health care finance week 5

Part V: Tools to Review and Manage Comparative Data

CHAPTER 14: USING COMPARATIVE DATA

Using Comparative Data

• Managers use comparative data to set common ground for planning, control and decision-making purposes.

Comparability Criteria

• True comparability needs to meet three criteria:

• Consistency

• Verification

• Monetary Unit Measurement

Consistency

• Three elements of consistency are all equally important:

• Time periods

• Consistent methodology

• Inflation factors

Verification

• You should ask three questions about verification:

• Can this data be verified?

• Is the data reasonable?

• If an objective, qualified person reviewed the data, would he or she arrive at the same conclusion and/or results?

Monetary Unit Measurement

• You should ask this question: is all the information being prepared or under review measured by the same monetary unit?

• In the U.S., we would expect all data to be in dollars, but properly consistent currency conversions are important when reporting global operations.

• Four common uses of comparative data include:

• Compare current expenses to current budget

• Compare current actual expenses to prior periods in own organization

• Compare to other organizations

• Compare to industry standards

Uses of Comparative Data

Table 14–1 Comparative Analysis of Budget Versus Actual

Figure 14–1 A Comparison of Hospital One’s Budgeted and Actual Expenses

Health Care Finance by Judith J. Baker and R.W. Baker.

Copyright © 2011 by Jones and Bartlett Publishers, LLC

Figure 14–2 A Comparison of Hospital One’s Expenses Over Time

Figure 14–3 A Comparison of Three 100-Bed Hospitals’ Long-Term Debt

Figure 14–4 A Comparison of Three Hospitals’ Total Expenses

Figure 14–5 A Comparison of Three Hospitals’ Expenses per Bed

Figure 14–6 A Comparison of Hospital One’s GS Inpatient Expenses with Industry Standards

Making Data Comparable- Annualizing Partial-Year Expenses

• Annualizing partial-year expenses is important to know because comparability requires such consistency.

• Table 14-2 (p. 158) sets out actual 10-month expenses that are annualized to 12 months. (Details about how to compute annualizing are in the chapter text.)

Making Data Comparable-Inflation Factors

• Inflation means “an increase in the volume of money and credit relative to available goods and services resulting in a continuing rise in the general price level.” (Merriam Webster’s Collegiate Dictionary, 10th ed., s.v. “Inflation”)

• An inflation factor is used to compute the effect of inflation over time. An example follows on the next two slides.

Table 14–3.1 Applying a Cumulative Inflation Factor

• SOURCE OF FACTOR IN COLUMN C ABOVE:

• From the Compound Interest Look-Up Table

• “The Future Amount of $1.00” (Appendix 12-B)

Table 14–3.2 Applying a Cumulative Inflation Factor

*Assume an annual inflation rate of 10%. Thus 1.00 + 0.10 = the 1.10 factor in Column C.

**Column D “Nominal Dollars” equals Column B times Column C.

Making Data Comparable-Currency Measures

• Currencies are typically converted for financial reporting purposes using the

• U.S.-dollar foreign exchange rates as of a certain date.

• Chapter 14 explains how to convert currency using the exchange rates. Foreign currency examples follow on the next slide.

Exhibit 14–1 Foreign Currency Examples

Making Data Comparable- Standardized Measures

• Finally, standardized measures aid comparability and especially assist in performance measurement.

• Electronic medical records – the wave of the future in health care – depend upon such standardized input.

Cumulative Inflation Factor for Comparable Data-Assignment Exercise 14-3: Solution

Projected Revenue (in millions)

Year 1 Year 2 Year 3 Year 4 Year 5

Hosp. 1 $20 $22.50 $27.50 $27.50 $30

Hosp. 2 $20 $22.05 $27.55 $27.75 $31.6