Measuring Community-Based Healthcare Organization Financial Health Tim Clouse U.S. Department of Agriculture Gil Silva Rob Gilliam Health Resources and Services Administration

2 I Know “It” When I See It What is good financial health for a community-based healthcare organization? Is there an easy way to determine it? Is there an understandable way to explain it?

3 Half of Them Are Above Average Rates community-based healthcare organizations Relative to a sample of similar organizations Simple, objective, and flexible Currently in use

4 Death and Taxes: The Only Two Certainties Uses available financial data Simple (?) calculations Identifies problem areas –General type of problem –Suggests remedies

5 Financial Risk Assessment Worksheet and Required Data Instructions: An outpatient safety net provider can use this worksheet to evaluate its financial risk relative to our sample of outpatient safety net providers. Fill in each box with the information requested and do the calculations. If information is missing, either use an informed judgment as to the actual value or assume that the benchmark is met (i.e., the provider gets full points for that measure). If the resulting calculation yields more points than maximum in that category, only the maximum points are given. To complete your financial risk assessment you will need your Audited Financial Statement to include the Balance Sheet, the Income Statement and the Statement of Cash Flow. Score = Add all sub scores and record above (Liquidity, Equity/Profitability, Coverage, Activity, and Other) Provider address Risk Level = Name of provider Month/ Day Audit Period Ending FINANCIAL RISK ASSESSMENT MODEL

6 RISK LEVEL DESCRIPTIONS: Low Risk MediumElevatedHigh Risk HIGH RISK – indicates that severe financial imbalances exist and a high risk of failure ELEVATED MEDIUM RISK – indicates excessive financial imbalances that may interfere with the provider’s ability to operate effectively MEDIUM RISK – indicates that some financial imbalances exist and there may be a need for targeted corrective action in the areas of weakness LOW RISK – indicates a financially stable provider with few or no financial imbalances. 70 –100

7 LIQUIDITY (measures if a provider can meet obligations over the short run) CURRENT RATIO = A WORKING CAPITAL = B / Current Assets Current Liabilities _ Benchmarks and Points

8 What’s the Bottom Line? Low scores are a Bad Thing –Not risk of bankruptcy More Research Is Needed –What areas are low? Possible fixes –Fee structure, billing, and collecting

9 All Politics Is Local Every situation is unique Changing the benchmarks for each score Changing the weights/emphasis for each score Changing the risk categories

10 The Chicken and The Egg The Financial Risk Assessment Model also works backwards Using it for a performance benchmark Knowing what to watch for Planning for a new organization Planning to sustain