Appendix B: Formulae Used for

Calculation of Hospital Performance Measures

PERFORMANCE MEASURE FORMULA

ADJUSTMENTS
Adjustment Factor Gross Patient Revenue / Gross Inpatient Acute Care Revenue

Case Mix Adjustment Hospital Performance Measure / Medicare Case Mix Index

Wage Index Adjustment [(Hospital Performance Measure × 0.71) / CMS Wage Index] + (Hospital
Performance Measure × 0.29)

CAPACITY AND UTILIZATION

Beds in Service, Beds in Service, General Service Units + Beds in Service, Intensive Care Units + Beds
Total Acute Care in Service, Coronary Care Units + Beds in Service, Other Special Care Units

Total Discharges, Acute Care Total Discharges, Acute Care

Adjusted Discharges Total Discharges, Acute Care × Adjustment Factor

Average Daily Census, Acute Care Total Inpatient Days, Acute Care / 365

Adjusted Average Daily Census (Total Inpatient Days, Acute Care / 365) × Adjustment Factor

Occupancy Rate, Acute Care [(Total Inpatient Days, Acute Care / 365) / Beds in Service, Total Acute Care] × 100

Average Length of Stay, Acute Care Total Inpatient Days, Acute Care / Total Discharges, Acute Care

Average Length of Stay, (Total Inpatient Days, Acute Care / Total Discharges, Acute Care) / Medicare Case
Acute Care, Case Mix-Adjusted Mix Index

Average Length of Stay, Medicare Inpatient Days, Acute Care / Medicare Discharges, Acute Care
Acute Care, Medicare

Average Length of Stay, (Total Inpatient Days, Acute Care − Medicare Inpatient Days, Acute Care) / (Total
Acute Care, Non-Medicare Discharges, Acute Care − Medicare Discharges, Acute Care)

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APPENDIX B: FORMULAE USED FOR CALCULATION OF HOSPITAL PERFORMANCE MEASURES

PERFORMANCE MEASURE FORMULA

PATIENT AND PAYER MIX

Medicare Acute Care (Medicare Discharges, Acute Care / Total Discharges, Acute Care) × 100
Discharges, as a Percentage
of Total Acute Care Discharges

Medicaid Acute Care (Medicaid Discharges, Acute Care / Total Discharges, Acute Care) × 100
Discharges, as a Percentage
of Total Acute Care Discharges

Medicare Acute Care Days, as a (Medicare Inpatient Days, Acute Care / Total Inpatient Days, Acute Care) × 100
Percentage of Total Acute Care Days

Medicaid Acute Care Days, as a (Medicaid Inpatient Days, Acute Care / Total Inpatient Days, Acute Care) × 100
Percentage of Total Acute Care Days

Special Care Days, as a Percentage [(Inpatient Days, Intensive Care Units + Inpatient Days, Coronary Care Units +
of Total Acute Care Days Inpatient 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 Revenue

CAPITAL STRUCTURE
Average Age of Plant Accumulated Depreciation / Current Depreciation Expense

Net Property, Plant, and (Total Property, Plant, and Equipment − Accumulated Depreciation) / Beds in
Equipment per Bed, Total Facility Service, Total Facility

Debt per Bed, Total Facility Total Liabilities / Beds in Service, Total Facility

Capital Costs, as a Percentage (Capital Costs, Total / Operating Expense, Total) × 100
of Operating Expense

Capital Costs per Adjusted Discharge Capital Costs, Total / Adjusted Discharges

Capital Acquisitions as a (Total Capital Acquisitions / Net Patient Revenue) × 100

Percentage of Net Patient Revenue

Long-Term Debt to Total Assets Total Long-Term Liabilities / Total Assets

Long-Term Debt to Net Fixed Assets Total Long-Term Liabilities / (Total Property, Plant, and Equipment − Accumulated
Depreciation)

Long-Term Debt to Capitalization Total Long-Term Liabilities / (Total Long-Term Liabilities + Total Fund Balance)

Cash Flow to Total Debt (Net Income + Current Depreciation Expense + Interest Expense) / Total Liabilities

Debt Service Coverage Ratio (Net Income + Current Depreciation Expense + Interest Expense) / (Current
Portion of Long-Term Debt + Interest Expense)

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 APPENDIX B: FORMULAE USED FOR CALCULATION OF HOSPITAL PERFORMANCE MEASURES

PERFORMANCE MEASURE FORMULA

LIQUIDITY
Current Ratio Total Current Assets / Total Current Liabilities

Acid Test Ratio (Cash + Temporary Investments) / Total Current Liabilities

Days in Net Accounts Receivable (Net Accounts Receivable × 365) / Net Patient Revenue

Average Payment Period (Total Current Liabilities × 365) / (Operating Expense, Total − Current
Depreciation Expense)

