CAHs and Financial Benchmark Performance (Policy Brief #11)


The Flex Monitoring Team previously selected 20 financial ratios that were found to be important measures of CAH financial performance that could be calculated using Medicare Cost Report data. For five indicators, benchmarks were created with input from CAH administrators, including: 5% for cash flow margin; 60 days cash on hand; debt service coverage of 3.0; long-term debt to capitalization of 25%; and Medicare outpatient cost to charge of 0.56. In this report, those benchmarks were applied to recent CAH data (for 421 hospitals that met criteria).


  • Very few CAHs performed better than benchmark on all five indicators in both 2004 and 2006;
  • CAHs with net patient revenue less than $5 million were substantially less likely than larger facilities to be able to consistently perform better than the cash flow benchmark;
  • It is very difficult for CAHs to concurrently generate high margins, bank a lot of cash, have little debt in the capital structure, and achieve low costs relative to charges.