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FINANCIAL MANAGEMENT

Chart 4.1: Percentage of Hospitals with Negative Total and Operating Margins, 1995 – 2010

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals.

Negative Operating Margin

Negative Total Margin

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

P er

ce nt

ag e

of R

ev en

ue Chart 4.3: Distribution of Outpatient vs. Inpatient

Revenues, 1990 – 2010

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals.

Gross Inpatient Revenue

Gross Outpatient Revenue

Chart 4.4: Annual Change in Hospital Operating Revenue and Expenses per Adjusted Admission,(1) 1990 – 2010

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Change in Total Expenses Change in Operating Revenue

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals. (1) An aggregate measure of workload reflecting the number of inpatient admissions, plus an estimate of the volume of

outpatient services, expressed in units equivalent to an inpatient admission in terms of level of effort.

Medicare, 34.6% Medicare, 38.3% Medicare, 39.1%

Medicaid, 9.6% Medicaid, 12.8% Medicaid, 16.1%

Other Government, 6.1%

Other Government, 1.4%

Other Government, 1.7%

Private Payer, 41.8% Private Payer, 38.7% Private Payer, 35.2%

Uncompensated Care,(2) 5.1%

Uncompensated Care,(2) 6.0%

Uncompensated Care,(2) 5.8%

Non-patient,(1) 2.7% Non-patient,(1) 2.8% Non-patient,(1) 2.1%

1980 2000 2010

Chart 4.5: Distribution of Hospital Cost by Payer Type, 1980, 2000, and 2010

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals. (1) Non-patient represents costs for cafeterias, parking lots, gift shops and other non-patient care operating services and

are not attributed to any one payer. (2) Uncompensated care represents bad debt expense and charity care, at cost.

Chart 4.6: Aggregate Hospital Payment-to-cost Ratios for Private Payers, Medicare, and Medicaid, 1990 – 2010

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

Medicare

Medicaid(1)

Private Payer

70%

80%

90%

100%

110%

120%

130%

140%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

-$40

-$35

-$30

-$25

-$20

-$15

-$10

-$5

$0

$5

97 98 99 00 01 02 03 04 05 06 07 08 09 10

B ill

io ns

Chart 4.7: Hospital Payment Shortfall Relative to Costs for Medicare, Medicaid, and Other Government, 1997 – 2010(1)

Medicare

Medicaid Other Government

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals. (1) Costs reflect a cap of 1.0 on the cost-to-charge ratio.

Chart 4.8: Income from Investments and Other Non-operating Gains(1) as a Percentage of Total Net Revenue, 1990 – 2010

-0.8%

0.0%

0.8%

1.6%

2.4%

3.2%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

P er

ce nt

ag e

of T

ot al

N et

R ev

en ue

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals. (1) Non-operating gains include income from non-operating activities, including investments, endowments and

extraordinary gains, as well as the value of non-realized gains from investments.

Chart 4.9: Number of Bond Rating Upgrades and Downgrades, Not-for-profit Health Care, 1994 – 2011

Source: Moody’s Investors Services. Moody's: US Not-for-profit Healthcare in 2011: Downgrades Still Outpace Upgrades. February 2, 2012.

Upgrades

Downgrades

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

10

30

50

70

70

50

30

10

Chart 4.10: Median Average Age of Plant, 1990 – 2010

7.9 8.0 8.2 8.4 8.6

8.8 8.9 9.2 9.3 9.2 9.4

9.7 9.8 9.8 9.8 9.9 9.8 9.9 9.7 9.8 10.1

0

2

4

6

8

10

12

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Y ea

rs

Source: Ingenix, Almanac of Hospital Financial and Operating Indicators, 2005, 2008, 2009, 2010, 2011, and 2012 and CHIPS, The Almanac of Hospital and Financial Operating Indicators, 1994 and 1996-7.

Chart 4.11: Percent Change in Employment Cost Index(1), All Private Service Industries, All Health Services, and

Hospitals, 2002 – 2011(2)

2.8% 3.0%

3.4%

0%

1%

2%

3%

4%

All Private Service Industries All Health Services Hospitals

Source: Bureau of Labor Statistics, Employment Cost Index, 12 months ending December 2011. Link: www.bls.gov. (1) Total compensation. (2) Data represent ten-year average.

Financial Operations

• “No Margin, No Mission” • Strategic business decisions • Management of revenue cycle

– Front end process – Back end process

Front End Processes

• Eligibility • Registration • Contracting • Authorization • Orders • Services • Charges • Cash collections

Back End Processes

• Charge capture • Coding • Billing • Contracts • Clean claim submission • Collections • Medical records review

Revenue Cycle Optimization

• ICD-10 – Oct 1, 2014 • System integration • Clinical documentation demands • Billing and claims management • Contract analysis

Case Management & Revenue Cycle

Accounts Receivable (AR)

• AR is the revenue expected to be received for the services rendered.

• Amount of time varies based on payer. – Can be up to 12 months!

• Various types of AR: • “Mainstream” – Medicare, Medicaid, Commercial

Insurances, HMO/PPO. • “Non-Mainstream” – Workers comp, personal injury.

Challenges

• Cash from income has variable delays; however, cash for accounts payable (AP) are typically due immediately or in shorter cycles.

• Process improvement in AR cycles are important to maintain cash flow.

Revenue Cycle Management Issues

• Patient registration and admitting systems that produce clean claims.

• Effective management of patient documentation and accurate final code assignments.

• Patient financial accounting systems that improve cash flows.

BUDGET PERFORMANCE MANAGEMENT

Budget Performance Assessment

• Triangulation of performance – 3 points of reference: 1. How does the target compare to benchmarks

(organization)? 2. How does the budgetary targets compare to

performance? 3. How does it perform with historical best – (over

time view)?

Strategies

• Cost reduction • Reducing excess capacity • Portfolio value analysis

• Assets • Services • Initiatives

• Accountability – Measured and assessed by senior executives – EBID(T)A – Operating cost per statistic – Performance to budget

• Management