The idea to look at hospital finances and charity care came shortly after Oklahoma decided against expanding its Medicaid program under the Affordable Care Act.
After the state’s decision, the Oklahoma Hospital Association and others warned that the state’s hospitals – especially small rural hospitals – were already operating on slim budgets and the decision not to expand Medicaid and give more people health coverage would make the situation worse, including leading to closure of some hospitals.
To test this claim, Oklahoma Watch set out to get financial data for each hospital in the state. Along the way, we also decided to examine how much charity care each hospital provides. The data we obtained allowed us to create a database that the public can use to see how the state’s hospitals are performing and if nonprofit hospitals are fulfilling their community service missions to provide more than a tiny amount of charity care. Oklahoma Watch partnered with the Tulsa World to produce two stories: the first showing the financial strain the state’s small hospitals are under and the second showing that many hospitals, including some large nonprofit hospitals, provided relatively small amounts of charity care.
Our first attempt at getting financial and charity care data from the Oklahoma State Department of Health was met with a denial under the Oklahoma Open Records Act. Although the department had some financial figures, that data had been collected by the American Hospital Association and thus was considered “proprietary” by the state health department’s attorneys.
The next route we considered was using IRS Form 990s to look at finances and charity care. However, this would have limited the scope of our data substantially, as for-profit hospitals would be excluded from the list and hospital chains filing consolidated returns wouldn’t break out data for each hospital.
Next, we looked at the type of information the federal government collects about hospitals. Each year, hospitals that accept Medicaid or Medicare (which is just about all of them) are required to file a cost report with the Centers for Medicare and Medicaid Services, a division of the U.S. Department of Health and Human Services.
The cost reports give detailed information about each hospital, including number of beds, the amount of charity care provided, how much money the hospital made or lost that year, and the cost-to-charge ratio of a number of medical procedures.
Oklahoma Watch submitted a Freedom of Information Act request to the regional office for the Centers for Medicare and Medicaid Services, seeking cost reports for every hospital in the state between 2007 and 2012.
After about two months, Oklahoma Watch received digital copies of the reports for a number of hospitals in the state at no cost. However, data from some hospitals and years was missing.
To solve this issue, Oklahoma Watch used hospital cost report data from the American Hospital Directory, which agreed to waive its subscription fee.
This gave us enough data to take a look at what the last six years had been like at most of the hospitals in the state and the ability to look at multiple elements of hospitals’ finances during that period.
The data was entered into a Microsoft Excel spreadsheet with several columns for financial and other information about the hospital. Some of the key non-financial elements used in the analysis included status as nonprofit, for-profit or government-owned hospital; total number of beds and if it’s in a rural or urban setting.
A guide explaining each element of the cost reports can be found on the Centers for Medicare and Medicaid Services’ website. Below is a list of some of the important items Oklahoma Watch used when gathering the data, as well as the location of those items in the cost report:
- Charity care cost (Worksheet S-10, line 23, column 3): Shows the cost of charity care services the hospital provided.
- Bad debt cost (Worksheet S-10, line 31): Shows the total cost of services provided to patients whose accounts went into bad debt.
- Net patient revenue (Worksheet G-3, line 3): The amount of money the hospital brought in before expenses were subtracted.
- Operating income (Worksheet G-3, line 5): The total amount of money the hospital brought in by providing patient services after expenses were subtracted.
- Total non-patient revenue (Worksheet G-3, line 25): The total amount of money the hospital made through non-patient services, including revenue from a variety of sources, such as donations, rental properties, even the flower shop.
- Net income (Worksheet G-3, line 29): The total amount of money a hospital made or lost in a given year.
With the data in hand, we could determine a hospital’s profit/loss margins, which is helpful in comparing different hospitals’ financial performance.
First, we determined the hospitals’ “operating margin.” The operating margin tells you the percentage of a hospital’s return (profit/loss) on investment (cost) in providing services to patients. Although it is not a hospital’s true profit margin, it can come in handy when looking at how much a hospital charges its patients for services or in looking at how much uncompensated care a hospital provides.
The operating margin can be calculated by dividing “operating income” by “net patient revenue.”
A hospital’s total profit margin shows the overall return on investment it had in a given year and includes non-patient revenue and expenses. To calculate a hospital’s total profit margin, divide the hospital’s net income/loss by the sum of its net patient revenue and total non-patient revenue. This is an industry accepted standard to calculate profit margin and is the formula used by the American Hospital Directory.
Another area we looked at was the amount of charity care provided by hospitals in Oklahoma. To determine the amount, we used a formula similar to what the state of Texas required when it passed a law requiring hospitals to provide a certain level of charity care.
To calculate the percent of charity care given by each hospital, we divided the hospital’s “charity care cost” by its “net patient revenue,” or how much the hospital spent on providing charity care by how much money it took in from patients in a year before costs were subtracted.
There is another important element to the charity care numbers, and that is “bad debt.” Individuals who can’t or won’t pay their hospital bill but don’t sign up for charity care fall under this category, and it means the hospital continues to try and collect the debt. In analyzing the hospital charity care and bad debt numbers, we found that in most cases the amount of charity care a hospital provided was inversely proportional to the amount of bad debt it claimed. For example, the University of Oklahoma Medical Center in Oklahoma City had a very aggressive and liberal charity care policy, which was reflected in its high charity care and low bad debt numbers.
Finally, charity care numbers in hospital cost reports are only available for years 2011 and beyond. This is because of changes made to the cost report form in 2010. Caution should be used when looking at these numbers, as many hospitals are still getting used to the reporting requirements in the new forms and may report incorrect information. In a number of cases, Oklahoma Watch and Tulsa World staff had to change charity care amounts in the data set drawn from the cost reports after contacting hospitals to verify the numbers.
In the end, gathering the data allowed us to report that most small hospitals in the state were losing money, and that many hospitals in the state – including nonprofit hospitals with double digit profit margins – were giving charity care amounts barely above one percent. In addition, we were able to use the data to provide a first-of-its-kind database that allows citizens to view the financial health of their local hospitals.
Clifton Adcock is a staff reporter for Oklahoma Watch, a nonprofit investigative news organization. Contact him at email@example.com.