Understanding Hospital Profitability: Continuing The Conversation

On May 2, Health Affairs published our study, "A More Detailed Understanding Of Factors Associated With Hospital Profitability." We found that the 10 most profitable hospitals, seven of which were nonprofit, each earned more than $163 million in total profits from patient care services. Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability.

Since its publication, our study has received extensive coverage by national and local news media and generated discussions on a wide range of health care issues. The study has also generated comments by some of the hospitals identified. In the following, we clarify several points to help readers interpret our work.

The Unit Of Analysis

Our study looks at factors associated with the profitability of hospitals, not hospital systems. To our knowledge, there is no database that contains financial statements for all hospital systems in the nation. In addition, patients go to specific hospitals to receive medical care. We believe, therefore, that the hospital is the appropriate unit to analyze.

Sources Of Cost And Revenue Data

All Medicare reimbursable hospitals must file a cost report to the Centers for Medicare and Medicaid Services (CMS) on a yearly basis in a uniform manner under strict Medicare rules. The CMS cost report provides a reliable and complete data source for hospital comparison purposes and has been used in numerous peer-reviewed articles published in Health Affairs and elsewhere.

Hospital profitability information is reported by individual hospitals to CMS. When hospitals file their CMS cost reports, they are required to submit a reconciliation report if their cost report revenue and expense differ from those on their financial statements that are prepared based on the generally accepted accounting principles (GAAP) for health care entities. Although CMS reporting rules differ slightly from the GAAP for health care entities, we do not expect the difference in reported profit to be substantial.

If an individual hospital believes that the profit reported on their CMS cost report is overstated due to CMS reporting rules, then they should disclose the reconciliation report they submitted to CMS to help readers understand the reason for this overstatement. If an individual hospital finds that an accounting error or misrepresentation inflated the profit reported on their CMS cost report, then they should correct the error or misrepresentation and revise their CMS cost report.

We Did Not Look At Hospital Quality

This study does not examine the quality of care provided by hospitals. Whether there is an association between quality and profitability is beyond the scope of this study.

We hope that these clarifications are helpful to readers as we continue the conversation on the issues raised by the study.

from Health Affairs BlogHealth Affairs Blog http://ift.tt/1UFpfW3