Bayesian inference of local government audit outcomes

The scandals in publicly listed companies have highlighted the large losses that can result from financial statement fraud and weak corporate governance. Machine learning techniques have been applied to automatically detect financial statement fraud with great success. This work presents the first application of a Bayesian inference approach to the problem of predicting the audit outcomes of financial statements of local government entities using financial ratios. Bayesian logistic regression (BLR) with automatic relevance determination (BLR-ARD) is applied to predict audit outcomes. The benefit of using BLR-ARD, instead of BLR without ARD, is that it allows one to automatically determine which input features are the most relevant for the task at hand, which is a critical aspect to consider when designing decision support systems. This work presents the first implementation of BLR-ARD trained with Separable Shadow Hamiltonian Hybrid Monte Carlo, No-U-Turn sampler, Metropolis Adjusted Langevin Algorithm and Metropolis-Hasting algorithms. Unlike the Gibbs sampling procedure that is typically employed in sampling from ARD models, in this work we jointly sample the parameters and the hyperparameters by putting a log normal prior on the hyperparameters. The analysis also shows that the repairs and maintenance as a percentage of total assets ratio, current ratio, debt to total operating revenue, net operating surplus margin and capital cost to total operating expenditure ratio are the important features when predicting local government audit outcomes using financial ratios. These results could be of use for auditors as focusing on these ratios could potentially speed up the detection of fraudulent behaviour in municipal entities, and improve the speed and quality of the overall audit.

Assessing the differences and similarities between hospital chains and independents regarding revenues, profits, and community contributions

Hospital systems or chains continue to grow their market share relative to independent hospitals. This trend generates concerns among health care industry observers as historical performance suggests chains charge more for health care services than the independents while providing reduced contributions to their community. This study empirically assesses key performance measures of 67 acute-care hospitals in Virginia by testing if there are differences between chains and independents regarding total patient revenues, revenues per admission, profitability and community support, including charity care, bad debt, taxes paid and Medicaid participation. Implications to industry policy-makers as well as to hospital executives and marketing managers are then presented.

Financial standards for HMOs

In today's health care environment, it is important to assess the liquidity and profitability performance of HMOs. This study focuses on three liquidity ratios and three profitability ratios derived from national databases of between 740 and 776 HMOs from 1996 to 1999. Most of the HMOs appear to be using more debt and are less liquid now than they were in 1995. Since administrative overhead costs and dollars spent on medical costs have been increasing, HMOs' margins have been consistently negative. A more careful analysis of overhead costs and the cost of the delivery of medical services could result in improved HMO quality of care, efficiencies, and a return to positive profit margins.

Management strategies and financial performance in rural and urban hospitals

This study identifies the difference in financial performance between rural and urban hospitals and examines whether or not that difference may be attributed to the emphasis of revenue enhancement over cost management strategies. Hospitals in Virginia were included in this study except for the two state university medical centers. Rural and urban hospitals were compared on 10 performance indicators grouped into four categories: revenues, costs, profits, and productivity. The results suggest that rural hospital profitability is dependent on cost management. Since rural hospitals achieved lower cost, better efficiency and productivity level than urban hospitals in Virginia, they demonstrate a significant higher level of profit.

The FASB explores accounting for future cash flows

The FASB's Statement of Financial Accounting Concepts No. 7, Using Cash Flow Information and Present Value in Accounting Measurements (Statement No. 7), presents the board's views regarding how cash-flow information and present values should be used in accounting for future cash flows when information on fair values is not available. Statement No. 7 presents new concepts regarding how an asset's present value should be calculated and when the interest method of allocation should be used. The FASB proposes a present-value method that takes into account the degree of uncertainty associated with future cash flows among different assets and liabilities. The FASB also suggests that rather than use estimated cash flows (in which a single set of cash flows and a single interest rate is used to reflect the risk associated with an asset or liability), accountants should use expected cash flows (in which all expectations about possible cash flows are used) in calculating present values.

The WAMI Rural Hospital Project. Part 4: Improving the financial health of rural hospitals

Sound financial management has been identified as a critical component of effective hospital administration. Inadequate financial practices are a leading factor in the failure of hospitals. As part of the Rural Hospital Project (RHP), which operated in six rural Northwest communities from 1985 to 1988, detailed and extensive analyses of financial practices were conducted to identify strengths and weaknesses of the hospitals' financial management. In addition, 15 hours of formal education covering a variety of financial topics were presented to project participants. Results of the evaluation demonstrated that the greatest degree of change occurred in the financial management leadership capacity of the hospitals. All five hospitals, which either had no chief financial officer initially or subsequently experienced a turnover in the position, recruited individuals with strong qualifications. Vacancies in the administrator position in three of the four hospitals were filled by individuals with stronger financial management qualifications than their predecessors. Hospital board finance committees were formed in three of the four communities which previously did not have them. The biggest changes in financial practices occurred in the budgeting processes, which by 1989 better reflected the goals and strategies of the hospital's strategic plans. The financial performance of the six hospitals varied considerably over the study period. As a group, the RHP hospitals continued to require substantial nonoperating subsidies to remain solvent, despite improved financial practices. Despite the methodological limitations of this evaluation, we conclude that the intervention improved the capacity of the hospital administrations' financial leadership, as well as that of the governing boards, and led to substantial improvement in selected financial practices at all sites. Rural hospitals continue to operate in a hostile and precarious financial environment that limits their ability to sustain themselves on the basis of operating revenue alone.

