A Primer on Financial Ratio Analysis and CAHMPAS

Transcript:A Primer on Financial Ratio Analysis and CAHMPAS:
A Primer on Financial Ratio Analysis and CAHMPAS CAHMPAS Team North Carolina Rural Health Research and Policy Analysis Center Cecil G. Sheps Center for Health Services Research 725 Martin Luther King, Jr. Boulevard Chapel Hill, NC 27514 monitoring@flexmonitoring.org March 6, 2020 CAHMPAS Financial Team University of North Carolina at Chapel Hill Kristin L. Reiter, PhD George H. Pink, PhD G. Mark Holmes, PhD Technical Advisor Roger Thompson, Seim, Johnson, Sestak & Quist LLP 2 Agenda The theory of financial analysis (p4) Overview of the financial indicators in CAHMPAS (p10) Understanding and using the peer groups (p15) Understanding and using the indicators (p29) How hospitals can use CAHMPAS: An example (p58) Benchmarks (p76) 3 1. The theory of financial analysis 4 Purpose One of the most important characteristics of a business is its financial performance and condition Financial analysis assesses a business’s financial performance and condition: Does it have the financial capacity to meet its mission? Results sometimes focus on financial strengths and weaknesses 5 Types of Financial Analyses Several types are used: Financial statement analysis focuses on the information in a business’s financial statements with the goal of assessing financial condition Operating indicator analysis focuses on operating data with the goal of explaining financial performance CAHMPAS includes financial statement and operating indicator analyses 6 Ratio Analysis Ratio analysis is a technique used in both financial statement and operating indicator analyses It combines values from the financial statements (and elsewhere) to create single numbers that: have easily interpretable financial significance facilitate comparisons 7 Interpreting Ratios A single ratio value has little meaning: One point in time that may not be representative Can’t tell if it is better or worse than other hospitals Therefore, two techniques are commonly used to help interpret “the numbers”: Trend (time series) analysis Comparative (cross-sectional) analysis Both techniques are used in CAHMPAS 8 Using Ratios Ratios help to identify: Questions to ask Issues to address Problems to solve Ratios do not necessarily provide Answers Explanations Solutions 9 2. Overview of the Financial Indicators in CAHMPAS 10 Objectives of the Financial Indicators in CAHMPAS To select and construct a set of financial performance measures that are relevant to Critical Access Hospitals (CAHs) To provide comparative information that CAH boards and administrators can use to improve financial performance To improve the quality of Medicare Cost Report data reported by CAHs (our goal) 11 Financial Ratios in CAHMPAS Profitability indicators