Covering Safety-Net Hospitals: Health Reform, Local Budget Cuts

Published on
October 14, 2010

We have a guest post today from veteran health journalist Karl Stark, health and science editor of the Philadelphia Inquirer. Karl really knows his way around hospital finance: his stories on a now-defunct health system triggered a criminal investigation that led the system's CEO to enter a no-contest plea for misusing medical endowments.

Safety-net hospitals are just starting to figure out what health reform will mean for them. Some reports predict a dire future as these hospitals deal with declining payments from the federal government as well as local government budget cuts. On the other hand, a recent California HealthCare Foundation analysis suggests that some safety-net hospitals will do just fine.

Here, Karl offers some suggestions to help you sort through this rhetoric and figure out how your community's hospital really will fare financially.

We could be reaching a tipping point for the nation's public hospitals. The governments that own them are cutting back in historic ways, and one consultant recently told the WSJ's Suzanne Sataline that most public systems will close in the next 20 years because of their small size and political entanglements.

Public hospitals comprise about 22 percent of all U.S. hospitals. Two-thirds of them are in rural areas, and they handle a disproportionate number of uninsured patients, according to the federal government's Healthcare Cost and Utilization Project (HCUP).

It's a good time to check out the finances of public hospitals in your area as they start to address what the new Patient Protection and Affordable Care Act means for them.  Here are ways to start:  

1. Request the latest audited financial statements. These are the gold standard of financial reporting and hospitals give them to investors and government agencies. They sure should give them to you. TIPS: Look at the Electronic Municipal Market Access system to find statements. If you are new to budgets, don't try to figure it out by yourself.  Line up some independent experts to help you ask the right questions. You will learn as you report.

2. Get the latest bond rating report.  Public hospitals typically rely on selling bonds to finance large projects. Many are awash in debt from better times and their bonds are rated by agencies such as Moody's and Standard & Poors, which make their reports available to the media. Their job is to assess the hospital's ability to repay its bonds. TIP: These agencies failed to predict the fiscal meltdown of firms such as AIG and Bear Stearns but hey, nobody's perfect. They're one place to look. 

3. Get the latest bond prospectus. This is one of the easiest financial documents to read. It's essentially the hospital's sales pitch when it first offers its bonds. It highlights the hospital's strengths and weaknesses and often includes great nuggets. TIP: Go back to EMMA to find prospectuses.  

4. Ask the government agency for the top salaries. For nonprofit hospitals, this would be found in their 990 forms but public hospitals don't file them. Check salaries with similar-sized hospitals and compare increases against performance in prior years. If someone is getting fat hikes on rising losses, that should be a red flag.

If you are a member of the Association of Health Care Journalists, you can get a more compete summary, including how to find sources, here.

I'd be glad to talk to you about what you're seeing.


Karl Stark, Health & Science Editor, Philadelphia Inquirer
kstark [at] phillynews [dot] com
215 854-5363