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Delving into cost reports reveals financial health of hospitals, amount of charity care they provide Date: 12/06/13

Oklahoma Watch, a nonprofit investigative journalism team, recently published a two-part series on hospitals based on financial data obtained for every hospital in the state. The series revealed that between half and three-fourths of small general hospitals in Oklahoma were losing money, and that hospitals had spent only small fractions of their net patient revenues on charity care. Reporter Clifton Adcock (@cliftonhowze) explains how he got the data.

By Clifton Adcock

When we set out to obtain hospital data, we were seeking two things:

• Amounts of “disproportionate-share” (DSH) payments that hospitals get from the federal government to help cover costs for treating the indigent. Because Oklahoma was not expanding Medicaid under the Affordable Care Act, hospital groups said they expected to take a big financial hit from the law’s cuts to DSH payments. We wanted to see how much they relied on such payments.

• Amounts of charity care, bad debt and overall uncompensated care recorded by each hospital over several years. We wondered how heavy a burden the hospitals bore for treating the uninsured and not having all of their costs covered by Medicare and Medicaid.

We invited the Tulsa World and its investigative editor and reporter Ziva Branstetter to help us report the stories once we gathered the data.

Initially, we wanted to use data from the American Hospital Association to find figures for both Medicare DSH payments and hospital charity care. Medicaid DSH payments are made public by the state, but Medicare figures are not. The Oklahoma State Department of Health has American Hospital Association records in its possession and Oklahoma Watch submitted an Open Records Act request to review and copy the records.

We were able to review American Hospital Association hospital summaries of nonfinancial data kept by the state. But the agency denied our request to get digital copies of the American Hospital Association’s detailed hospital information. The Health Department’s legal counsel stated the information was proprietary and not subject to the state’s Open Records Act. We considered fighting the denial, but then decided to we could go around the agency.

We pushed to get cost reports filed annually by hospitals with the Centers for Medicare and Medicaid Services (CMS). We would not only look for DSH numbers; in May 2010, CMS began requiring hospitals to detail the amount of charity care they give on cost reports.

We filed a Freedom of Information Act request for cost reports from all Oklahoma hospitals from 2007 to 2012. Months later, we received the data for a large number of hospitals, but not all. In addition, the FOIA request yielded information mostly from 2011 and 2012 because CMS had switched contractors.

Finding another source

To fill the gaps, we turned to the American Hospital Directory. We got tipped to this in June at the Investigative Reporters and Editors conference, where Joseph Neff, health reporter at the Charlotte, N.C., News & Observer, mentioned in a panel that the American Hospital Directory will often give journalists cost-report data for free as long as the American Hospital Directory is credited.

It did indeed provide online access to the data. That allowed us to compile in Excel nearly complete sets of financial data for almost every hospital in the state for several years.

By this time, we had learned that most Oklahoma hospitals would not be suffering significant cuts in DSH payments, at least initially, because the cuts were delayed by the Obama administration and Oklahoma was drawing a relatively low share of such payments.

We analyzed our data and found several key trends. One was that most small general hospitals in Oklahoma, those with fewer than 100 beds and mainly rural, had lost money over multiple years; almost all larger hospitals were operating in the black. Hospital officials had predicted the closing of smaller hospitals. We also found that dozens of hospitals had spent less than 1 percent of net patient revenues on charity care, and overall hospitals spent less than 3 percent on average. By contrast, Texas requires that at least 4 percent be spent on charitable care. Some Oklahoma hospitals with small charity shares had high overall profit margins. We spotted other potential stories in the data that we will check out.

The hospital cost reports can seem daunting at first. Most run dozens of pages and are filled with jargon and complex calculations. We found one of the best ways to make sense of the data was to use CMS’s provider reimbursement manual, which contains definitions of each of the lines and sections in the cost report. In addition, CMS staff were able to assist us with questions.

We did run our own calculations, the most important being operating profit/loss margins and overall profit margins. These were essential in comparing the financial performance of hospitals of different sizes. We used industry-accepted formulas from the American Hospital Directory to calculate the margins.

The data for these calculations can be found in cost reports, but it is important to know what each line in the cost report means before starting calculations.

Fewer patients

One of the first interviews Oklahoma Watch conducted was with a city manager in the community of Pauls Valley. The hospital there had declared bankruptcy in February and the city, which owns the hospital, had taken oversight away from the hospital’s board of trustees after the financial problems came to light.

The city manager told us that the biggest problem the hospital faced was a dwindling number of patients, which led to declining revenue. In subsequent interviews with small hospitals, this theme kept recurring. Many hospital administrators said a primary reason for having fewer patients was a scarcity of physicians. The shrinking patient volumes seemed to compound other problems at hospitals, such as uncompensated care, low reimbursements and continuing cuts to services that only further limited patients’ access to care.

In addition to the stories, we made almost all of our data available in interactive tables on our website. We felt it was important that residents know how their local hospitals stood financially because hospitals often play a critical role in local economies. We also wanted to let readers know how much charity care their hospitals were providing to the indigent and uninsured.

After the data was posted, an official from the Oklahoma State Department of Health emailed us wanting to know who exactly at the federal level gave us the financial info. We responded by asking why she wanted to know, especially since her agency already had the American Hospital Association data. She didn’t reply.

Clifton Adcock is a staff reporter for Oklahoma Watch. Before joining the organization in March 2013, he was an investigative reporter at the Oklahoma Gazette. He has been a reporter for The Tulsa World, the Great Falls (Mont.) Tribune, the McAlester (Okla.) News-Capital and the Muskogee (Okla.) Phoenix.