Appendix B: Formulae Used for Calculation of …

1 Appendix B: Formulae Used forCalculation of hospital performance MeasuresPERFORMANCE MEASUREFORMULAADJUSTMENTSA djustment FactorGross Patient Revenue / Gross Inpatient Acute Care RevenueCase Mix AdjustmentHospital performance measure / Medicare Case Mix IndexWage Index Adjustment[( hospital performance measure ) / CMS Wage Index] + (HospitalPerformance measure )CAPACITY AND UTILIZATIONBeds in Service,Beds in Service, General Service Units + Beds in Service, Intensive Care Units + BedsTotal Acute Carein Service, Coronary Care Units + Beds in Service, Other Special Care UnitsTotal Discharges, Acute CareTotal Discharges, Acute CareAdjusted DischargesTotal Discharges, Acute Care Adjustment FactorAverage Daily Census, Acute CareTotal Inpatient Days, Acute Care / 365 Adjusted Average Daily Census(Total Inpatient Days, Acute Care / 365) Adjustment FactorOccupancy Rate, Acute Care[(Total Inpatient Days, Acute Care / 365)]

2 / Beds in Service, Total Acute Care] 100 Average Length of Stay, Acute CareTotal Inpatient Days, Acute Care / Total Discharges, Acute CareAverage Length of Stay,(Total Inpatient Days, Acute Care / Total Discharges, Acute Care) / Medicare CaseAcute Care, Case Mix-AdjustedMix IndexAverage Length of Stay,Medicare Inpatient Days, Acute Care / Medicare Discharges, Acute CareAcute Care, MedicareAverage Length of Stay,(Total Inpatient Days, Acute Care Medicare Inpatient Days, Acute Care) / (TotalAcute Care, Non-MedicareDischarges, Acute Care Medicare Discharges, Acute Care)270 THE SOURCEBOOK 2003 by Solucient, LLCAPPENDIX B: Formulae USED FOR Calculation OF hospital performance MEASURESPERFORMANCE MEASUREFORMULAPATIENT AND PAYER MIXM edicare Acute Care(Medicare Discharges, Acute Care / Total Discharges, Acute Care) 100 Discharges, as a Percentageof Total Acute Care DischargesMedicaid Acute Care(Medicaid Discharges, Acute Care / Total Discharges, Acute Care) 100 Discharges, as a Percentageof Total Acute Care DischargesMedicare Acute Care Days, as a(Medicare Inpatient Days, Acute Care / Total Inpatient Days, Acute Care) 100 Percentage of Total Acute Care DaysMedicaid Acute Care Days, as a(Medicaid Inpatient Days, Acute Care / Total Inpatient Days, Acute Care)

3 100 Percentage of Total Acute Care DaysSpecial Care Days, as a Percentage[(Inpatient Days, Intensive Care Units + Inpatient Days, Coronary Care Units +of Total Acute Care DaysInpatient Days, Other Special Care Units) / Total Inpatient Days, Acute Care] 100 Outpatient Gross Revenue, as a(Gross Outpatient Revenue / Gross Patient Revenue, Total) 100 Percentage of Gross Patient RevenueCAPITAL STRUCTUREA verage Age of PlantAccumulated Depreciation / current Depreciation ExpenseNet Property, Plant, and(Total Property, Plant, and Equipment Accumulated Depreciation) / Beds inEquipment per Bed, Total FacilityService, Total FacilityDebt per Bed, Total FacilityTotal Liabilities / Beds in Service, Total FacilityCapital Costs, as a Percentage(Capital Costs, Total / Operating Expense, Total) 100of Operating ExpenseCapital Costs per Adjusted DischargeCapital Costs, Total / Adjusted DischargesCapital Acquisitions as a(Total Capital Acquisitions / Net Patient Revenue) 100 Percentage of Net Patient RevenueLong-Term Debt to Total AssetsTotal Long-Term Liabilities / Total AssetsLong-Term Debt to Net Fixed AssetsTotal Long-Term Liabilities / (Total Property, Plant, and Equipment AccumulatedDepreciation)

4 Long-Term Debt to CapitalizationTotal Long-Term Liabilities / (Total Long-Term Liabilities + Total Fund Balance)Cash Flow to Total Debt(Net Income + current Depreciation Expense + Interest Expense) / Total LiabilitiesDebt Service Coverage Ratio(Net Income + current Depreciation Expense + Interest Expense) / (CurrentPortion of Long-Term Debt + Interest Expense) 2003 by Solucient, LLCTHE SOURCEBOOK271 Appendix B: Formulae USED FOR Calculation OF hospital performance MEASURESPERFORMANCE MEASUREFORMULALIQUIDITYC urrent RatioTotal current Assets / Total current LiabilitiesAcid Test Ratio(Cash + Temporary Investments) / Total current LiabilitiesDays in Net Accounts Receivable(Net Accounts Receivable 365) / Net Patient RevenueAverage Payment Period(Total current Liabilities 365) / (Operating Expense, Total CurrentDepreciation Expense)

