At the Becker's Hospital Review 7th Annual Meeting in a session titled "Benchmarking and Assessing the Financial Strength of a Hospital," hospital CFOs and key thought leaders discussed the best methods for improving hospital finances going forward. Editor-in-Chief of Becker’s Hospital Review Molly Gamble moderated the panel.
Darryl Linnington, CFO of McAlester Regional Health Center, assesses financial strength by pursuing growth strategies as they come to the hospital’s attention.
“One of the things that we sometimes forget about is not just the actual outputs and financial indicators, but also measuring financial management. What are facilities doing in terms of financial management processes and how are they working to their benefit. One of the metrics I look for is do you measure your financial management process? If you have internal control certifications, do you measure that they get done when they are completed? If you have daily metrics that department heads are responsible for submitting, are you tracking that they are submitted on time?” he said.
In addition to the financial indicators, he also looks for financial discipline to make sure the information is meaningful, useful and reliable. “I’ve always thought in terms of value. Really, we want to know, what is the value of our organization? Is there a price to it? The other piece is our credit rating. Even if we never intended to seek public finance, even if we never intended to go for a rating, we should have some idea of how we’d size up if we were.”
Specific metrics on the balance sheet that are important are days cash, days accounts/receivable, average age of plan, current liquidity ratio and debt, debt terms and EBITDA. Melissa Whitmer, senior vice president, healthcare of KeyBank also discussed the quality of the management team as an important asset for the hospital.
“For us, it’s getting to know the management team and gaining confidence in the team and their decisions they’re making both in short and long term strategies. We want to know their background and industry knowledge. Healthcare is highly regulated, so they have to understand the new regulations. We have to be comfortable with the management team because they are leading the change,” she said.
She’s also interested in what investments are made in the facility, technology, EHR, equipment. “It’s important to know the hospital is able to provide the highest quality of services. They also have to understand the competition too that’s around the hospital and if there have been conversations that have taken place in terms of affiliation and joint ventures. It’s important from the lending perspective to understand what the short and long term plan is,” said Ms. Whitmer. Some hospitals are determined to remain independent while others are considering consolidation; consolidation may bring value to the hospital going forward.
Anthony Creed, CFO of VA Southern Nevada Healthcare, has a unique benchmarking experience because he works at a VA hospital.
“We all do business plans, so you have to have some assumptions and benchmarking. If you look at a cascade system, which is what we adopted, we started with Milliman Data. We are looking out to 2033 and our population. We start from there and drill down to each one of our clinics relevant to Milliman and look at what our priorities are,” he said. “What we do with that data, we set our priorities and look at tactical initiatives we are going to establish.”
The hospital starts over every year due to their funding models; last year in the President’s budget, the hospitals were short $1.9 billion from what they ended up getting. The hospitals may not know this year until after the election what their budget will be. From the Milliman data, they can bring in services and develop a business plan.
At six months, Mr. Creed and his team do a review, looking at productivity. He conducts focus groups to humanize data collected to have a better understanding of the data. The reports previously were quarterly, but now they are monthly, bi-monthly and daily. Since Milliman only comes out once per year, the team manually adjusts the data to gain a better understanding of their projection model.
Mr. Linnington’s external benchmarks include:
• Operational efficiency
• Supply cost management
• Patient satisfaction
• Employee engagement
• Physician satisfaction.
Internal benchmarks are managed by metrics and there are five key objectives for the leadership team:
• Pick actionable, predictive metrics
• Measure more frequently than they did in the past
• Engage their frontline staff
• Emphasize discussing performance and responses
• Rewarding consistency in reporting