Hospital Finances - MCRs
Content in this website may be linked to, as long as the linking webpage
and passage has a known and clearly stated author.
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.
How a hospital determines the list price is reported 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."
Unfortunately, data on the 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 non-disclosure 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 affect Medicare Payments.
A large percentage of the population is covered by Medicaid and Medicare where charges are relatively fixed and little profit can be obtained. Most of the profit or net revenues earned by for-profit hospital corporations come from the private sector. To find the case mix of hospitals Refer to the Medicare Cost Report Worksheet S-3.
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
Each hospital must also file a Medicare Cost Report. These reports contain information on Charges, Revenues, Profit and Charge to Cost Ratios for a variety of hospital services. Often there will be a cost report for the entire chain and for each hospital in the chain. Hospital chains may have each of their hospitals as separate corporations.
Since some hospitals are for-profit and some are non-profit the net revenues before taxes is the most useful data to analyze since it allows comparisons across all types of facilities.
Using the Medicare Cost Reports, a hospital's profit can be determined from it's pre-tax income (net revenue before taxes) listed on worksheet G-3. Now here is the difficult part. Some hospital chains deduct substantial amounts of local hospital income to their corporate office as home office expenses. This amount can be found on Worksheet A-8-1. The TOTAL declared home office expense which is used in calculating the Net Income reported in Worksheet G-3. Worksheet A-8-1 also reports how much of this expense is allowed and disallowed by Medicare. The Cost Ratio data are adjusted by adjusting for the Medicare Disallowed Home Office Expense, however, the Net Income is not. Net Income is determined by the Total Declared Home Office Expense.
Sounds confusing, well it is. Probably by design.
Thus, a better estimate of actual net revenues might be determined by the following calculation:
Total Net Income (Worksheet
G-3)
+ Disallowed Home Office Expense (Worksheet A-8-1)
Adjusted Total Net Income
This adjustment, in hospitals which have large home office expense, may have their Net Income double and some may increase by almost $10,000,000
Medicare cost reports can be obtained from:
Kentucky Hospital Charge Information:
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.
It is Health Watch USA's opinion that the costs of
supplies and pharmaceuticals in most hospitals are similar due to
cooperative purchasing organizations. That 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.
Adjusted Cost to Charge Ratios as determined by the Kentucky
Dept of Labor -
View Regulations on how the Ratios are Calculated
and Adjusted
View All Reports (Download Reports from Source Website)
Download 2007 Report (Alpha) Download 2007 Report (High to Low)
Hospital Charges posted by the Kentucky Hospital Association - View Reports