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Appendixes
Appendix 1. Financial Indicators Considered for Use
Indicator 
Definition 
Included
in Final Model 
Accounts Payable Days 
Measures
average number of days to pay accounts payable. 
X 
Accounts Receivable Days 
Measures
average number of days to collect receivables. 
X 
Average Age of Facility 
Measures
average age of capital assets by dividing accumulated depreciation by annual
depreciation expense. 
X 
Capital Assets to Longterm Debt 
Measures
the value of fixed assets (buildings and property) compared to their costs. 

Cash Ratio 
Compares
immediately available assets with current debts. 

Current Ratio 
Compares
current assets with current liabilities to measure the ability to pay costs
due within approximately 12 months with assets that can be converted into
cash within 12 months. 
X 
Debt ratio 
Compares
total liabilities to total assets. 
X 
Debt to Equity Ratio 
Compares
total debt to total equity. 
X 
Defensive Interval 
Compares
the liquid assets to the expected cash outflows. 
X 
Equity Financing 
Percentage
of the provider's assets that are owned (no mortgage) by the provider. 
X 
Gross Services Charge to Expenses 
Compares
gross patient revenues (before adjustments and bad debts) to total expenses. 
X 
Longterm Debt to Equity
Ratio 
Compares
longterm liabilities to total equity. 
X 
Net Patient Revenue as a
Percentage of Total Expenses 
Compares
net patient revenues to total expenses. 
X 
Operating Cash Flow to Total Debt
Ratio 
Measures
the percent of total debt that can be paid off using only cash flow from
operating activities. 
X 
Operating Margin 
Net
income as a percentage of total income. 

Quick Ratio 
Compares
immediately available assets and projected income (net accounts receivable)
with current debt. 

Restricted Ratio 
Percentage
of restricted funds compared to total funds. 

Return on Assets 
Compares
net income with total assets. 
X 
Return on Equity 
Compares
net income or net change in equity to total equity. 
X 
Total Asset Turnover 
Measures
patient revenues compared to total assets. 

Uncollectible Accounts Receivable
Ratio 
Measures
percentage of gross receivables assumed to be uncollectible. 
X 
Working Capital 
How much
cash or cash equivalent is on hand to pay operating costs. 
X 
Working Capital Turnover 
Measures
services provided (or billed) compared to average working capital. 

Return to Document
Appendix 2. Final Weights and Scores^{1}
Measure/Ratio 
Benchmark
 Possible
Points 
Liquidity 
Current Ratio
Compares current assets with current liabilities to
measure the ability to pay costs due within approximately 12 months with
assets that can be converted into cash within 12 months. 
2.14 
15 
Working Capital
How much cash or cash equivalent is on hand to pay
operating costs. 
Greater Than $0 
4 
Defensive Interval
The defensive interval is the sum of liquid assets
compared to the expected daily cash outflows. 
70.6 Days 
5 
Equity/Profitability 
Return On Equity
Compares net income or net change in equity to total
equity. 
0.08 
10 
Debt To Equity Ratio
Compares total debt to total equity. 
0.54 
5 
Return On Assets
Compares net income with total assets. 
0.05 
10 
Longterm Debt To Equity Ratio
Compares Longterm liabilities to total equity. 
0.18 
5 
Coverage 
Operating Cash Flow To Total Debt
Measures the percent of total debt that can be paid off
using only cash flow from operating activities. 
0.20 
8 
Debt Ratio
Compares total liabilities to total assets. 
0.33 
5 
Activity 
Accounts Payable Days
Measures average number of days to pay accounts payable. 
26.8 Days 
10 
Accounts Receivable Days
Measures average number of days to collect receivables. 
56.6 Days 
10 
Uncollectible Accounts Receivable Ratio
Measures percent of gross receivables assumed to be
uncollectible. 
0.18 
4 
Other 
Average Age Of Facility
Measures average age of capital assets by dividing
accumulated depreciation by annual depreciation expense. 
6.3 
3 
Net Patient Revenue As A Percentage of Total Expenses
Compares net patient revenues to total expenses. 
0.58 
5 
Gross Services Charge To Expenses
Compares gross patient revenues (before adjustments and
bad debts) to total expenses. 
0.68 
1 
^{1} Key: 100 Points Total: 70100 Low Risk;
6069 Medium Risk; 5059 Elevated Medium Risk; <=49 High Risk
Definitions:
Liquidity Ratios: Liquidity ratios measure whether a provider can meet obligations
over the short run.
Equity/Profitability
Ratios: Equity and profitability measure the level of earnings in
comparison to a base, such as assets, sales (patient services), or capital.
Coverage
Ratios: Coverage ratios focus on the provider's level of debt and ability to
pay.
Activity
Ratios: Activity ratios measure activity levels of payables and
receivables.
Other
Ratios: Miscellaneous financial indicators.
Return to Document
Appendix 3. Sample Selection Method
As we did not know if any other factors in our data (such as
location and number of patient visits) would have any bearing on financial
viability, we did not stratify or cluster the sample. Instead, we used a simple
random sample to select our outpatient safety net providers, by using the
method shown below.
Assumptions for sample size determination are:
 There were 153 outpatient safety net providers in our universe.
 Most performance measures were ratio based, so the standard errors of the ratios would determine the sample size.
 Ratios would range between 1 and +2. (This assumption was based on our professional judgment.)
 The desired error of the estimate was 0.25 (i.e., we wanted a 95 percent confidence estimate for x +/ 0.25). We selected 0.25 because that would give us reasonably accurate estimates without having to sample a large number of outpatient safety net providers.
As we did not know the variance in the population or the
sample, we assumed that the variance was roughly equal to the .^{1}
Given the above, the desired sample size is:
, where , , n is
the sample size, N is the total population, and B is the desired error of the
estimate.^{2} In this
particular case:
, or 29.3, which is rounded to 30.
[D] Select for Text Description.
Other assumptions for the range and standard error yield the
following results:
Range 
Standard
Error

