Financial Stability: Financial Performance and Opportunities for Improvement

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Financial StabilityFinancial Performance and
Opportunities for Improvement
Presented by Cynthia L. Prorok June 25, 2008 -
800 a.m.
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Goals ofLearning Session

• Importance of Financial Stability
• Measuring/Monitoring Financial Performance
• What Measures/Ratios to Analyze
• What the Measures/Ratios Mean How to Calculate
• Use of Trend and Comparative Analysis
• Analyzing Negative Trends Underlying Factors
• Monitoring Marketplace/Other Changes
• Market Competition and Economic Trends
• Third Party Payer, Regulatory, Policy Changes
• Strategies to Remain Financially Stable

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Importance ofFinancial Stability

• To provide for
• Sufficient resources for delivery of quality care
• Maximize capacity to serve patients
• Stewardship of federal grant funds
• Pay staff, vendors, and creditors on time
• To Remain a good credit risk
• Maintain/Advance health center mission
• NO MARGIN, NO MISSION

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Measuring/MonitoringFinancial Performance

• To remain financially stable
• Accounting and practice management systems
• Utilize full accrual-basis of accounting (GAAP)
• Base-line budgeting - Where are we now if
  nothing changes
• Complete both accrual cash flow forecasts
• Identify key measures/ratios to track
• Develop reports to monitor performance
• Identify underlying cause(s) for poor results

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Sources of Data to Measure Performance

• Audited Financial Statements
• Balance Sheet
• Statement of Activities (Income Statement)
• Cash Flow Statement
• Interim Monthly Financial Statements
• UDS Reports, including Grantee Comparative
  Reports
• Practice Management System Reports
• Other Internal Reports
• Other Industry Standards Reports

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What Measures/Ratios to AnalyzeWhat do the
Measures/Ratios Mean

• From the Audited Interim Financial Statements
• Increase/Decrease in Net Assets - Results from
  Operations
• Using full-accrual basis of accounting -
  Surplus/(Loss) from Operations
• Current Ratio
• Financial Liquidity - Ability to Pay Obligations
  on Time
• Working Capital
• Current (Liquid) Assets minus Current Liabilities
  (Payables Debt Due in 1 Year)
• Days of Cash on Hand
• Days of Operating Costs based on Cash in Bank
• Defense Interval
• Days of Operating Costs based on Cash Accounts
  Receivable Combined
• Days in Accounts Receivable
• Number of Days of Operating Revenue in Accounts
  Receivable

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What Measures/Ratios to AnalyzeWhat do the
Measures/Ratios Mean

• From the Audited and Interim Financial
  Statements
• Days in Accounts Payable
• Number of Days of Non-Payroll Operating Costs in
  Accounts Payable
• Debt Management Ratio
• Debt Load - The Portion of Total Assets tied up
  in Debt
• Debt Equity Ratio
• The Portion of Net Assets tied up in Debt
• Debt Service Capacity Ratio
• Ability to Pay Debt Service
• Contribution Margin by Site and Service
• Analysis of Results from Operations and
  Contribution toward Overhead

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What Measures/Ratios to AnalyzeWhat do the
Measures/Ratios Mean

• From UDS Practice Management System Reports
• Patient Payer Mix (Based on Encounters)
• Distribution of Patients by Financial Payer Type
  - Impacts Patient Revenues
• Analysis of New Users versus Existing Users
• Patient Satisfaction, Economic Market Trends,
  Impact of Expansion Initiatives
• Return Visit Rate/Utilization
• Average Times Patient is Seen per Year - Clinical
  Quality Patient Satisfaction
• Provider Productivity
• Efficiency of Provider Productivity - Visits per
  FTE per Year
• Medical and Patient Support Ratios
• Efficiency of Staffing - Support Staff per
  Provider FTE
• Administrative and Facility Cost Percentages
• Operating Efficiency for Management, Support
  Services, Facility Costs

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What Measures/Ratios to AnalyzeWhat do the
Measures/Ratios Mean

• From UDS Practice Management System Reports
• Average Charge per Billable Encounter
• Efficiency of Coding Fee Schedule - Are Charges
  in Line with Market Rates
• Ratio of Gross Charges to Costs
• Efficiency of Coding Fee Schedule - Do Total
  Charges Cover Total Costs
• Average Collection per Billable Encounter
• Effectiveness of Billing and Collection Efforts
• Percent of Gross Charges Collected
• Efficiency in Collecting Patient Services Revenue
  - Billing Collections Functions
• Percent of Income from BPHC Receipts
• Efficiency in Establishing Patient Services and
  Other Sources of Income
• Uncompensated Care Ratio
• Efficiency Use of BPHC Grant Funds - Discounts
  and Medicaid Adjustments