Hospital characteristics: can an audit be predicted?

Each year Medicare-participant hospitals submit a cost report to the Health Care Financing Administration (HCFA) to settle their reimbursement claims. These reports are subject to audit, and a decision by HCFA to audit can be costly to the auditee. This article uses data from 6,270 cost reports filed in 1986 to explore the factors related to the probability of an audit. Logistic regression equations are estimated to examine how hospital characteristics influence the chance of audit. The results suggest that audit probability can be predicted with reasonable accuracy by a hospital's bed size, ownership type, teaching status, function, proportion of Medicare inpatient days, and geographic location.

Improving the financial viability of primary care health centers

This article presents findings from a national demonstration program to improve the long-term financial viability of small not-for-profit primary care health centers. The program initiatives and their implementation are described in some detail. A standard pre/post study design was used to measure the impact of the initiatives on general outcome measures, financial ratios, and the utilization of management techniques. Overall, demonstration centers showed improvement over the study period. Notable short-term improvements included significant growth in the volume of patient visits and increased profit. Observed changes also revealed an increased use of sophisticated management techniques, expected to positively affect longer-term financial health. The findings suggest that improving the financial viability of health centers need not be expensive.

The data game. Play it right, and you could win more managed care contracts

If you could see how your organization was performing as easily as you read the gas gauge and speedometer on your car, making decisions in the boardroom would be much easier (and more reliable). See how you can get the information you need in a format that makes sense. The payoff could be more managed care contracts.

The performance of Hospital Corporation of America and Healthtrust hospitals after leveraged buyouts

The authors examine performance changes after two leveraged buyouts (LBOs) in the hospital industry, one an employee stock ownership plan (ESOP) and the other a managed buyout (MBO). The findings show that hospitals owned by HCA, the MBO firm, and Health Trust, the ESOP firm, did not increase revenues, decrease operating expenses, or improve profitability after the LBOs, relative to other hospitals in their local markets. Nor were the numbers or salaries of employees at these facilities decreased. Although performance incentives associated with LBOs did not change performance at the hospital level, incentives to meet debt payments did result in corporate changes. More specifically, the LBOs led to corporate downsizing through the sale of hospitals and subsidiaries.

Determining laboratory value: Part 2

This article describes how to determine a fair market value for a dental laboratory. Part one defined fair market value, addressed how value is perceived and how to prepare for laboratory evaluation. Part two addresses how to apply an appropriate valuation methodology to determine worth.

Key operating and financial ratios for Alberta hospitals

Comparative financial and operating ratios in Canadian hospitals are examined to reveal sources of increased efficiency. The study involved 70 Alberta hospitals, which were divided into three groups: teaching hospitals, regional hospitals and smaller rural hospitals. Data were obtained from HS-1 and HS-2 reports. Hospitals across Canada can calculate their own ratios to give them a general idea of how they compare with the hospitals in this report.

Drug utilization & therapeutic intervention programs: pharmacy services that pay for themselves

This mailed survey was a follow-up to a 1989 study to assess the status of pharmacy-directed, drug-related, patient care programs in response to the Pharmaceutical Inquiry of Ontario (Lowy Inquiry). A specific focus on Therapeutic Interventions and Drug Utilization Review/Evaluation Programs was adopted because the earlier study indicated a significant "financial return" for pharmacist time spent on these initiatives. A response rate of 62.2% (89 out of 143 hospitals) was achieved compared with an 80% response rate in 1989. Therapeutic interventions were performed by 97.7% of hospitals which identified an average of 184 therapeutic interventions per month and an 84.3% acceptance rate by prescriber. Based on data from 53 hospitals, an average of 29 minutes was taken on each intervention and financial data from 10 hospitals showed cost savings/avoidance of $49.34 per intervention. Drug Utilization program data was available from 45% of hospitals and specific financial data was provided by 29.2% of institutions. Cost savings/avoidance data demonstrated a return of $29.99 for every dollar invested in pharmacist time performing these activities. Collectively, both programs were recognized for their value in optimizing pharmacotherapy, improving patient outcomes as well as demonstrating a financial return to the institution. Despite the recessionary times, these programs are easily justified since they more than pay their own way.