5 Index of Predictive CreditworthinessPerformance Measures Used in the Calculation of IPC ScoreBeds in service, acute careDays in net accounts receivableOccupancy rateAverage payment periodMedicare case mix indexLong-term debt to capitalizationPercent Medicare daysPercent capital-related operating expensePercent Medicaid daysAverage age of plantOperating profit marginInterns and residents per bedTotal profit marginLocation in urban or rural areaDebt service coverage ratioSystem-affiliated or freestandingCash flow to total debtMarket structure and market shareCurrent ratioREVENUES, EXPENSES, AND PROFITABILITYG ross Patient RevenueGross Patient Revenue, Total / Adjusted Dischargesper Adjusted DischargeGross Patient Revenue{[(Gross Patient Revenue, Total / CMS Wage Index) + (Gross Patientper Adjusted Discharge,Revenue, Total )] / Adjusted Discharges} / Medicare Case Mix IndexCase Mix- and Wage-AdjustedOperating Revenue(Net Patient Revenue + Other Operating Revenue) / Adjusted Dischargesper Adjusted DischargeOperating ExpenseOperating Expense, Total / Adjusted Dischargesper Adjusted DischargeOperating Expense{[(Operating Expense, Total / CMS Wage Index) + (Operating Expense,per Adjusted Discharge,Total )]}

6 ] / Adjusted Discharges} / Medicare Case Mix IndexCase Mix- and Wage-AdjustedLaboratory Cost per Adjusted(Laboratory, Total Cost / Adjusted Discharges) / Medicare Case Mix IndexDischarge, Case Mix-AdjustedRadiology Cost per Adjusted(Radiology, Total Cost / Adjusted Discharges) / Medicare Case Mix IndexDischarge, Case Mix-AdjustedPharmacy Cost per Adjusted(Pharmacy, Total Cost / Adjusted Discharges) / Medicare Case Mix IndexDischarge, Case Mix-AdjustedAdministrative Cost(Administrative Expense, Total / Adjusted Discharges)per Adjusted DischargeDeductions from Gross Patient[(Gross Patient Revenue, Total Net Patient Revenue) / Gross Patient Revenue,Revenue, as a PercentageTotal] 100of Gross Patient Revenue272 THE SOURCEBOOK 2003 by Solucient, LLCAPPENDIX B.

7 Formulae USED FOR Calculation OF hospital performance MEASURESPERFORMANCE MEASUREFORMULAREVENUES, EXPENSES, AND PROFITABILITY(CONT D)Operating Profit Margin[(Net Patient Revenue + Other Operating Revenue Operating Expense, Total) /(Net Patient Revenue + Other Operating Revenue)] 100 Total Profit Margin[(Net Patient Revenue + Other Operating Revenue Operating Expense, Total) /(Net Patient Revenue + Other Income, Total)] 100 Cash Flow Margin[(Net Income + current Depreciation Expense + Interest Expense) / (Net PatientRevenue + Other Income, Total)] 100 Return on Assets(Net Income / Total Assets) 100 Cash Flow per Bed,(Net Income + current Depreciation Expense + Interest Expense) / Beds in Service,Total FacilityTotal FacilityPRODUCTIVITY AND EFFICIENCYFull-Time Equivalent PersonnelNumber of Full-Time Equivalent Personnel / Adjusted Average Daily Censusper Adjusted Average Daily CensusFull-Time Equivalent Personnel(Number of Full-Time Equivalent Personnel / Adjusted Discharges) 100per 100 Adjusted DischargesFull-Time Equivalent Employees[(Number of Full-Time Equivalent Personnel / Adjusted Discharges) 100] /per 100 Adjusted Discharges,Medicare Case Mix IndexCase Mix-AdjustedSalary and Benefits Expense(Salary Expense, Total + Employee Benefits Expense)

8 / Number of Full-Timeper Full-Time Equivalent PersonnelEquivalent PersonnelSalary and Benefits Expense, as a[(Salary Expense, Total + Employee Benefits Expense) / Operating Expense, Total]Percentage of Operating Expense 100 Overhead Expense, as a(Overhead Expense, Total / Operating Expense, Total) 100 Percentage of Operating ExpenseBeds per Resident TeachingBeds in Service, Acute Care / Full-Time Equivalent Interns and ResidentsHospitals OnlyDirect Medical Expense perDirect Medical Intern and Resident Expense / Full-Time Equivalent Interns andResident Teaching Hospitals OnlyResidentsDischarges per Bed, Acute CareTotal Discharges, Acute Care / Beds in Service, Total Acute CareTotal Asset Turnover RatioNet Patient Revenue / Total Assets 2003 by Solucient, LLCTHE SOURCEBOOK273 Appendix B.

9 Formulae USED FOR Calculation OF hospital performance MEASURESPERFORMANCE MEASUREFORMULAPRICING STRATEGIESM arkup Ratio,All Ancillary Services, Total Charges / All Ancillary Services, Total Fully AllocatedAll Ancillary ServicesCostMarkup Ratio,Medical Supplies Sold, Total Charges / Medical Supplies Sold, Total Fully AllocatedMedical Supplies SoldCostMarkup Ratio, Drugs SoldDrugs Sold, Total Charges / Drugs Sold, Total Fully Allocated CostMarkup Ratio, LaboratoryLaboratory, Total Charges / Laboratory, Total Fully Allocated CostMarkup Ratio,Diagnostic Radiology, Total Charges / Diagnostic Radiology, Total Fully AllocatedDiagnostic RadiologyCost274 THE SOURCEBOOK 2003 by Solucient, LLC