Fiscal fitness. Ten principles for evaluating financial health

Such factors as declining utilization, aging plant, and competition may contribute to a hospital's closing, but the ultimate cause of hospital failure can usually be found in the institution's financial books. Perhaps as many as 20 percent of the nation's hospitals will close in the next decade, usually because of insolvency. Ten specific principles of financial performance can help hospitals survive. Among these are the principles that operating profits should cover replacement cost of assets, that nonoperating sources of income are critical to product-line enhancement, and that growth of equity capital is the bottom line of survival. Careful attention should be given to Catholic hospitals' performance relative to the national norms. Financial Analysis Service data indicate a mixed showing in this regard, and in several areas both Catholic hospitals and hospitals in general need to improve.