COMPANY PERFORMANCE MEASURES

DR.
DR. JOSSIL
JOSSIL NAZARETH
NAZARETH
202803022
202803022
MHA
MHA IIII SEM
SEM
TABLE OF
CONTENTS
Overview

Performance Management Cycle

Key Performance Indicators

Financial KPIs

Balanced ScoreCard (BSC)

Case Study – Health System Performance

Assessment
 OVERVIEW
• Delivering quality healthcare remains
an increasingly complex and costly
proposition.

• Healthcare industry is being squeezed

to provide high-quality, low-cost
healthcare to all.

• Improving performance by increasing

quality or availability is associated
with a greater cost.
OVERVIEW
Healthcare industry has more or less maintained a constant
state of turmoil due to certain disruptors:
• Aging population
• Economic slowdown
• Increasing dependence on expensive, complex technology
• Rising patient expectations
• Diminishing physician job satisfaction

Every healthcare organization can benefit from compiling

the metrics required by management to make informed
decisions.
PERFORMANCE
MANAGEMENT
• Effective use of resources as measured by
quantifying processes and outcomes using
indicators that gauge the performance of
an organization in particular areas.
• Orthogonal qualities in every healthcare
organization are cost, availability and
quality.
 1.

Q = C =A

Availability
2.
Disruptive technology, process
or strategy Q = C >A

3.

Cost Quality Q< C=A

4.

Q> C<A
 1. 2. 3. 4.
• 1 to 2: Introduction of a
A disruptive technology.

• 3: Quality suffers.

• 4: Quality improves but

the initial cost remains
C Q

Disruptive technology, process or strategy over time

 Performance Management is a continuous process and
one in which new performance indicators must be
acquired, designed, or otherwise introduced to
improve the process until the desired (or affordable)
performance level in a particular area is achieved.
PERFORMANC
E
MANAGAMENT
CYCLE
A successful Performance Management Initiative
involves nine key steps.
 Self-assess ID areas
for improve-

Act ment

Review
indicato-
rs and
Commit bench-
Analyze marks

ID
strategi-
es, tools
Generate and
reports techno-
logies
Implement
 What gets measured gets noticed, and KPIs are the focal point for
that measurement.

It can be clinical, financial or patient-focused.

KEY
PERFORMANCE It may also be qualitative or quantitative – or a hybrid of the two.
INDICATORS
Well-crafted KPIs can also facilitate accountability and provide the
basis for behavior change and policy initiatives.

Whether considered alone or arranged within a scorecard, a KPI is

just an indicator.
 • Healthcare Quality Organizations categorize
KPIs according to their functionality:
• AHRQ:
1. Process: Used to assess whether
protocols are being followed.
KPI 2. Output: Used to quantify volume
PERSPECTIV and utilization.
3. Outcome: Follow patient status
ES after care.
• Hospital wide indicators: Infection
control, safety and security, clinical risk
management.
 • Department wide indicators: Medical
record review, blood and medication use,
etc.
KPI • Clinical and non-clinical indicators:
1. Clinical: Post-operative infection
PERSPECTIV rate and mortality
ES 2. Non-clinical:
utilization,
Capacity
revenues
and
and
profitability.
 Capacity + Utilization

Patient + Payer mix

NON- Capital Structure

CLINICAL Productivity + Efficiency
PERFORMANC
E INDICATORS Liquidity

Revenue expense + Profit

Pricing Strategies
CAPACITY • Provide a global view of how efficiently and
AND effectively the organization’s resources are
being used, and can be used by management to
UTILIZATIO predict financial performance.

N
 Ancillary outpatient
Adjusted patient Average length of
Adjusted discharges Admissions service Beds
days stay
visits/procedures

Discharges to
Capitated member Discharges by Discharges to other Emergency
Births skilled nursing
visits service acute care hospitals department services
facilities

Fee-for-service Home health service Inpatient surgical Nursing home

Observation days Occupancy rate
visits visits operations admissions

Outpatient surgical Proportion of Rehabilitation Routine discharges

Outpatient visits Patient days
operations outpatient revenue discharges to home

Same-day surgery
Total discharges Bed turnover rate
procedures
 CAPACITY AND UTILIZATION

• Average Length of Stay (ALOS):

• The current practice is to minimize average length of stay in favour of more
lucrative outpatient services.

