 9300Portland, ME 04104-9300207.780.4435 2020, University of North Carolina at Chapel Hill, for use in the public domain.
The Medicare Rural Hospital Flexibility ProgramThe Medicare Rural Hospital Flexibility Program (Flex Program), created by Congress in1997, allows small hospitals to be licensed as Critical Access Hospitals (CAHs) andoffers grants to States to help implement initiatives to strengthen the rural health careinfrastructure. To participate in the Flex Program, States are required to develop a ruralhealth care plan that provides for the creation of one or more rural health networks,promotes regionalization of rural health services in the State, and improves the quality ofand access to hospital and other health services for rural residents of the State. Consistentwith their rural health care plans, states may designate eligible rural hospitals as CAHs.CAHs must be located in a rural area or an area treated as rural; be more than 35 miles(or 15 miles in areas with mountainous terrain or only secondary roads available) fromanother hospital, or be certified before January 1, 2006 by the State as being a necessaryprovider of heath care services. CAHs are required to make available 24-hour emergencycare services that a State determines are necessary. CAHs may have a maximum of 25acute care and swing beds, and must maintain an annual average length of stay of 96hours or less for their acute care patients. CAHs are reimbursed by Medicare on a costbasis (i.e., for the reasonable costs of providing inpatient, outpatient, and swing bedservices).The legislative authority for the Flex Program and cost-based reimbursement for CAHsare described in the Social Security Act, Title XVIII, Sections 1814 and 1820, availableat http://www.ssa.gov/OP Home/ssact/title18/1800.htm.1
IntroductionAll hospitals, regardless of size and organizational structure, benefit from comparativedata on financial condition and performance. The unique reimbursement andorganizational structure of critical access hospitals (CAHs) make it important to havefinancial indicators that capture their own circumstances for performance assessment.CAHs differ from urban and other rural hospitals that are paid under the MedicareProspective Payment System (PPS) in important aspects that affect the most appropriateway to measure financial condition. Unlike PPS hospitals, CAHs receive cost-basedreimbursement for inpatient and outpatient care, and the incentives, financialmanagement, and utilization practices under these two payment methods differsubstantially. There are also organizational differences between CAHs and otherhospitals that may affect financial performance; for instance, CAHs have relaxed staffingrules under Medicare, and they have limits on bed-size and average length of stay (andlow volume hospitals have been found to face substantially more annual variation indemand for services, making financial planning difficult).This Briefing Paper presents state and national median values of the twenty-two financialindicators included in the CAH Financial Indicators Report, a report that is distributed toeach CAH administrator annually. As part of ongoing work of the Flex MonitoringTeam, these indicators were specifically designed to capture the financial performance ofCAHs. In order to identify the indicators that were most relevant to the financialperformance of CAHs, a Technical Advisory Group (TAG) of four individualsknowledgeable in CAH financial and operational issues, data, and reporting practices wasselected to provide advice to a research team from the University of North Carolina atChapel Hill. The TAG evaluated frequently used indicators of hospital financialperformance for their applicability to CAHs.1 Their evaluation relied on three criteria:feasibility (whether the indicator can be accurately calculated from Medicare cost reportdata2), importance (whether the indicator is an important measure of the financialmanagement of CAHs), and usefulness (whether the indicator is useful to CAHadministrators). The TAG retained 13 of the most frequently used indicators from thereview. In addition, 7 other financial ratios were added that are not commonly used inthe financial assessment of larger hospitals, but that group members believed captureimportant attributes of CAH financial management. Two more have been added since.The resulting 22 indicators fall under six domains: profitability, liquidity, capitalstructure, revenue, cost, and utilization. In the pages that follow, a brief description of thedomains and the indicators within them is provided, along with a table that allowscomparison across states. The Appendix to this report includes the median values foreach indicator by state, enabling the values for all indicators for one state to be viewed ona single page. More detailed information about the definition and interpretation of theindicators can be found in the document “Briefing Paper No. 7. Financial Indicators forCritical Access Hospitals May 2005” which can be downloaded from the FlexMonitoring Team /bp7/1The list of potential indicators resulted from a review of financial ratios in articles, peer-reviewedjournals, and other industry and scientific publications.2Medicare cost reports were selected as the data source for calculating indicator values because they arethe only national data that use standard definitions, have sufficient detail, and will eventually include datafor all CAHs.2
