Financial Indicators for CAHs (Briefing Paper #7)

Publication Date: May 2005
Author(s): Pink GH, Holmes GM, D'Alpe C, Strunk LA, McGee P, Slifkin RT
Research Center(s): North Carolina
Project: Analyzing Financial and Operational Performance of CAHs
Topic(s): Finance
Notes: Briefing Paper #7

The purpose of this project was to develop and disseminate comparative financial indicators specifically for Critical Access Hospitals (CAHs) using Medicare Cost Report (Healthcare Report Information System) data. A Technical Advisory Group of individuals with extensive experience in rural hospital finance and operations provided advice to a research team from the University of North Carolina at Chapel Hill. A literature review identified 114 financial ratios that have proven useful for assessing financial condition. Twenty indicators deemed appropriate for assessment of CAH financial condition were chosen. In September 2004, the CEOs of 853 CAHs were mailed a CAH Financial Indicators Report© (the Report) that included values specifically for their CAH and national median values. State-level reports were sent to State Flex Coordinators.

Results showed that over the six years since 1998, CAHs generally became more profitable and increased utilization of beds. However, while on average CAHs with long-term care became more liquid and reduced their use of debt over time, those without long-term care became less liquid and increased their use of debt. In the most recent year for which we have data (2003), CAHs without long-term care generally were more profitable, were more liquid, had less debt, and had higher utilization of beds in comparison to CAHs with long-term care.

An evaluation form queried respondents regarding the overall usefulness of the Report and of individual indicators. Among 180 respondents, 82 percent rated the report as either very useful or useful. Net days revenue in accounts receivable, FTEs per adjusted occupied bed, and total margin were rated most useful by the greatest number of respondents. Every indicator in the Report was rated most useful by a substantial number of respondents and least useful by only a few respondents.