Formula = Total LOS for a given time period

Total inpatient discharges or deaths during the same period
• Calculate the ALOS for the following example:

PATIENT LENGTH OF STAY

1 10
2 5
3 3
4 7
5 3
28

Note: Length of Stay refers to the number of calendar days from the day of admission to the day of discharge.
It is calculated by subtracting the day of admission from the day of discharge.
When a patient is admitted and discharged on the same day, LOS = 1 day.
• ALOS = 28/5 = 5.6 days
 CAPACITY AND UTILIZATION

• Bed Occupancy Rate (BOR):

• The percentage of all hospital beds occupied in a given time.
• Indicates success at attracting patients.
• Expressed as percentage.

Formula = Total no. of inpatient census for a given period X 100

Total inpatient beds x Total No. of days
• Calculate the bed occupancy rates for the following:
1. BOR on March 31st, given total inpatient beds = 300, total no. of beds occupied on that
day = 200.
2. BOR for 1 week, given total inpatient census for the week = 1800, total inpatient beds =
300.

1. BOR on March 31st = (200/300) x 100 = 66.67%

2. BOR for 1 week = 1800

X 100 = 85.71%
300 x 7
 The BOR of an acute care hospital should not
exceed 80%. The rationale is that no deserving
patient should be refused admission at any point of
time. The buffer allows scope for emergent
admissions and absorbs time loss between discharge
and bed preparation for the next patient.
BOR
INTERPRETATI
ON The BOR of Intensive Care Settings such as ICU,
NICU, PICU, Burn Unit should not exceed 75%.
This implies that some beds should always be
unoccupied. This ensured greater probability to admit
deserving patients at any point of time.
 CAPACITY AND UTILIZATION

• Bed Turnover Rate:

• The number of times a bed, on average, changes occupants during a given
period of time.
• It is useful because two time periods may have the same percentage of
occupancy, but the turnover rates may be different.

Formula = Total no. of discharges, including deaths, during a given time period
Average bed count for the same period
 CAPACITY AND UTILIZATION

• If hospital ABC experienced discharges (including deaths) totaling to

2100 during March; and the average bed count was 400, calculate the
bed turnover rate.

• Bed Turnover Rate = 2100/400 = 5.25

• This means that on average, each hospital bed had approximately 5

occupants during March.
 CAPACITY AND UTILIZATION
• Bed Turnover Interval:
• The average length of time, in days, that elapses between the discharge of one
patient and the admission of the next inpatient to the same bed over any period
of time.
• Indicates the time that available beds are free.
• Indicates a shortage of beds when negative, and under-use of the hospital or an
inefficient admission system, if positive.

Formula = Available beds x Days in the period – Patient days for the period
No. of discharges, including deaths, in that period
REVENUES, EXPENSES AND
PROFITABILITY
Earnings before
interest, taxes,
Expenses per adjusted Expenses per adjusted Investment turnover
depreciation, Medical expense ratio
patient day (EPAPD) discharge (EPAD) ratio
amortization and rent
(EBITDAR)

Net margin Net profit/loss Net profit ratio Operating revenue Operating profit/loss

Operating profit margin Overall expense ratio Operating margin

 REVENUES, EXPENSES AND
PROFITABILITY
• EBITDAR:
• This indicator is an approximate measure of operating cash flow, calculated by
examining earning before the deduction of interest expenses, taxes,
depreciation, amortization, and rent.

Formula = Net income + Interest & Taxes + Depreciation + Amortization + Lease cost/rent
 REVENUES, EXPENSES AND
PROFITABILITY
• For example, imagine the XYZ company earns $1 million in a year, and it has $400,000 in total
operating expenses.
• Subtracting operating expenses from revenue results in $600,000 of EBIT, or operating income ($1
million revenue - $400,000 operating expenses) = $600,000.
• The operating expenses do not include interest and tax expenses, as the company chooses to show
them further down on the income statement, after EBIT.
• Included in the firm's $400,000 operating expenses is depreciation of $15,000, amortization of
$10,000, and rent of $50,000.
• To arrive at EBITDAR, an analyst excludes depreciation, amortization and rent ($15,000 + $10,000 +
$50,000) from the calculation by starting with EBIT and adding back the amounts as follows:
• EBITDAR = $600,000 EBIT + ($15,000+$10,000+$50,000) = $675,000
 REVENUES, EXPENSES AND
PROFITABILITY
• Operating Revenue:
• An indicator of how much revenue the organization generated from its
primary line of business.