Index of Predictive Creditworthiness Performance Measures Used in the Calculation of IPC Score
Beds in service, acute care Days in net accounts receivable
Occupancy rate Average payment period
Medicare case mix index Long-term debt to capitalization
Percent Medicare days Percent capital-related operating expense
Percent Medicaid days Average age of plant
Operating profit margin Interns and residents per bed
Total profit margin Location in urban or rural area
Debt service coverage ratio System-affiliated or freestanding
Cash flow to total debt Market structure and market share
Current ratio

REVENUES, EXPENSES, AND PROFITABILITY

Gross Patient Revenue Gross Patient Revenue, Total / Adjusted Discharges
per Adjusted Discharge

Gross Patient Revenue {[(Gross Patient Revenue, Total × 0.71 / CMS Wage Index) + (Gross Patient
per Adjusted Discharge, Revenue, Total × 0.29)] / Adjusted Discharges} / Medicare Case Mix Index
Case Mix- and Wage-Adjusted

Operating Revenue (Net Patient Revenue + Other Operating Revenue) / Adjusted Discharges
per Adjusted Discharge

Operating Expense Operating Expense, Total / Adjusted Discharges

per Adjusted Discharge

Operating Expense {[(Operating Expense, Total × 0.71 / CMS Wage Index) + (Operating Expense,
per Adjusted Discharge, Total × 0.29)] / Adjusted Discharges} / Medicare Case Mix Index
Case Mix- and Wage-Adjusted

Laboratory Cost per Adjusted (Laboratory, Total Cost / Adjusted Discharges) / Medicare Case Mix Index
Discharge, Case Mix-Adjusted

Radiology Cost per Adjusted (Radiology, Total Cost / Adjusted Discharges) / Medicare Case Mix Index
Discharge, Case Mix-Adjusted

Pharmacy Cost per Adjusted (Pharmacy, Total Cost / Adjusted Discharges) / Medicare Case Mix Index
Discharge, Case Mix-Adjusted

Administrative Cost (Administrative Expense, Total / Adjusted Discharges)

per Adjusted Discharge

Deductions from Gross Patient [(Gross Patient Revenue, Total − Net Patient Revenue) / Gross Patient Revenue,
Revenue, as a Percentage Total] × 100
of Gross Patient Revenue

272 THE SOURCEBOOK © 2003 by Solucient, LLC

APPENDIX B: FORMULAE USED FOR CALCULATION OF HOSPITAL PERFORMANCE MEASURES

PERFORMANCE MEASURE FORMULA

REVENUES, 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 Patient
Revenue + 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 Facility Total Facility

PRODUCTIVITY AND EFFICIENCY

Full-Time Equivalent Personnel Number of Full-Time Equivalent Personnel / Adjusted Average Daily Census
per Adjusted Average Daily Census

Full-Time Equivalent Personnel (Number of Full-Time Equivalent Personnel / Adjusted Discharges) × 100
per 100 Adjusted Discharges

Full-Time Equivalent Employees [(Number of Full-Time Equivalent Personnel / Adjusted Discharges) × 100] /
per 100 Adjusted Discharges, Medicare Case Mix Index
Case Mix-Adjusted

Salary and Benefits Expense (Salary Expense, Total + Employee Benefits Expense) / Number of Full-Time
per Full-Time Equivalent Personnel Equivalent Personnel

Salary 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 Expense

Beds per Resident—Teaching Beds in Service, Acute Care / Full-Time Equivalent Interns and Residents
Hospitals Only

Direct Medical Expense per Direct Medical Intern and Resident Expense / Full-Time Equivalent Interns and
Resident—Teaching Hospitals Only Residents

Discharges per Bed, Acute Care Total Discharges, Acute Care / Beds in Service, Total Acute Care

Total Asset Turnover Ratio Net Patient Revenue / Total Assets

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 APPENDIX B: FORMULAE USED FOR CALCULATION OF HOSPITAL PERFORMANCE MEASURES

PERFORMANCE MEASURE FORMULA

PRICING STRATEGIES
Markup Ratio, All Ancillary Services, Total Charges / All Ancillary Services, Total Fully Allocated
All Ancillary Services Cost

Markup Ratio, Medical Supplies Sold, Total Charges / Medical Supplies Sold, Total Fully Allocated
Medical Supplies Sold Cost

Markup Ratio, Drugs Sold Drugs Sold, Total Charges / Drugs Sold, Total Fully Allocated Cost

Markup Ratio, Laboratory Laboratory, Total Charges / Laboratory, Total Fully Allocated Cost

Markup Ratio, Diagnostic Radiology, Total Charges / Diagnostic Radiology, Total Fully Allocated
Diagnostic Radiology Cost

274 THE SOURCEBOOK © 2003 by Solucient, LLC