Any hospital pursuing Medicare payment must submit an annual report providing facility characteristics, utilization data, cost and charges by cost center (in total and for Medicare), Medicare settlement data and financial statement data through their Medicare Administrative Contractor.
This report (commonly referred to as the Medicare Cost Report) is typically used for reimbursement calculations, regulatory compliance, payment rate setting, policy making, public transparency and benchmarking performance.
Medicare Cost Report forms are comprehensive and consist of multiple worksheets. While these reports are public information, they are often not user-friendly nor intuitive due to the information’s complexity and resource intensiveness.
To boost accessibility and visibility, WSHA has created its own database infrastructure to host Medicare Cost Reports and seamlessly integrate and benchmark data for analysis and insight through the DASH platform.
We invite you to explore WSHA’s new Medicare Cost Report Financial Metrics Dashboard and examine the financial impact Washington state hospitals are experiencing compared to national and regional metrics.
Hospitals continue to navigate a complex financial landscape exacerbated by the impacts of the pandemic. In the last two years, Washington state hospitals experienced unsustainable financial distress which resulted in some hospitals closing services[i] [ii]. These financial challenges become more apparent when examined through the Medicare Cost Report Dashboard.
The first view of this dashboard is the “Cohort Selection” tab which shows an executive summary of key metrics that provide an overview of a hospital’s financial performance, operational efficiency, and profitability.
Figure 1. WA State Cohort Selection compared against National benchmarks of key financial metrics.
The Medicare cost report includes 100 hospitals in the Washington state cohort. When using the dashboard’s State filter, users can observe that hospital benchmarks for Washington state fall below national averages, which can affect the overall financial health and ability to provide care (Figure 1). Under the Financial section, we can observe a median calculation of operating, patient service and total margins in Washington state. Operational efficiency shows a 15% difference when compared to national averages, and a striking 90% difference emerges when comparing patients’ services margins and total margins. The gulf highlights the challenges of maintaining profitability and financial stability while navigating the lingering impacts of COVID-19.
Figure 2. WA State Cohort Selection Total Margin trends tooltip.
When hospitals can’t recuperate their financials for sustained periods, they are faced with the difficult decision of reducing or cutting services to stay afloat, which is the trend observed in early 2023[iii]. For each financial metric, you can observe a summary trend of the last 10 years of Medicare Cost Reports by hovering over the desired benchmark in the tooltip (Figure 2).
Rural hospitals face an even more unique financial challenge as their operating margins are much smaller and due to low admission volumes, which creates higher costs per patient. Many rural hospitals rely on government subsidies to stay afloat. By turning on the dashboard’s rural filter, we can observe and benchmark against all other rural hospitals in the nation (over 1,500 facilities). Overall Operating Margins for Washington state rural hospitals have steadily declined since 2021 compared to the national median operating margin of 2.3% (Figure 3).
Figure 3. WA State Rural Cohort Selection compared against National benchmarks of key financial metrics.
A key feature on this dashboard is the ability to benchmark states against others and observe if Washington state’s financial challenges are unique or part of a broader trend. The State View provides a geographical comparison of every hospital against their State and National averages. As hospitals are faced with financial distress, a standard financial metric used in businesses to assess the financial health of an organization is the Days Cash in Hand (DCOH). DCOH represents the number of days a business can cover operating expenses without additional funds or revenue.
Businesses are recommended to have at least 180 days (about six months) of cash reserves on hand. This works differently for hospitals. Hospitals must wait for reimbursement from CMS, so the suggested days to have in reserves are around 270 (nine months)[iv]. Current trends for DCOH show only about a dozen hospitals have reserves lasting beyond 250 days (Figure 4) with the majority having a median of 150 days (about 5 months) cash in hand. Similar trends are observed in neighboring states like Oregon (median 106 days) and Idaho (median 123 days). The geographic regions in this view can be viewed by State and adjusted to U.S. census regions along with its nested geographic divisions.
Figure 4. Key indicators Geographical Comparisons to National Average using by State view of hospitals Days Cash in Hand
Hospitals are facing major losses due to a combination of financial pressures and systemic changes. Expenses have risen by 9% and the workforce cost increased by 6% compared to 2021[v]. Systemic issues such as underpayment from government programs (which seven out of 10 patients in Washington state rely on) have caused a large shortfall of around $2.5 billion in unreimbursed Medicaid expense, leaving hospitals to fit this bill[vi]. In addition, the number of underinsured and uninsured patients has risen steadily in 2022. Hospitals provided $478 million of free medical care to low-income individuals — a rise of $107 million compared to 2021[vii].
