Changes to 990 forms make hospital finance investigations necessary

By Sandy Kleffman
Contra Costa Times

If ever there was a time to dig into your local hospital's finances, this is it, Karl Stark told journalists Friday morning.

The Internal Revenue Service has made the first significant change to its 990 form in 30 years, providing more details about charity care and community benefits.

"And there are all these financial pressures coming down on hospitals this year," said Stark, health and science editor of The Philadelphia Inquirer. That may result in a new wave of closures and mergers.

"One of the issues that has been undercovered, in my opinion, is the effect of the credit meltdown on hospitals," he said.

During a presentation at Health Journalism 2009, Stark provided advice on how to demystify the financial numbers.

The first step is to determine the type of institution you are investigating. He noted that 59 percent of the nation's hospitals are nonprofit, 23 percent are government-owned and 18 percent are for-profit.

Yet reporters should be aware that many of the nonprofits have for-profit subsidiaries, he said.

"Hospitals have a very low profit margin – 1 to 5 percent is common," Stark said.   "Why does that matter? Because anything that changes can knock them over the edge."

He outlined five documents that are key to understanding how a hospital is doing:

• Audited financial statements, which he called the "gold standard for determining a hospital's overall finances."
• Bond prospectuses for hospitals that have issued bonds. "This is the best single document to get if you are scared about budgets," he said, because institutions generally speak the truth in these documents and often do it in plain English.
  One prospectus mentioned that the hospital was the target of an ongoing criminal investigation. Others have revealed connections between hospital board members and those involved with the bond sale, which could pose a conflict of interest.
• Bond rating reports by Standard and Poor's and Moody's Investors Service. These reports are easy to get from the rating agencies. The downside is that the agencies can sometimes miss things or be lied to, Stark said.
• IRS form 990 for non-profit hospitals. This document will now contain a new schedule H. For the first time, the federal government has provided specific guidelines about how to define community benefits.
• The 990, which also reveals details about executive compensation, can be obtained through Guidestar.org, although it can be a bit behind in posting the forms, or by requesting the documents directly from the hospitals.
• Medicare cost reports, which provide a wealth of information about hospital charges or the "sticker price" compared to costs.

Stark cautioned reporters never to rely on the documents alone for a story, but said they can serve as great tip sheets for further inquiries.