MHA's Executive Briefing

Clear as glass: transparent financial reporting

Improving financial transparency means articulating the "whole story" of an organization as seen through the eyes of management, including nonfinancial indicators of current and future performance, risks, and other factors necessary to better understand the business. Some of this information is already conveyed in corporate and community reports, but the reporting model can and should evolve to include important information about growth strategy, people issues, brand and market share, and supply chain issues, supported by quantitative nonfinancial performance measures and operating metrics. In addition, transparency includes improving access to, timeliness of, and relevance of information that is useful to stakeholders.

Read the full article in HFMA magazine. (via SHSMD's e-Connect)

Beyond the Tried and True in the Quest for Financing

Not-for-profit health care organizations looking to feed their capital appetites have long preferred fairly straightforward means of obtaining money. Who could blame them for sticking with vanilla over more exotic "flavors" of financing, especially with low interest rates making standard bond issues and bank loans appealing?

Those old standbys remain by far the financing vehicles of choice. But other methods are gaining hold as not-for-profits look elsewhere--usually the corporate world--for successful precedents that can help fund projects without leaving a bad financial aftertaste.

Capital Catch-22

You've got to spend money to make money. That adage holds true when examining hospital capital expenditures. On average, hospitals that make consistent and generally larger capital investments have better financial performance.

"There is a historical connection between capital investment and financial success," says Frederick Hessler, managing director, Citigroup. "Those organizations with newer plants tend to have better cash flows."

To that point, Moody's Investor Service incorporated a new measure into its credit rating analysis: the capital spending ratio, which is capital spending divided by depreciation. The higher the ratio, the greater the investment in new capital. Ratios below 100 percent indicate that an organization is disinvesting--spending less in new capital than the depreciation of old capital.

8 Financial Meassures Every Hospital Executive Should Know

The balanced scorecard is used to relate critical performance data to help executives understand the organization's financial strength, capacity and market position. It is intended to help executives and other decision-makers track organizational performance and plan for growth and expenditures. William Cleverley, president of Cleverley Associates, Worthing-ton, Ohio, and professor emeritus at The Ohio State University, Columbus, recommends the following eight measures for a hospital executive dashboard. Other measures may be added, depending upon factors important to the organization's success.

Voluntary GPO ethics initiative lines up supporters

The Healthcare Group Purchasing Industry Initiative, a voluntary ethics initiative aimed at averting federal legislation regulating GPO business practices, said it had enlisted bipartisan support from four senators and seven healthcare associations. The senators did not include Mike DeWine (R-Ohio) and Herb-Kohl (D-Wis.), chairman and ranking member, respectively, of a Senate Judiciary antitrust subcommittee that has been investigating GPO business practices over the past three years. All four senators supporting the initiative -- Jon Kyl (R-Ariz.), Chuck Schumer (D-N.Y.), Sam Brownback (R-Kan.) and John Cornyn (R-Texas) -- are members of the Judiciary Committee. Kyl and Schumer also are on the Senate Finance Committee. At the same time, the healthc are associations, including the American Hospital Association, the Association of American Medical Colleges and the Catholic Health Association, issued a joint statement supporting the initiative and underscoring GPOs' role in containing healthcare costs. At deadline, DeWine and Kohl had not responded to requests for comment.

Nine of the nation's largest hospital GPOs have signed on to HGPII, which promotes voluntary disclosure of business and ethics practices. Organizers said summary responses to a GPO questionnaire on business and ethics practices will be posted online at healthcaregpoii.com by Oct. 1. (via Modern Healthcare)

Hospitals Back on Their Feet

Most for-profit hospital companies seem poised to deliver their healthiest performance in years.

After suffering through a painful downturn through much of 2003 and 2004, the hospital industry has tried to mend some of its nastiest problems -- particularly bad debt from the uninsured -- and, in turn, has given investors fresh hope that a full-scale recovery is finally on the way. To be sure, the group kicked off 2005 with a bang, delivering pleasant earnings surprises that have pushed hospital stocks up more than 30% so far this year. Now, however, the sector must carry that momentum forward -- without the help it received earlier from the flu -- to prove its overall health.

AHRQ data reveals 5 most costly medical conditions

The five costliest medical conditions in the U.S. are heart conditions, cancer, accidents and other trauma, mental disorders and lung conditions, the Agency for Healthcare Research and Quality reports. More than 50 million Americans had health expenses related to asthma and other lung conditions in 2002, and 36 million had expenses related to accidents and other trauma. Cancer cost the most per person with the condition, but had the fewest people with expenses compared with the other four conditions. The data are from AHRQ's Medical Expenditure Panel Survey, which annually collects health care use and other information from a nationally representative sample of U.S. households. (via AHA News)

CT scans, MRI not to blame for rising healthcare costs

Many experts have placed some of the blame for soaring healthcare costs on the increasing expense of hi-tech diagnostic imaging tests, such as CT scans and MRI. But a new study published in the June issue of Radiology finds cost increases for these tests have stayed in line with other hospital costs, and might actually help shorten hospital stays for patients. The findings run counter to claims that diagnostic imaging has replaced prescription drugs as the driver of increasing hospital healthcare costs.

Read the full article in Forbes magazine. Read the abstract from Radiology. (via the Society for Healthcare Strategy & Market Development's e-Connect)

Four Reasons Not to Outsource Your Margin

Outsourcing is a growth industry in healthcare. It's estimated that at least 75 percent of all hospitals outsource at least one hospital function. The 20 largest outsourcing companies reported a combined total of 9,422 healthcare clients in 2003, up 12 percent from 2002. Studies show that housekeeping, food service and laundry top the list of hospital department management contracts, with the combined total of these contracts jumping 17 percent from 2002 to 2003. Survey results also indicate that healthcare organizations are expanding outsourcing beyond their historic areas of focus. For example, the number of hospitals with management contracts for outsourcing billing and collections and information systems increased 10.6 percent and 31 percent respectively from 2002 to 2003. For the full story from HealthLeaders.com, click here.

Ability to invest in health care IT increasingly important, Moody's says

In a report May 23 examining the benefits and challenges for not-for-profit hospitals of investing in clinical information technology, Moody's Investors Service says allocating a portion of the hospital’s annual capital budget to IT will take on increased importance as hospitals strive to improve health care quality and safety, and should "pay for performance" reimbursement become more common. "We believe that capital spending for clinical and other information technology represents a growing portion of a hospital's annual capital budget, ranging from 15%-20% of expenditures," the report says. "At the same time, there are smaller facilities, safety-net providers or providers with weak liquidity positions that cannot afford any capital spending on items other than medical equipment and basic facility upkeep. Over time, we believe these facilities may be at a competitive disadvantage compared to their peers given their lacking technology, creating a gap in the hospital indu stry of the technologically advanced hospitals and those that could not afford such systems." 

Chantal Worzala, AHA senior associate director for policy, commented, "The adoption gap in IT is not just among large and small physician offices. This study shows the importance of ensuring that smaller, safety net, and financially distressed hospitals get the help they need to integrate IT into health care." (via AHA News)