Combined, these factors create complex challenges for hospitals trying to stay afloat. On a positive note, measures are being taken to address these issues for Washington state. In 2023, WSHA advocated for a substitute bill (HB1850) that passed and provided additional funding for Medicaid reimbursements. While the legislation does not solve all financial complexities, it’s a step towards ensuring hospitals can continue to provide services to all in our state[viii]. Moving forward, coordinated efforts from providers, insurers, policymakers and communities will be crucial to hospitals’ long-term financial sustainability.
Limitations & Other Considerations
While the Medicare Cost Report may be a comprehensive document, some key elements are not covered. Non-reimbursable costs such as marketing or administrative costs unrelated to patient care may be excluded, as well as non-operating activities such as investment or additional services (i.e. gift shops, parking). Providers such as federal hospitals (i.e., Veteran Hospitals and Indian Health services), some children hospitals, non-hospital entities such as physician practices or independent outpatient facilities are not included in these reports. Other data items not included in the report are physician costs, discharges, cost by MS-DRG or other procedures, or detailed payer mix discharges and revenues[ix].
Cost reports are submitted 45 days (about 1.5 months) after a hospital’s fiscal year closes. That delay may mean a significant gap between reporting periods and availability of data for analysis or policy advocacy strategy[x].
Conclusion & Recommendations
Understanding the comparative financial state of hospitals here and in other states offers insights into both local and national issues. The Cost Report does have limitations, but it can provide a benchmark for our healthcare system’s efficiency and financial stability, ensuring funds are utilized effectively to provide quality care while maintaining accountability.
The Washington State Hospital Association will continue monitoring these issues with our Medicare Cost Report dataset and DASH/DASH Premium products. For more dashboards and ad-hoc explorers, visit DASH and DASH Premium website. If you have any questions or want to learn more, please contact Ed Phippen, edp@wsha.org and datanalytics@wsha.org.
References
i. Southwick, Ron. “Washington State Hospital System ‘Very Fragile’ after Two Years of Losses.” Chief Healthcare Executive, Chief Healthcare Executive, 24 Apr. 2024, https://www.chiefhealthcareexecutive.com/view/washington-state-hospital-system-very-fragile-after-two-years-of-losses.
ii. Jadran, Farah. “Washington State Hospitals Losing Millions Weekly with Financial Struggles Expected to Get Worse.” King5, King5, 22 July 2022, www.king5.com/article/news/health/washington-hospitals-millions-financial-struggles/281-2becf70c-1099-4e2d-b1e4-a068d900f451.
iii. Takahama, Elise. “Why More of WA is Becoming an ‘Obstetric Desert’” The Seattle Times, The Seattle times Company, 16 may 2023, https://www.seattletimes.com/seattle-news/health/wa-hospitals-close-labor-and-delivery-units-raising-fears-for-new-parents/
iv. “Metric of the Month: Days Cash on Hand.” com, 27 June 2023, https://www.cfo.com/news/metric-of-the-month-days-cash-on-hand/657450/.
v. Quarterly Financial Survey, Washington Hospital Association, 2022 https://www.wsha.org/articles/year-end-survey-shows-financial-challenges-continue-for-washingtons-hospitals/
vi. “The Cost of Caring for WA State’s Communities”, Washington State Hospital Association,2022 Medicare Cost Report, DOH End of Year Reports for children’s hospitals
vii. “The Cost of Caring for WA State’s Communities”, Washington State Hospital Association, 2022 Medicare Cost Report, DOH End of Year Reports for children’s hospitals
viii. “Governor Inslee Signs Hospital Safety Net Bill.” Washington State Hospital Association, 18 May 2023, https://www.wsha.org/articles/governor-inslee-signs-hospital-safety-net-bill/.
ix. “Revisions to the State Operations Manual (SOM), Appendix PP – Revised Regulations and Tags.” Centers for Medicare & Medicaid Services (CMS), 20 Dec. 2006, https://www.cms.gov/regulations-and-guidance/guidance/transmittals/downloads/r1p240.pdf.
x. “Revisions to State Operations Manual (SOM) Appendix P – Survey Protocol for Long Term Care Facilities.” Centers for Medicare & Medicaid Services (CMS), 15 May 2009, https://www.cms.gov/regulations-and-guidance/guidance/transmittals/downloads/r20p201.pdf.