0.05 
0.1 
0.15 
0.2 
0.25 
0.3 
0.35 
2 
111 
61 
35 
22 
15 
11 
8 
3 
131 
92 
61 
42 
30 
22 
17 
4 
140 
111 
83 
61 
46 
35 
28 
5 
145 
124 
99 
78 
61 
48 
39 
^{1} Scheaffer RL, Mendenhall W, and Ott L. Elementary Survey Sampling. 4^{th} edition. Boston (MA): PWSKENT Publishing Company; 1990.
^{2} Ibid.
Return to Document
Appendix 4. Weighting Example
This example shows how to develop weights for scores.
The analysts want to weigh seven measures: Cash on Hand,
DebttoEquity Ratio, Facility Age, Cost per Encounter, Return on
Assets, Revenue Growth, and Uncollectible Accounts Receivable Ratio.
The analysts rank the measures from most to least important
and assign initial scores:
Measure 
Initial Weight 
Revenue Growth 
7 
DebttoEquity Ratio 
6 
Return on Assets 
5 
Uncollectible Accounts Receivable
Ratio 
4 
Cash on Hand 
3 
Cost per Encounter 
2 
Facility Age 
1 
After reviewing and discussing the rankings, the analysts
decide that:
 Revenue Growth is much more important than anything else.
 Uncollectible Accounts Receivable Ratio and Cash on Hand are roughly equally important and somewhat less important than the DebttoEquity Ratio.
 Cost per Encounter and Facility Age are not particularly important, but should be considered.
The revised weights are:
Measure 
Initial Weight 
Revised Weight 
Revenue Growth 
7 
10 
DebttoEquity Ratio 
6 
6 
Return on Assets 
5 
5 
Uncollectible Accounts Receivable
Ratio 
4 
3 
Cash on Hand 
3 
3 
Cost per Encounter 
2 
1 
Facility Age 
1 
1 
Next, the analysts convert the revised scores to a 0 to 100
point scale by computing the proportion of each revised weight that makes up
the total of the revised weights and multiplying by 100:
Measure 
Initial Weight 
Revised Weight 
Proportion of Total 
Points 
Revenue Growth 
7 
10 
0.344828 
34.48 
DebttoEquity Ratio 
6 
6 
0.206897 
20.69 
Return on Assets 
5 
5 
0.172414 
17.24 
Uncollectible Accounts Receivable
Ratio 
4 
3 
0.103448 
10.34 
Cash on Hand 
3 
3 
0.103448 
10.34 
Cost per Encounter 
2 
1 
0.034483 
3.45 
Facility Age 
1 
1 
0.034483 
3.45 
Totals 

29 
1.000001 
100.00 
The final column shows the points a provider gets if it
meets the benchmark.
Return to Document