How to Interpret and Obtain Hospital Financial Data
and Medicare Cost Reports
Data on the Gross Charge or List Price, Gross Revenue (Income before expenses) and Net Revenues (Profit) can be obtained for hospitals from their Medicare Cost Reports.
A Medicare Cost Report is a large financial report that a hospital gives to Medicare on a yearly basis. Contained in this report is data on total gross charges (list price), gross and net revenues, expenses, patient visits, payer mix (how many patients have Medicare, Medicaid or Private Insurance.) This data is broken down by hospital service.
The report is very long, several hundreds of pages, and may reach into the thousands with supporting documents. The report is divided into worksheets. The website below explains the various worksheets and what data goes into each block.
Health Watch USA tends to focus on three worksheets:
Worksheet G-3: This worksheet gives summary financial data for the total facility. The worksheet lists the total revenue, the contractual and patient discounts and, operating expenses and Net Income. In order, to interpret this data accurately one also needs the data in worksheet A-8-1.
Worksheet A-8-1: This worksheet provides data which is necessary to fully interpret the data on Worksheet G-3. The worksheet lists the allowed and disallowed home office expense along with related organizations.
Worksheet S-3: This worksheet provides the payer mix for the major hospital departments. The worksheet lists patient days by Medicare (Title XVIII), Medicaid (Title XIX) Services for Children with Special Healthcare Needs (Title V) and totals for all patients. The data is also broken down by swing beds, general hospital beds, ICU, CCU, nursery, outpatient rehab and observation beds.
To obtain Medicare Cost Reports, a Freedom Of Information request is filed with the Medicare Intermediary of the Institution. Usually, the facility's intermediary is the same as the one for the state where the facility is located. However, sometimes it is in the home office location or another state.
Summary financial data along with the facility's carrier number and provider number at the American Hospital Directory. www.ahd.com However, this data is NOT adjusted for the data contained in Worksheet A-8-1.
Adjustments from Worksheet A-8-1.
Home office expense: Worksheet G-3 uses the declared not the allowed home office expense in reporting Net Income. To find the Allowed Home Office Expense and adjust the facility's Net Income data, Worksheet A-8-1 is needed. One hospital chain had over $100,000,000 in profit before taxes reported on their SEC 10 K report. However, adding the net revenues before taxes of all the facilities less than 30,000,000 could be accounted for. One aberration found was that some of the facilities had a very high home office expense disallowed amount.
Thus, a better estimate of actual net revenues might be determined by the following calculation:
Total Net Income (Worksheet
+ Disallowed Home Office Expense (Worksheet A-8-1)
Adjusted Total Net Income
This aberration in reporting is totally legal and gives one pause concerning the oversight of the federal government on our health care system.
Adjustments for related organizations: Worksheet A-8-1 also shows related organizations and ownership by the institution. These companies may also be owned by executives or board members of a hospital. In addition, we have seen instances where a large portion of a facility's retirement fund was invested in a competitor's stock. This gives one pause.
Thus, the main facility can be set up to be a shell which funds many corporations. Central supply, laboratory services, medical records, etc. may be contracted with related companies. Thus, the facility may be loosing money, but the related corporations may be in the black.
SEC Reports: Revenue or Profit can be obtained for the entire system by downloading the SEC 10K report. These reports are often consolidated so financials for individual hospitals are not listed. The 11K report has the company's retirement information. http://www.sec.gov/edgar/searchedgar/webusers.htm
Unfortunately, data on the individual Contract Price or Insurance Discount Price (what the insurance company owes) and how these payments affect insurance premiums cannot be obtained. The contracts between the hospital and the insurance company usually ban disclosing this information with nondisclosure clauses.
Seldom is any service charged at the Hospital's List Price. Even self-pay patients usually receive a discount. The Institute of Health and Socio-Economic Policy has shown a strong relationship between charges (usual and customary) and hospital profit.
List Prices are important since they are the starting point for negotiations by self-pay patients and insurance companies. Like buying a used care, the higher the list price the more you often end up paying. According to the Institute of Health and Socio-Economic Policy, hospital list prices also affects Medicare payments.
When analyzing hospital net income data, one needs to remember that payments from Medicaid and Medicare are fixed and approximate costs with little if any profit. A large percentage of the population is now covered by Medicaid and Medicare. Most of the profit or net income earned by hospital corporations comes from the private patient. To find the case mix of hospitals, refer to the Medicare Cost Report Worksheet S-3. Thus, a relatively small percentage of patients is shouldering the majority of the facility's net income.
These ratios can be obtained for the entire facility and broken down by outpatient and inpatient services. A good source for these is the American Hospital Directory. www.ahd.com
Cost-To-Charge Ratios are often used to describe a hospital's
finances. A low Cost-To-Charge Ratio can be caused by
excessive charges or lower costs.
The lower the Cost-To-Charge Ratio, the larger the profit margin on the charges. As with buying a car this information is useful in negotiating the price that a patient will be charged.
These ratios may vary tremendously between facilities. In Kentucky, they can vary between 0.684 to 0.125. Taking the reciprocal to the ratio (charge-to-cost), the average markup on the list price or asking price is between 2.7 and 7.95. The patient often gets a discount but try buying the same car from dealer number one who charges $10,000 and dealer number two that charges $29,000.
That being said the shortcoming of Cost-to-Charge Ratios is that they are not service specific and can very widely within the same institutions for different services.
It is Health Watch USA's opinion that the costs of supplies and pharmaceuticals in most hospitals are similar due to cooperative purchasing organizations. One of the few ways a hospital can cut costs is to cut the hospital's staff, a practice which may lower the quality of service. Facility staff costs maybe as much as 60% of total facility expenses.
The charge in the ratio is the list price or asking price. Discounts may be given to patients and insurance companies depending upon the healthcare facility's policy. REMEMBER, the Cost-to-Charge Ratios may vary to a large degree within the same institution for different services.
The consumer should always compare price and quality between institutions. Thus, contact several different facilities and ask how much the service going to cost.
How Hospitals Determining List Price:
How a hospital determines the list price was a topic studied and reported by the Lewin Group for the Medicare Payment Advisory Commission in 2005.
The study group noted that 'for almost all respondents, charge practices are at least partly driven by financial pressures.' Examples of respondent comments included:
"Our prices updates focus on
the areas that give us the 'biggest bang for the buck.'"
"Our first priority is making sure we can meet the bottom line."
Medicare cost reports can be obtained from:
Kentucky Hospital Charge Information:
Adjusted Cost-To-Charge Ratios as determined by the Kentucky
Dept of Labor -
View Kentucky Regulations on how the Ratios are Calculated and Adjusted
View All Hospital Reports and Letters (Download Reports from Source Website)
Hospital Charges posted by the Kentucky Hospital Association - View Reports