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Financial Stability: Financial Performance and Opportunities for Improvement

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compared to other industry standards - financial measures ... Calculations: Total Administration Costs (Table 8-A, Col. (a), Line 15) - divided by ... – PowerPoint PPT presentation

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Title: Financial Stability: Financial Performance and Opportunities for Improvement


1
Financial StabilityFinancial Performance and
Opportunities for Improvement
Presented by Cynthia L. Prorok June 25, 2008 -
800 a.m.
2
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

3
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

4
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

5
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

6
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

7
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

8
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

9
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

10
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

11
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

12
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

13
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

14
How to CalculateKey Measures/Ratios and Samples
15
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.
16
Sample Increase/(Decrease) in Net Assets
17
SampleTrended Increase/Decrease in Net Assets
18
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.
19
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

20
Sample Current RatioMeasures Financial
LiquidityMinimum of 1.0 - with 2.0 preferred
Pr Yr Last Qrt
Last Mo Cur Mo
21
SampleTrended Current Ratio
22
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.
23
SampleGross Charges and Collection Data
24
SampleGross Charges and Collection Data
25
Sample Percent ofGross Charges Collected by
Payer
26
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.
27
SamplePatient Payer Mix
28
SampleTrended Patient Payer Mix
29
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
30
Sample TrendedMedical Provider Team Productivity
31
Sample TrendedDental Provider Team Productivity
32
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)
33
Sample TrendedPercent of Admin Facility Costs
34
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
35
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
36
Sample TrendedUncompensated Care Ratio
andPercent of Income from BPHC Receipts
37
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

38
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

39
What Gets Measured, Gets Done
What Gets Incentivised, Really Gets Done
Be Sure You Are Measuring What is Important
40
QUESTIONS
Contact Information Cynthia L. Prorok Management
Solutions Consulting Group, Inc. clprorok_at_myepath.
com (724) 355-3188 (cell)
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