Formula = Total revenue – (Revenue from investments, interest, and other

miscellaneous sources)
 REVENUES, EXPENSES AND
PROFITABILITY
• Operating Margin:
• A measure of profit or loss per unit operating revenue.
• It is trended to determine the organization’s financial direction.
• A positive trend suggests that resources are available for growth and service
expansion, the purchase of replacement equipment, acquisition of new
technology, and maintenance of the physical plants.

Formula = (Total operating revenue – Total operating expense)

Total operating revenue X 100
 REVENUES, EXPENSES AND
PROFITABILITY
• Net Margin:
• An indicator of profitability, useful when trended against itself or compared with
external benchmarks.

Formula = (Total operating revenue – Total operating expense + Nonoperating revenue) X 100
(Total operating revenue + Nonoperating revenue)
 REVENUES, EXPENSES AND
PROFITABILITY
• Return on Investment (ROI):

Formula = Net Profit X 100

Net cost of investment

• Indicates profitability, in terms of how much net profit was derived from a
shareholder’s investment in the organization.
• Low ROI: Inefficient management
• High ROI: Efficient management, undercapitalized organisation
• Calculating the ROI of a Project:
• Imagine you have the opportunity to purchase 1,000 chocolate bars for $2 a piece.
• You would then sell the chocolate to a grocery store for $3 per piece.
• In addition to purchasing the chocolate, you need to pay $100 in transportation costs.
• To decide whether this would be profitable, you would tally your total expenses and your total
expected revenues.
• EXPECTED REVENUES = 1,000 X $3 = $3,000
• TOTAL EXPENSES = (1,000 X $2) + $100 = $2,100
• You would then subtract the expenses from your expected revenue to determine the net profit.
• NET PROFIT = $3,000 - $2,100 = $900
• To calculate the expected return on investment, you would divide the net profit by the cost of
the investment, and multiply that number by 100.
• ROI = ($900 / $2,100) X 100 = 42.9%
CAPITAL
STRUCTURE
• Most Capital Structure
performance indicators are simple
ratios, expressed either as a
proportion or as a percentage.
 CAPITAL STRUCTURE

Capital expense as
Average Age of Cash flow to total Debt-to-net worth Debt to capital
a percentage of
Plant (Years) debt ratio (Long term)
total expenses

Debt to Debt to equity Debt to net assets Debt to net assets Debt-to-service
capitalization (Long term) (Long term) (total) ratio

Point-of-service
Financial leverage Net worth collections as a
fraction of goal
 CAPITAL STRUCTURE

• Average Age of Plant (Years):

• The average age of a healthcare organization’s plant and equipment, computed by dividing the
balance of accumulated depreciation by annual depreciation expense.
• Describes the weighted average age of plant and equipment, taking into account assets
ranging in financial life expectancy from less than 3 years to more than 3 years.
• A low value is desirable.

Formula = Accumulated depreciation

Depreciation expense
 FINANCIAL KPIS
1. Gross Profit Margin
2. Net Profit Margin
3. Working Capital
4. Current Ratio
5. Quick Ratio
6. Leverage
7. Debt-to-Equity Ratio
8. Inventory turnover
9. Total Asset Turnover
10. Return on Equity
11. Return on Assets
12. Seasonality
THE BALANCED SCORECARD
THE BALANCED SCORECARD
CASE STUDY – HEALTH SYSTEM PERFORMANCE ASSESSMENT
 Before HSPA, however, Armenia lacked a coherent
health system reform strategy to facilitate
CASE STUDY – coordination of different strategies across sectors,
including primary care, tertiary care and specific
HEALTH programmes such as maternal and child health care.
SYSTEM
PERFORMANC
E HSPA was introduced to provide an integrated
framework for measuring and demonstrating the
ASSESSMENT impact of reforms on health system performance in
areas such as equity in care, access to services and
efficiency and quality of services.
THANK YOU