The following table includes, by state, the total number of Critical Access Hospitals witha Medicare Cost Report for at least 360 days in period, the minimum required to beincluded in the calculation of medians. The number of CAHs for a particular indicatormay be less than the number in the table if there were unusable data for one or moreCAHs in the state. Furthermore, this number may vary from other counts of CAHs bystates due to differences in who is included in this count; for example, only CAHs with acost report period of at least 360 days are included, which means state counts notexcluding short fiscal years would yield larger numbers of CAHs in the state.State2018 Number ofCAHsState2018 Numberof 335131542913801378355420161215*Median values calculated ONLY for states with post-conversion Medicare Cost Report data for at least 2critical access hospitals in 20183
Profitability IndicatorsStateProfitability is the net result of a large number ofreimbursement and managerial policiesand decisions and it reflects the combined effects ofliquidity, asset management, and debt on operatingresults. Profitability indicators measure the ability togenerate the financial return required to replaceassets, meet increases in service demands, andcompensate investors (in the case of a for-profitorganization).Total Margin measures the control of expensesrelative to revenues.Total margin formula:Net incomeTotal revenueCash Flow Margin measures the ability to generatecash flow from providing patient care services.Cash flow margin formula:Net income – (Contributions, investments, andappropriations Depreciation expense Interest expense)Net patient revenue Other income –Contributions, investments, and appropriationsReturn on Equity measures the net incomegenerated by equity investment (net assets).Return on equity formula:Net incomeNet assetsOperating margin measures the control of operatingexpenses relative to operating revenues.Operating margin formula:Net operating incomeOperating Total Cash Flow Return on .585.774.29-0.03-2.232.18-3.38-3.71
Liquidity IndicatorsA liquid asset is one that trades in an active marketand hence can be quickly converted to cash at thegoing market price. An analysis of liquidity asksthe question “will the organization be able to payoff its debts as they come due over the next year orso?” Liquidity indicators measure the ability tomeet cash obligations in a timely manner.Current Ratio measures the number of times shortterm obligations can be paid using short-term assets.Current ratio formula:Current assetsCurrent liabilitiesDays Cash on Hand measures the number of daysan organization could operate if no cash wascollected or received.Days cash on hand formula:Cash Marketable securities Unrestrictedinvestments(Total expenses – Depreciation) / Days in periodDays in Net Accounts Receivable measures thenumber of days that it takes an organization tocollect its receivables.Days in net accounts receivable formula:Net patient accounts receivable(Net patient service revenue) / Days in periodDays in Gross Accounts Receivable, compared todays in net, measures revenue cycle performance.Days in gross accounts receivable formula:Gross Patient Accounts Receivable(Gross patient revenue) / Days in Period5StateCurrentRatioDaysCash 66.68139.8581.37153.1841.7448.12Days in 60.06Days 2.1558.91
Capital Structure IndicatorsThe extent to which an organization uses debtfinancing, or financial leverage, has three importantimplications. First, debt allows not-for-profitorganizations to provide more services than it couldif it were financed only by contributed capital andretained earnings. Second, creditors look to theequity to provide a margin of safety, so the higher theproportion of total capital provided by the owners,the less the risk faced by creditors. Third, if theorganization earns more on investments financedwith borrowed funds than it pays in interest, thereturn on owner’s capital is magnified, or leveragedup. Capital structure indicators measure the extentof debt and equity financing.Equity Financing measures the percentage of totalassets financed by equity.Equity financing formula:Net assetsTotal assetsDebt Service Coverage measures the ability to payobligations related to long-term debt, principalpayments and interest expense.Debt service coverage formula:Net income Depreciation exp. Interest exp.Current portion of long-term debt *(365 / Days in period) Interest expenseLong-Term Debt to Capitalization measures thepercentage of total capital that is debt.Long-term debt to capitalization formula:Long-term debtLong-term debt Net -termDebt 745.5818.43