The development and evaluation of hospital performance measures for policy analysis

The purpose of this study was to develop and evaluate hospital performance measures to include aspects of hospital behavior beyond the traditional use of hospital profit margins for policy analysis. A number of measures have been used in the literature that are purported to reflect a variety of hospital behaviors. The reliability and validity of these and new measures were assessed using descriptive statistics and factor analysis on a sample of hospitals for a 3-year period. The sample consisted of all hospitals for which there were Medicare Cost Report and balance sheet data during the federal fiscal years 1987 through 1989. Using a subset of three hospital groups, 33 measures were evaluated, from which five were selected to represent the critical aspects of hospital performance important for policy analysis. The measures are: TEM, a new technical efficiency measure using data envelopment analysis techniques; the current ratio, depicting short-term financial performance; the ratio of longterm debt-to-net fixed assets, representing long-term viability; total margin, portraying profitability; and Medicare margin, characterizing Medicare's contribution to hospital financial position. Each represents different aspects of hospital efficiency and financially viability.

Positioning health care services: yellow pages advertising and dental practice performance

The authors empirically explored the relationship between positioning strategies and financial performance in dental practices. They analyzed data collected from a random sample mail survey of Oregon dentists in conjunction with data obtained in a content analysis of yellow pages advertising. The authors' analysis of usable responses from 264 general dentists in private practice reveals that they use a variety of positioning strategies and that the selection of a positioning strategy correlates significantly with financial performance.

Perceptions of new AICPA (American Institute of Certified Public Accountants) audit guide

A survey was conducted by authors Bitter and Cassidy to assess hospital providers' and auditors' perceptions of the reporting requirements of the new Audits of Providers of Health Care Services guide published by the American Institute of Certified Public Accountants. Responses indicated that there is still much dissent in the healthcare community as to what is useful information and what the effects of the new guide will be on hospital providers, auditors, and users.

The changing face of rural Catholic hospitals

Socioeconomic trends and developments within the U.S. healthcare system have challenged rural hospitals' ability to maintain adequate operating margins and offer needed services. However, some hospitals have fared better in this negative environment than have others. To clarify factors that distinguish the most viable rural Catholic hospitals from the least viable, our study identified a group of 30 "consistently sound" hospitals and 30 "adversely affected" hospitals based on profit margins and six other financial measures. As a group, rural hospitals suffered from declining inpatient utilization, increasing levels of indigency, and adverse reimbursement. However, the consistently sound hospitals' margins increased to 11 percent form 1985 to 1989, whereas margins at adversely affected hospitals fell nearly 8 percentage points during the same period. Adversely affected hospitals were less likely to belong to a system and had significantly fewer average staffed beds than did the consistently sound facilities. Their communities had significantly lower per capita income, and they devoted a greater percentage of their resources to care for the poor. Adversely affected hospitals also reduced the scope of available services more drastically than did consistently sound hospitals during the period under study.

Profile of internal auditors in health care

The internal auditor is an important management resource for maintaining control over operations. As the importance of healthcare cost management grows, so does the potential contribution of the internal auditor. A recent study examines what internal auditors do, what backgrounds they have, what salaries they receive, and what their career attitudes are.

Hospital profits, a misleading measure of financial health

Over the 1984-1988 period, Massachusetts hospitals complained that operating revenues, regulated by state and federal governments, were inadequate and caused significant declines in profitability. Poor profitability provided a persuasive basis for hospitals' successful lobbying for additional revenues, as well as the rationale for laying off workers and reducing unprofitable programs serving community needs. However, an alternative approach to measuring hospital financial health in the state indicates that the industry was healthy enough to significantly expand capital assets and to accumulate hundreds of millions of dollars of discretionary cash. More effective measures of financial performance are needed to inform policymakers and analysts of the financial health of hospitals. Analysis of cash flow statements provides important insights for proper interpretation of income statements and balance sheets.

Capitated Medicaid and St. Joseph's Hospital

This case study presents the initial reactions of St. Joseph's Hospital and Medical Center, a large nonprofit hospital in Phoenix, Arizona, to the creation of a competitively bid, prepaid, managed care Medicaid program in 1982. It also presents the events in the first year of the Medicaid experiment and the subsequent reactions of the hospital. It illustrates the diverse set of issues that a hospital faces when it moves toward greater vertical integration in health care.

Using ratios to measure hospital financial performance: can the process be simplified?

Evaluation of a hospital's financial condition is often contingent upon the analysis of financial ratios. This study of 114 Illinois hospitals sought to simplify the financial assessment process by exploring the empirical dimensions that underlie 25 financial ratios. Results of a factor analytic solution suggest that there are five underlying factors which account for approximately 77% of the total variance. Uses of summative scaled measures in health services financial management and research are discussed.