A Ratio Model for Benchmarking and Forecasting Hospital Facility Operating Expenses in Washington State: Plant, Property, and Equipment as a Key Metric

ABSTRACT The purpose of this research is to evaluate the feasibility of using ratios between common hospital utilization, or financial metrics, and facility operating expenses as a model for budget forecasting and benchmarking. The researchers reviewed each U.S. state's department of health website for the availability of hospital utilization reports, and financial statements, and assessed the strength of association between these metrics and hospital facility operating expenses. Although many states report some hospital utilization and financial metrics to the public, Washington was the only state to report these utilization metrics and financial statements along with detailed cost information for facility operations. Correlations were used to evaluate the strength of the relationship between various utilization and financial metrics with facility operating expenses at Washington hospitals; this research shows there is moderate to strong associations between facility operating expenses and several utilization metrics including available beds, admissions, and gross square feet (GSF). Additionally, this research shows there is a strong association between hospital facility operating expenses and plant, property, and equipment (PPE), a common balance sheet value. The researchers illustrate, via the development of a ratio model, how health care facility and finance professionals can benchmark or rationalize facility operating expenses to support overall hospital profit margin impact. Moreover, this ratio model can be used to predict or forecast future operating expenses for planned capital construction projects to better understand total facility lifecycle costs.