The National Academy for State Health Policy (NASHP) is pleased that researchers at Rice University, state officials, employers, and many others are using the data from NASHP’s Hospital Cost Tool to further explore policy questions related to health care expenditures. Following the release of Rice University’s study on tax exempt hospitals’ investment in charity care, the American Hospital Association (AHA) made inaccurate statements about how NASHP’s tool calculates hospital profits, and we correct those inaccuracies below.
NASHP’s Hospital Cost Tool Provides Unprecedented Insights into Hospitals’ Federal Cost Reporting
NASHP’s Hospital Cost Tool is intended to provide policymakers and health care payers with insights into hospitals’ federal cost reporting, which previously was largely unavailable. Additional data sources like hospital audited financials and municipal bond reports as well as IRS 990 filings provide different and important information to understand a hospital’s financial health and performance more fully. NASHP’s Hospital Cost Tool is a trusted source among these and other resources for state policymakers and others to identify and inform cost containment strategies. NASHP understands states’ goals to address high and rising prices to ensure consumers have access to affordable health coverage and care, while evaluating hospital performance and supporting hospitals in the critical role they play to provide services across the country.
NASHP Uses Hospitals’ Own Data in Hospital Cost Tool
NASHP’s Hospital Cost Tool uses Medicare Cost Report data that hospitals attest to and submit annually to the Center for Medicare and Medicaid Services. The tool currently incorporates Medicare Cost Report data from approximately 4,600 hospitals from 2011 through 2021. NASHP does not scrub, clean, or otherwise manipulate the data that is submitted by hospitals. Standard accounting rules and federal instructions that govern the data included in the cost reports are used to calculate all metrics in the tool, and health data experts validated the information prior to publication of each version of the tool. Further, during the development of the tool, NASHP shared its methodology with interested parties, including many state officials across multiple agencies, as well as a major health system with affiliated hospitals to verify its accuracy.
Key Tool Metrics Include Hospital Profitability
Among other metrics, NASHP’s Hospital Cost Tool includes information on hospital profitability, which is based on data provided through hospitals’ Medicare Cost Reports, by sharing:
- Operating profit (or loss) margin, which represents earnings on hospital patient care services, excluding non-patient related income and costs (e.g., investments, COVID-19 relief funds, etc.)
- Net profit (or loss) margin, which represents the earnings retained by the hospital after all expenses, including non-patient related income and expenses (e.g., investments, COVID-19 relief funds, etc.)
Contrary to the assertions of AHA, NASHP’s profit calculations consider 100% of a hospital’s reported Medicare bad debt expenses. In determining a hospital’s operating revenue, the tool accounts for the Medicare payment of 65% of a hospital’s bad debt expense — the allowable amount under federal instructions. However, the tool includes the full 100% of Medicare bad debt in determining the hospital’s operating expenses. This includes the 35% that is not reimbursed by Medicare. The tool’s calculation of profitability considers all Medicare patient expenses a hospital incurs, not just those expenses that are eligible for Medicare reimbursement, to capture full patient care expenses for the hospital.
NASHP’s Hospital Cost Tool Is Not Comparable to the Kaufman Hall Data Report
It is also important to note the data included in the current version of NASHP’s Hospital Cost Tool, as used by Rice University in their study, is not comparable to the data recently released in the Kaufman Hall National Hospital Flash Report and cited by AHA.
- The Rice University study used data from 2011–2019 as provided in the NASHP tool, while the Kaufman Hall report cites data from 2020–2023.
- The source of the data used for the Kaufman Hall report does not appear to be Medicare Cost Reports, but instead a proprietary source, which neither NASHP nor the public has analyzed.
- The Kaufman Hall report represents data from approximately 900 hospitals — significantly fewer than the over 4,600 hospitals for which data are included in NASHP’s tool.
