Late yesterday, the DHCFP released its Study of the Reserves, Endowments, and Surpluses of Hospitals in Massachusetts. This report, required by Chapter 305 of the Acts of 2008 is groundbreaking in its review of hospital assets.
Much like its Insurer Reserves companion, this report is long, complex and provides a summary of the review and recommendations.
This report, unlike its companion, has one major flaw – admitted to in the report: there are no standards for how to calculate the reasonableness of accumulated surplus levels for hospitals. So while the report provides information about where the hospitals fall relative to each other in terms of accumulated assets and also identifies characteristics for hospitals that are doing better financially and even identifies hospitals that have significant assets, there is no determination (like in the Insurer Report) about a minimum or maximum surplus level. There is one stunning number that is identified: the 66 hospitals, and their parent systems, had over $17 billion in total net assets in 2008.
The report selected 11 measures that could identify hospitals that have “considerable accumulated financial resources” including: a positive operating margin for at least three of the past four years, a positive total margin for at least three of the past four years, unrestricted net assets of more than $100 million for the past two years, and net patient service revenues of more than $100 million for the past six years.
According to the report, there are 10 hospitals that may have considerable accumulate financial resources: Berkshire Medical, Beth Israel, Brigham and Women’s, Children’s, Mass General, Mt. Auburn, Northeast, South Shore, Sturdy Memorial and Winchester. Another 5 hospitals could also have these resources despite challenges in their payer mix: Baystate, Boston Medical Center, Lahey Clinic, Southcoast Hospitals Group, and UMass Memorial. Ironically, the for-profit hospitals in the state had weaker financial performance than the median for the non-profit hospitals.
There is also significant discussion in the report about assets. Some assets are unrestricted, meaning they can be used for anything. Others are Board restricted, which means they require a Board vote to change the current limitations imposed on those assets; and others are donor restricted, which means the Attorney General’s Office would have to step in to restructure how those assets are used.
The analysis raises the issue of how hospitals and their parent companies interact. This report looked at the individual hospitals and systems and did not evaluate the assets, restricted or unrestricted, of any system separately. That is, in part, one of the reasons the recommendations include a request for increased data collection and analysis of hospital and parent company financial information.
The report also looks briefly at hospital Community Benefits Programs noting that while hospitals are not required to do Community Benefits because the Attorney General’s Guidelines are voluntary, most do. Additionally, hospitals are required to provide some level of community benefit by the IRS to maintain non-profit status. Hospitals reported a range of Community Benefits from $55,000 to $69.9 million for a total of $454 million in 2008 (of which $149 million is classified as charity care).
The recommendations look for significant increase in data collection and analysis. There should be simplified reporting to one state agency of all hospital and hospital system information. The report recommends that there is increased oversight of these financial resources as well:
“While hospitals require accumulated financial resources in order to adequately protect patients and providers from unanticipated events and to fulfill their missions, ongoing accumulation of reserves without corresponding increased value to consumers may lead to higher than necessary prices of medical services. Understanding that this is a delicate balance highlights the concern when hospital reserves fluctuate excessively or when regulators are unable to assess how hospitals use or dispose of their accumulated resources.”
While this report was also released way past its due date, we continue to commend the Division and Hinckley, Allen & Tringale, which coordinated the report, for the final product. We look forward to using this information to inform the payment reform discussion and ensure that patients get quality, affordable health care.