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Trend Comparative Analysis

• Why trend comparative analysis is important
• Data in isolation does not tell the story
• Comparing results to plans identifies trends or
  -
• Monitoring trends identifies problems quickly
• Timely action can be taken when trends are known
• Monitoring trends helps management
  decision-making
• Comparative analysis - to budgets, targets,
  industry standards
• Trend analysis over time - by month, by quarter,
  year-to-year
• Formatting reports makes a difference to
  usefulness
• Use of tables, charts, and graphs
• Summary vs detailed analysis - by site, service,
  payer, provider

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Trend Comparative AnalysisWhat to track and
analyze?

• From Financial, Practice Management, Other
  System Reports
• Comparative Balance Sheet
• to prior month, to prior fiscal year end, to
  same month prior year
• Comparative Income Statement
• month ytd to budget, to same month prior year,
  by site/service
• Comparative Contribution Margin Analysis
• by site/service, month ytd to budget
• Comparative Billable Encounters
• by provider/site/service, month ytd to budget
  performance targets
• Comparative Patient Payer Mix Based on Billable
  Encounters
• by site/service, prior year to prior quarter to
  current month
• Comparison of Gross Charges, Collections, and
  Payments
• by provider/site/service, month ytd to budget

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Trend Comparative AnalysisWhat to track and
analyze?

• From Financial, Practice Management, Other
  System Reports
• Employee Turnover Rate
• by position type, by month, quarter, year
• Patient Cycle Time
• by provider/site/service, semi-annually, new
  provider/site/service
• Patient Users - Total by Month and Year
• new vs existing, by provider/site/service, by
  demographics
• Patient Utilization by Primary Diagnosis
• encounters per year, by provider/site, compared
  to industry standards
• Provider Productivity Per Hour Worked
• by provider/site/service, by discipline, by
  month, quarter year, industry std
• Front Desk Cash Collections vs Amount Owed by
  Patient
• by site/service/staff member, by month, quarter,
  year

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Trend Comparative AnalysisOther
Considerations

• All of the measures discussed can should be
• trended by month, by quarter, from year-to-year
• compared to national, state, size, rural/urban
  standards
• compared to other industry standards - financial
  measures
• compared to other industry standards - practice
  performance
• Reports should be user friendly easy to read
• Level of data reported vs audience
• Board, Finance Committee, Senior Management, Site
  Managers
• Frequency of reports - daily, weekly, monthly,
  quarterly, annually
• Sample CHC Financial Scorecard

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How to CalculateKey Measures/Ratios and Samples
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Increase/(Decrease) in Net AssetsMeasures
Financial Results from Operations
Calculation Total Operating Revenues (Audited
Stmt of Activities) - Minus
- Total Operating Expenses (Audited Stmt
Activities) Donated Capital Assets and Capital
Grants (non-operating revenue) increase Net
Assets but are reported separately in order to
evaluate the results from operations only.
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Sample Increase/(Decrease) in Net Assets
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SampleTrended Increase/Decrease in Net Assets
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Current RatioMeasures Financial
LiquidityMinimum of 1.0 - with 2.0 preferred
Calculation Current Assets - divided by -
Current Liabilities (Working Capital Current
Assets - minus - Current Liabilities) The data
comes from the Month End and Year End Balance
Sheet - One of the Financial Statements The
Balance Sheet is a snapshot of the financial
position of the organization at the point in time
(date) of the Financial Statement.
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Definition ofCurrent Assets Current
Liabilities

• Current Assets - Cash or Readily Converted to
  Cash
• Cash
• Net Patient Services Accounts Receivable
• Grants and Contracts Receivable
• Prepaid Expenses (rent, insurance, etc.)
• Current Liabilities - Expenses/Obligations Due in
  1 Year
• Accounts Payable
• Accrued Expenses (payroll taxes/withholdings,
  uncompensated absences, etc.)
• Capital Leases - Current Portion
• Lines of Credit
• Notes/Mortgage Payable - Current Portion

