health care finance week 5
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Chapter13.pdf
Part V: Tools to Review and Manage Comparative Data
CHAPTER 13: COMMON SIZING,
TREND ANALYSIS & FORECASTED DATA
Common Sizing
• Common sizing puts data on the same relative basis.
Common Sizing: Example
• Common sizing converts numbers to percentages so that comparative analysis can be performed. The worksheet below shows the assets of two hospitals.
Same Year for All Three Hospitals
Hospital 1 Hospital 2 Hospital 3
Current
Liabilities
Long-term debt
Total liabilities
$100,000
400,000
$500,000
20%
80%
100%
$500,000
1,500,000
$2,000,000
25%
75%
100%
$400,000
100,000
$500,000
80%
20%
100%
Common Sizing: Practice Exercise 13-I
Trend Analysis
• Trend analysis compares figures over several time periods.
Trend Analysis: Example
Trend analysis allows comparison of figures over time.
Hospital 1
Year 1 Year 2 Difference
Current Liabilities
Long-term debt
Total liabilities
$100,000
400,000
$500,000
20%
80%
100%
$500,000
1,500,000
$2,000,000
25%
75%
100%
$50,000
50,000
$100,000
50.0%
12.5%
Trend Analysis: Practice Exercise 13-II
• Usually involves converted $ to %.
• Called “horizontal analysis” because computation of the % is across, or horizontal.
• Refer to examples in this chapter.
Comparative Analysis of Operating Data: Horizontal Analysis
Comparative Analysis of Operating Data: Vertical Analysis
• Usually involves converted $ to %.
• Called “vertical analysis” because computation of the % is up and down, or vertical.
• Refer to examples in the chapter.
• The dictionary defines “to forecast” as: “. . .to calculate or predict some future event or condition, usually as a result of study and analysis of available pertinent data”. (Merriam Webster’s Collegiate Dictionary, 10th ed., s.v. “Forecast”)
Forecast Definition
Forecasting Results
• Managers can use three levels of forecasts:
• Short Range — Next year
• Intermediate Range — 5 years from today
• Long Range — The next decade and beyond
Forecasting Approaches
• The manager’s forecasting approach usually involves three source levels:
• Level 1 — Directly involved personnel
• Level 2 — Electronic & statistical information
• Level 3 — Executive-level judgment
Forecasting Types
• The three most common types of healthcare forecasts include:
• Revenue forecasts
• Staffing forecasts
• Operating expense forecasts
• Assumptions affect forecasted results, and are the basis of the numbers in your forecast. For example:
• Computing a staff requirement of 3 lab technicians requires an assumption.
• Computing the salary and fringe benefits for each of the technicians requires another assumption.
• When the salary and fringe benefit dollars are computed for the 3 lab technicians, the resulting figure becomes part of your forecast.
Forecasting Results
• Five important assumptions, (especially when forecasting for revenues) include:
• Utilization Changes
• Patient Mix Changes
• Contractual Allowance Changes
• Trend Analysis
• Payer Changes
Forecasting Results
Contractual Allowance: Practice Exercise 13-III
• A: The unit has recorded 2,000 procedures.
• A: 500 procedures are attributed to each payer.
• A: Net revenue and contractual allowance as follows:
Payer #
Gross Charges
% Paid by Each Payer
Net Revenue per Procedure
Contractual Allowance per Procedure
1 $100.00 90% $90.00 $10.00
2 $100.00 80% $80.00 $20.00
3 $100.00 70% $70.00 $30.00
4 $100.00 50% $50.00 $50.00
Contractual Allowance: Assignment Exercise 13-3
• A: The unit has performed 2,000 procedures.
Of these,
Payer 1 = 30% x 2,000 = 600 procedures
Payer 2 = 40% x 2,000 = 800 procedures
Payer 3 = 20% x 2,000 = 400 procedures
Payer 4 = 10% x 2,000 = 200 procedures
Proof Total = 2,000
Contractual Allowance: Assignment Exercise 13-3
• A: The net revenue per procedure and the contractual allowance per procedure for each payer is as follows:
Payer # Gross Charges
% Paid by Each Payer
Net Revenue per Procedure
Contractual Allowance per Procedure
1 $100.00 80% $80.00 $20.00
2 $100.00 70% $70.00 $30.00
3 $100.00 50% $50.00 $50.00
4 $100.00 90% $90.00 $10.00
Contractual Allowance: Assignment Exercise 13-3
• A: The total net revenue computation for each payer is as follows:
Payer # Number of Procedures
Times Net Revenue per Procedure per Payer
Equals Total Net Revenue per Payer
1 600 $80.00 $48,000
2 800 $70.00 $56,000
3 400 $50.00 $20,000
4 200 $90.00 $18,000
Total 2,000 $142,000
Contractual Allowance: Assignment Exercise 13-3
• A: The total contractual allowance computation for each payer is as follows:
Payer # Number of Procedures
Times Contractual Allowance per Procedure per Payer
Equals Total Contractual Allowance per Payer
1 600 $20.00 $12,000
2 800 $30.00 $24,000
3 400 $50.00 $20,000
4 200 $10.00 $ 2,000
Total 2,000 $58,000
• Managers often have to prepare staffing forecasts
• Watch for
– Non-Controllable Expense Problems
– Required Minimum Staff Levels
– Labor Market Problems
• More details are in the chapter.
Forecasting Results
• A staffing forecast has many parts. A master staffing plan should include all units and all hours and days required to cover all positions with the units.
• Refer to Figure 13-4 “Components of the Staffing Forecast” in the text. (Computation of an annual staffing factor is also illustrated in Figure 13-4.)
Staffing Forecasts
Figure 13–4 Components of the Staffing Forecast
• In the health care industry, “capacity” refers to levels of services; that is, the ability to produce or provide a certain amount of specific healthcare services.
• In the manufacturing industry, on the other hand, “capacity levels” refer to production levels, such as the ability to produce a certain number of widgets.
Capacity Level Issues in Forecasting
• Limitations on healthcare capacity levels generally involve:
• Space & equipment availability
• Staffing availability
• Refer to details in this chapter.
Capacity Level Issues in Forecasting
Final Words About Forecasts
• In summary: the ultimate accuracy of a forecast rests on the strength of its assumptions
• And always remember: forecasting is an important part of the budget process.
