Profile of a Cash Generator – EBITDA Margin
EBITDA Margin as a percent of Net Revenue:
EBITDA is a cash generation measure and as a percent of Net Revenue allows us to compare a facility’s ability to generate cash from Revenue.
Expanding on the analysis of FTEs per Adjusted Discharge, where we saw that productivity was a big driver of EBITDA, we’re exploring other attributes such as Hospital size, type, & affiliation that result in differences in cash flow.
First, looking at all US hospitals 2018 baseline EBITDA performance:
- The upper benchmark at the 90th percentile is 23.81% .
- The median value is 9.91%
- The bottom decile is -(4.36)%
Remarkably, there is an optimal hospital profile:
- The best performing are 250-399 beds, system affiliated hospitals that accomplish a median EBITDA Margin value of 12.54%; a best profile for over 6-years running
- System affiliation has boosted margins nominally by 0.3 to 1.2 percent over the last 5-years; a small ROI given the cost of “systemness”
- Teaching hospitals outperform non-teaching by less than 1%
- Rural Referral Centers outperform rural hospitals by 22%
- Sole Community Providers underperform other peers by 22%, giving pause to the economics of competition debate
We’re happy to show you any other measures of your choice.
What we see is remarkable as it relates to Labor and EBITDA:
Recall that Staffing, a driver of EBITDA in the Top 5 largest markets reveals:
- Houston, with its strong staffing ratios delivers top scores on EBITDA margin
- Chicago converts its second place on labor to strong EBITDA margins across the quartiles
- New York has the worst staffing ratios of the top 5 markets and EBITDA margins that match
- The largest markets…all urban, underperform national benchmarks
The real story is found by looking at the two metrics together within each market, where “margin meets mission”:
FTEs per 100 Adjusted Discharges scored by EBITDA Margin Quartile
- In 4 of the top 5 markets there is a relationship between FTEs/Adjusted Discharge-CMI Adjusted and EBITDA Margins. As EBITDA Margins improve labor productivity improves as well.
- As FTEs/100 Adjusted Discharges continue trending down, followed by a trend of shrinking margins, how will these major markets meet their mission?
- What will not-for-profits learn from the for-profits to work their way to a 35% higher EBITDA margin? Is there a difference in Safety or Quality? We’ll explore that too.
There are many more layers…who is the standout Best Practice facility in your market? It’s all available uniquely to you via Franklin:BI. We’ll move on from here, but the platform we have should be of interest to anyone in the business of healthcare.