The uneven distribution of COVID-19 relief funds to hospitals demonstrates the need for a standardized database of key financial metrics policymakers can use to guide future decisions, according to the authors of a new paper.
Researchers from the Urban Institute and Harvard University teamed up on a paper in the Journal of Health Care Finance that calls attention to the imprecise methods HHS used to distribute more than $130 billion in Provider Relief Fund grants. The federal government handed out most of that money based on health systems’ sizes without considering other factors, such as liquidity, solvency, capital investments or overall financial health. As a consequence, lots of money ended up going to systems sitting on billions of dollars in cash and investments, while some government-owned systems got proportionately less.
That may not have happened had policymakers in Congress had access to reliable national data that let them quickly assess critical health systems’ finances and make accurate comparisons among peers, the report concludes.
“Health systems are in a competitive marketplace, but you’re also trying to make sure the whole country has access to high-quality healthcare,” said Nancy Kane, the paper’s lead author and an adjunct professor of health policy and management at the Harvard TH Chan School of Public Health. “But when the assets are distributed so unevenly, you’re actually affecting access and affordability and the quality of care.”
Right now, there are several ways to glean the financial conditions of individual health systems, but no national database where they’re required to input data from their audited financial statements in a standardized way. The study authors would like that to change.
Policy analysts and researchers often rely on CMS’ Medicare Cost Reports, which contain a wealth of financial and volume data. There’s a big catch, though: Those are only reported at the individual hospital level, not at the health system level, the report notes. Some important measures of financial health are often not reported about individual facilities, such as investment earnings or long-term debt, Kane said.
People studying hospitals also use Internal Revenue Service Form 990s to collect information about health system finances, but those a limited to not-for-profit organizations and the information isn’t timely or comprehensive, the report notes.
California, Florida and some other states already require hospital-level audited financial statement reporting, according to the report. “It’s not like this is radical,” said Robert Berenson, a study author and fellow at the Urban Institute.
A database like this also would be useful to researchers and even hospitals executives who want to compare their companies to competitors, Berenson said.
Audited financial statements are the “gold standard” of financial data because they include deep information about company finances, they are certified by outside auditors and creditors can sue firms that report misleading information, the report says.
Financial disclosures have their own shortcomings, however. For one, they rely on generally accepted accounting principles, which leave a lot of discretion to management, Kane said. For instance, unrealized gains and losses can be reported anywhere in the financial statement and cash can be reported as restricted or limited with no detail into what the restriction is.
Those answers will be in the footnotes, but policymakers won’t take the time to dig that deep on individual systems, Kane said.
The study identifies a dozen key financial metrics the authors maintain would best inform policy, including total margin, cash and investments, debt service coverage, and uncompensated care burden.
Lawmakers focused on getting relief grants out as quickly at the outset the pandemic, but later tranches were better targeted to rural hospitals and to facilities in COVID-19 hot spots, said Rick Gundling, a vice president at the Healthcare Financial Management Association.
“The first round was just to get a cash infusion for these health systems that we as a nation had stopped all the elective surgeries and all those types of things,” Gundling said. More consistent financial data in line with what the Urban Institute and Harvard recommend would be helpful to policymakers, he said.
Such a databased would not require significant resources from the federal agency tasked with maintaining it, Kane said. The mean and median calculations could be automated, although someone would need to compare health systems’ financial statements with the information they submitted to ensure consistency, she said.
Americans have access to a wealth of data on hospital quality on CMS’ Hospital Compare website, but comparatively little on hospitals’ finances, Kane said.
“We need financial data just as much or more than we need quality data to make policymaking at the federal level,” Kane said. “Yet it’s way behind the quality data.”
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