7 Financial KPIs every hospital CFO must monitor

As a hospital CFO, monitoring key financial indicators is crucial to ensure the long-term success and financial stability of the hospital. There are a variety of financial KPIs that can be used to measure the performance of a hospital, but in this article, we'll discuss seven KPIs that every hospital CFO should monitor.

1. Days in Accounts Receivable (AR)

Days in Accounts Receivable (AR) is a critical KPI to monitor for hospitals. It measures the average number of days it takes to collect payments from patients and insurance companies. A high number of days in AR indicates that the hospital is struggling to collect payments and may be experiencing cash flow problems. It is important to keep this number as low as possible, ideally under 45 days.

1. Revenue per Available Bed (RevPAB)

Revenue per Available Bed (RevPAB) measures the hospital's ability to generate revenue based on the number of available beds. This KPI is calculated by dividing the total revenue by the number of available beds. A high RevPAB indicates that the hospital is effectively utilizing its resources to generate revenue. This metric is particularly important for hospitals with a high fixed cost structure, such as those with significant capital investments in buildings and equipment.

3. Net Patient Revenue (NPR)

Net Patient Revenue (NPR) is the amount of revenue generated by the hospital's patient services, including inpatient and outpatient care. This KPI is a critical indicator of a hospital's financial performance. It is calculated by subtracting the hospital's contractual allowances, bad debt, and charity care from its gross patient revenue. A high NPR indicates that the hospital is effectively generating revenue from patient services.

4. Operating Margin

The operating Margin is the percentage of revenue that remains after all operating expenses are deducted. This KPI is a critical indicator of a hospital's financial health, as it measures the hospital's ability to generate profits from its operations. A positive operating margin indicates that the hospital is generating profits, while a negative margin indicates that the hospital is losing money. A healthy operating margin for a hospital is typically between 2% and 4%.

5. Labor Expense as a Percentage of Operating Revenue

Labor Expense as a Percentage of Operating Revenue measures the percentage of operating revenue that is spent on labor costs, including salaries, benefits, and wages. This KPI is particularly important for hospitals, as labor is often the largest expense category. A high labor expense percentage indicates that the hospital is spending a significant amount of money on labor costs, which can impact profitability.

6. Bed Occupancy Rate

Bed Occupancy Rate measures the percentage of available beds that are occupied by patients. This KPI is important because it measures the hospital's efficiency in utilizing its resources. A high bed occupancy rate indicates that the hospital is effectively utilizing its resources to provide care to patients, while a low rate may indicate that the hospital is experiencing excess capacity.

7. Average Length of Stay (ALOS)

Average Length of Stay (ALOS) measures the average number of days that patients spend in the hospital. This KPI is important because it measures the hospital's efficiency in providing care to patients. A high ALOS can indicate that the hospital is experiencing capacity issues or inefficiencies in its care delivery processes, while a low ALOS can indicate that the hospital is effectively managing patient flow.

Monitoring these seven financial KPIs is crucial for hospital CFOs to ensure the financial health and long-term success of the hospital. By tracking these KPIs regularly, CFOs can identify trends, anticipate financial challenges, and make informed decisions to drive financial performance.