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Sample Current RatioMeasures Financial
LiquidityMinimum of 1.0 - with 2.0 preferred
Pr Yr Last Qrt
Last Mo Cur Mo
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SampleTrended Current Ratio
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COLLECTION RATE ON GROSS(Percent of Gross
Charges Collected)Measures Efficiency in
Collecting Patient Services Revenue
Calculation Total Charges Collected (UDS Table
9-D, Col. 3, Line 14) - divided by
- Total Gross Charges (UDS Table 9-D, Col. 2,
Line 14) The calculation can be done for each
payer type using the same formula - subtotal for
each payer type from Table 9-D.
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SampleGross Charges and Collection Data
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SampleGross Charges and Collection Data
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Sample Percent ofGross Charges Collected by
Payer
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Patient Payer MixMeasures Distribution of
Patients by Financial Class
Calculation Patient Users - Each
Financial Class - Divided By -
Total Patient Users (Source UDS Table 4 or
Billable Encounters) Due to significant
differences in the average revenue received per
encounter by Third Party Payers and Self-Pay
Patients the Patient Payer Mix has a significant
impact on revenue potential, collection rates,
and profitability.
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SamplePatient Payer Mix
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SampleTrended Patient Payer Mix
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Provider Team ProductivityMeasures
Provider/Practice Efficiency
Medical Team Calculation Total Provider Medical
Encounters (physicians mid-levels only)
- divided by - Physician FTEs 50 of
Mid-Level FTEs (Source UDS Table 5 or Billable
Encounters and FTE Data) Dental Team
Productivity is Calculated the Same with
Hygienists at 50 FTE Value Productivity should
also be calculated by Physicians vs Mid-Levels
and by Discipline (Internist vs Family Medicine
vs OB/GYN) Patient Users per Provider FTE is
Another Useful Measure for Provider/Practice
Efficiency
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Sample TrendedMedical Provider Team Productivity
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Sample TrendedDental Provider Team Productivity
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Percent of Administrative Facility
CostsMeasures Operating Efficiency for Overhead
Costs
Calculations Total Administration Costs (Table
8-A, Col. (a), Line 15) -
divided by - Total Accrued Costs (Table 8-A, Col.
(c), Line 17) Total Facility Costs (Table 8-A,
Col. (a), Line 14) - divided by
- Total Accrued Costs (Table 8-A, Col. (c), Line
17)
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Sample TrendedPercent of Admin Facility Costs
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Uncompensated Care Ratio(Uncompensated Care as a
Percentage of BPHC Receipts)Measures Efficient
Use of BPHC Grant Funds
Calculation Sliding Fee Discounts Medicaid
Adjustments (only if aggregate Medicaid
adjustments reduce gross charges)
- divided by - BPHC Health Center
Cluster Grant Funds
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Percent of Income from BPHC ReceiptsMeasures
Efficiency in Establishing Other Sources of Income
Calculation BPHC Health Center Cluster Grant
Funds - divided by - Total
Annual Income from All Sources
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Sample TrendedUncompensated Care Ratio
andPercent of Income from BPHC Receipts
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Monitoring Marketplace Other Changes

• Market Competition and Economic Trends
• Have urgent care or other walk-in clinics opened
  in service area?
• Have private practices opened or closed, services
  provided?
• Have major employers opened or closed?
• Are under-served populations increasing or
  decreasing?
• Has weather/disasters negatively impacted local
  economy/pop?
• Third Party Payer, Regulatory, Policy Changes
• Has Medicaid eligibility criteria changed,
  processing procedures?
• Is Medicaid implementing managed care, enrollment
  process?
• Have coding, billing, electronic submission
  procedures changed?
• Is the State implementing new billing system,
  fiscal intermediary?

• Market Competition and Economic Trends
• Third Party Payer, Regulatory, Policy Changes

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Strategies to Remain Financially Viable

• Develop an operating reserve
• Maintain current ratio above 2.0
• Keep debt management ratio below 0.50
• Closely monitor manage cash flow
• Closely monitor manage financial performance
• Assure operations result in financial surpluses,
  take action
• Monitor performance with industry standards
• Increase maintain Medicaid patients
• Monitor changes in marketplace, economy, other
  trends
• Analyze opportunities to add/increase
  providers/services
• Closely monitor regulatory and policy changes

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What Gets Measured, Gets Done
What Gets Incentivised, Really Gets Done
Be Sure You Are Measuring What is Important
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QUESTIONS
Contact Information Cynthia L. Prorok Management
Solutions Consulting Group, Inc. clprorok_at_myepath.
com [phone] (cell)