Revenue IndicatorsMost organizations receive revenues from many sources and relative profitability oftenvaries among sources. A substantial proportion of revenue from commercial and privatepayers reduces reliance on the fixed margins of Medicare and Medicaid. Revenueindicators measure the amount and mix of different sources of revenue.Outpatient Revenues to Total Revenues measures the percentage of total revenues thatare for outpatient revenues (including, for example, Rural Health Clinics, free-standingclinics, and home health clinics).Outpatient revenues to total revenues formula:Total outpatient revenueTotal patient revenuePatient Deductions measures the allowances and discounts per dollar of total patientrevenues.Patient deductions formula: Contractual allowances and discountsGross total patient revenueMedicare Inpatient Payer Mix measures the percentage of total inpatient days that areprovided to Medicare patients.Medicare inpatient payer mix formula:Medicare inpatient daysTotal inpatient days – Nursery bed days – NF Swing bed daysHospital Medicare Outpatient Payer Mix measures the percentage of total outpatientcharges that are for Medicare patients.Medicare outpatient payer mix formula:Outpatient Medicare chargesTotal outpatient chargesHospital Medicare Outpatient Cost to Charge measures outpatient Medicare costs perdollar of outpatient Medicare charges.Medicare outpatient cost to charge formula:Outpatient Medicare costsOutpatient Medicare chargesMedicare Acute Inpatient Cost per Day measures the measures the average daily costof a Medicare acute inpatient.Medicare revenue per day formula:Medicare acute inpatient costMedicare inpatient days (excl HMO)7
OutpatientRevenues toState Total 7.7652.0245.8647.6350.0131.47MedicareInpatient tpatientPayer OutpatientRevenue perCost to ChargeDay% 5209150.824095
Cost IndicatorsMost organizations incur labor, supply, andcapital costs. Cost management reduces thelikelihood of financial problems due to lowproductivity, poor inventory management,and excessive asset acquisition costs. Costindicators measure the amount and mix ofdifferent types of costs.StateSalaries to Net Patient Revenue measuresthe percentage of patient revenue that arelabor costs.Salaries to patient revenue formula:Salary ExpenseNet Patient RevenueAverage Age of Plant measures the averageage in years of the fixed assets of anorganization.Average age of plant formula:Accumulated depreciationDepreciation expense *(365 / Days in period)FTEs per Adjusted Occupied Bedmeasures the number of full-time employeesper each occupied bed.FTEs per adjusted occupied bedformula:Number of FTEsAdjusted occupied beds11. (Inpatient days – NF Swing days –Nursery days) * (Total patient revenue /(Total inpatient revenue – Inpatient NFrevenue – Other LTC Revenue)) / Days inperiodAverage Salary per FTE measures theprice and mix of labor.Salary ExpenseNumber of aries toNetPatientRevenueAverageAge ofPlantFTEs perAdjustedOccupiedBedAverageSalary 56556112655482589695660183168546725305854
each indicator by state, enabling the values for all indicators for one state to be viewed on a single page. More detailed information about the definition and interpretation of the indicators can be found in the document “Briefing Paper No. 7. Financial Indicators for Critical Access Hospitals May 2005” which can be downloaded from the Flex
financial performance than Medicare Inpatient Payor Mix alone. Source: CAH Financial Indicators Report: Summary of 2017 Indicator Medians by State, April 2019 . A definition, formula and benchmarks for each of the 10 most important indicators of CAH financial performance is provided below. Each indicator
The CAH Financial Indicators Report and Other Financial Resources AZ Webinar . Below is a list of strategies and activities that can affect the financial condition of a Critical Access Hospital. Please check off the activities that your hospital has tried with good results, tried with poor results, tried with .
Manual Chapter 18. Rural Providers & Suppliers Billing. MLN Booklet Page 10 of 43 MLN006762 July 2021. Critical Access Hospital (CAH) Optional Payment Method. If a physician or practitioner reassign their CAH billing rights, the CAH bills the MAC for
marks for five indicators included in the . CAH Financial Indicators Report, an an nual, hospital-specific report distributed to all critical access hospitals (CAHs). An on line survey of Chief Executive Officers and Chief Financial Officers was used to estab lish benchmarks. Indicator values for 2004,
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Indicators of Smart Growth in Maryland NCSGRE January 2011 5 . Conceptual and Technical Issues Common to any indicator effort: - Number of possible indicators. - Measurement of indicators. - Interpretation of indicators. - Aggregation of indicators.
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