Understanding Hospital Financial Metrics

Data gives us the ability to base our decisions on facts rather than conjecture. For physicians and other healthcare practitioners, data is crucial to determining the best course of treatment and executing care plans. For hospital executives, data carries similar importance. They use data to help them make informed decisions with the financial health of their organizations hanging in the balance.

Hospital financial metrics — essentially, key performance indicators (KPIs) for healthcare businesses — give healthcare execs much-needed visibility into their organizations, reveal areas that need improvement, and show how their organizations are performing compared to competitors or the industry as a whole.

Medtech companies or other suppliers that track KPIs of their own may not be familiar with the industry-specific metrics that hospitals use to monitor their financial status. This list of 10 common hospital financial metrics and brief explanations of why the C-suite tracks them will give you some insight into the data that’s important to your customers and prospects.

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Hospital Financial Metrics, Deciphered

Claim Processing Time
​The faster a hospital can process insurance claims, the faster it can receive payment. Shorter average times also indicate lower labor costs to process claims.

Claim Denial Rate
​Claims that insurers deny take time to correct and resubmit, and the process causes bottlenecks in cash flow.

Time in Accounts Receivable
​This metric tracks the average time from patient discharge to payment. A key factor in a sustainable revenue cycle, shorter time in A/R can significantly improve cash flow.

Collection Costs
​In addition to costs associated with collecting from insurers, costs to collect payment have become a crucial hospital financial metric to track. With patient costs rising every year — an increase of 14 percent from 2017 to 2018, to $4,659 on average for an inpatient stay — it’s essential for hospitals to find ways to keep collection costs low.

Average Cost at Discharge
​Hospitals evaluate this metric per treatment area to keep a watch on costs and profitability as well as the impact on patient outcomes.

Readmission Rates
​At first glance, you might think readmission would have a positive impact on hospital revenues, but it can actually hurt them. Under the Hospital Readmission Reduction Program (HRRP), hospitals will receive lower reimbursement from Medicare if the readmission rate is excessive for certain conditions.

Days Cash on Hand
​This metric demonstrates a hospital’s ability to pay lenders and suppliers and reveals whether the organization is properly managing its resources.

Bed Occupancy
​Some hospital financial metrics are meant to control costs while still maintaining quality care. Bed utilization data is an example of that balancing act. If too few beds are occupied, the facility is probably losing money by paying for unnecessary staff and resources; too high, and the quality of care could decline.

Permanent Employee Wages
​Staffing is often one of the largest expenses in a hospital’s budget, so it must be controlled. Recruiting and hiring top talent takes offering competitive wages, but hospital leadership must be careful not to negatively impact their organization.

Operating Margin
​Hospitals need to confirm that they can pay for wages, operating costs, supplies, and other expenses. Profitability improved in 2018 with average hospital revenue growth of 5.1 percent taking a slight lead over expense growth at 5.0 percent, according to Moody’s Investor Service research. Although profitability is good news, such a thin margin requires that hospitals keep a close watch on expenses.

Why Hospital Financial Metrics Matter to MedTech Marketing & Sales Teams

Following author and management consultant Peter Drucker’s principle, “If you can’t measure it, you can’t manage it,” hospital executives count on hospital financial metrics to better understand their businesses. They aren’t just looking to benchmark their performance. They also want to pinpoint areas of inefficiency or high costs and monitor progress as they correct their course.

If improving a specific metric is on your customer’s priority list, they’ll welcome information on MedTech systems or solutions that can help them reach their goals. The products you offer may help improve efficiency and reduce administrative errors, make payments easier for patients, or collect and analyze vital business data. Or, your system may provide a key to reducing patient readmission rates or lower costs of specific treatments. Compiling metrics of your own can be compelling content for MedTech marketing materials and sales pitches.

Research common hospital financial metrics, industry benchmarks, and how your prospects compare, and then target the hospitals you can help to achieve better numbers.

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