Policymakers lack the nuanced financial information on health systems they need to make consequential policy decisions, researchers argue in a recent report in the Journal of Healthcare Finance.
The financial information they do have is incomplete or inaccurate, according to the researchers from Harvard and the Urban Institute. Instead, policymakers need to use audited financial statements, the "gold standard" of financial information for organizations, researchers said.
And they urge regulators to amass those statements in a national database accessible to the public.
The paper points to the uneven distribution of federal coronavirus relief funds as a consequence of not having nuanced financial information on health systems readily available. The relief funds were meant to prop up hospitals most in need, but much of the relief was sent to systems sitting on large cash reserves that were better suited to weather an event of this type.
For example, Ascension, one of the nation's largest health systems, averaged 301 days cash on hand, a staggering sum and received $811 million in CARES funding in the first phase. But Jackson Health, with just one hospital, averaged 70 days cash on hand, and received $75 million. The distribution meant an additional 14 days cash on hand for Jackson, one day more than Ascension, a behemoth health system.
Policymakers lacked this level of detailed financial information when deciding how to best disburse the funds, the researchers said. If they had comprehensive and comparable financial information, instead of relying on prior year Medicare payments or revenue, the distribution decisions may have been different.
"They would have had a very different picture of need," Bob Berenson, one of the authors, told Healthcare Dive.
Currently, the Medicare Cost Report is the only national repository for hospital financial information. The problem is it's at the hospital level, not system level, and it is "widely acknowledged to have inaccurate, incomparable, unaudited financial accounting data," the report said.
The latest report examined the audited financial reports of 50 health systems, and researchers created a comprehensive list of financial measures to compare each one, including measures on profit, liquidity, debt and capital investment.
The results provide a detailed and comparable look at the financial health of the systems selected.
Of the 50 health systems researchers examined, ownership types spanned nonprofits, for-profits and government-owned entities.
By comparing the financial measures for each health system, they were able to glean some important takeaways, that they argue policymakers should rely on instead of Medicare Cost Report or Internal Revenue Service Form 990 that nonprofits submit.
For example, higher revenues were associated with higher liquidity. And systems with higher shares of Medicaid revenue had lower profit margins, less cash on hand, and older facilities.
And nonprofits tended to build up considerable days cash on hand unlike for-profits.
When seeing a clearer picture of the financial health of the system as a whole, it raises important questions, researchers said.
"The substantial level of days cash on hand, solid profits, and low levels of uncompensated care of many nonprofit systems raises questions about the purpose of favorable tax treatment of this class of hospitals," the report said.
The report calls for regulators to create a national repository for this information through an updated Medicare Schedule G-X. Some states already require this information of health systems, so it's not asking them to create something new, Berenson said.
"Standardized reporting would produce robust national data on a timely basis that can be used for a variety of policy-making purposes," the report concluded.