Tax-exempt hospital systems, many of which have become multistate and multibillion-dollar corporations, are playing an ever increasing role in community healthcare. That means they have become more accountable to the communities they serve, so they need to be much more forthcoming through annual reports on their performance.
This is analogous to the annual shareholder reports required of publicly traded companies. Sharing information in a more uniform and comprehensive manner will allow consumers--and bondholders--to become better informed about systems' performances and the benefits of membership or investment in these organizations.
The merger of tax-exempt community hospitals into systems has been one of the most extraordinary changes in healthcare delivery during the past decade. It would be rare today to locate a city that hasn't been significantly affected by that trend.
The formation and expansion of systems has concentrated major decisionmaking authority. Restructurings and consolidations have dramatically impacted consumer access and choice. It follows that of particular interest is the extent to which merged organizations are achieving the objectives for which they were established. Mergers are approved by federal and state agencies based on publicly stated goals, such as projected benefits from economies of scale and improvements in community services. Therefore, it should be standard practice for all hospital systems to explain to the public in annual reports how they are accomplishing those objectives. This type of information would go far in improving communication and understanding between a system's corporate office and its constituents in local communities--patients, employees, employers, medical staffs and leaders.
Specifically, have the initially projected savings materialized? Have the communities benefited from improved services and enhanced quality of care? What is being done to address the most significant challenges? What are the principal objectives for the coming year? This type of meaningful accountability reporting would be welcomed by an organization's constituents, many of whom could remain confused and concerned by a seeming lack of community orientation by some systems and what appears to be unnecessary investment in new facilities, duplication of services and unfulfilled promises in general.
Annual accountability reports should include three major components: financial, community service and quality of care.
Financial. This component of the report should include the overall surplus or deficit for the year; amount of net income derived from hospital operations and from investment income; total dollar amount of reserves from which the investment income was derived; total assets of the corporation; total debt; and total assets of and income from separate tax-exempt foundations whose primary purpose is to support the system and its hospitals. Executive compensation, although a sensitive matter, should also be included. The content should be similar to that required annually for senior executives of publicly held companies. Most important, significant changes from the prior year in financial and operational performance need to be fully explained.
Community service. During the past decade, various state and local governments have successfully challenged the tax-exempt status of not-for-profit hospitals that could not demonstrate sufficient commitment to the indigent and the broader community. These challenges often resulted in agreements to fund municipal or other services in lieu of paying a steep tax bill. Because of the significance of their charitable services to the communities they serve, hospital systems should become more diligent in publishing an annual report that clearly demonstrates the extent to which they are fulfilling their community-service obligations.
Basic community service questions that should be addressed include: What percentage and what actual dollar amount of annual operating expenses are being devoted to community service (e.g., unreimbursed services to the poor and needy; unreimbursed services to the broader community such as health promotion; and unreimbursed educational and research activity)? How much money was spent in each community service category? What were the most significant changes to sponsored community activities during the past year? What are the major objectives for the coming year? Only through such meaningful reporting can residents gain a true understanding of how much they benefit from the system and the local hospital.
Quality of care. Most communities receive more information on quality-of-care matters than financial or community-service performance. In addition to an overview of patient-care advances during the year, the annual report should include common quality indicators (e.g., mortality, hospital infection and Caesarean-section rates). Because of considerable variations in the severity of illnesses being treated at different hospitals, accountability reports should encompass "risk-adjusted" data to the extent possible. And to aid in consumer understanding, the reports should include comparisons with national norms for each quality-of-care indicator for similar-size hospitals.
Although hospital systems have had little reason in the past to prepare and widely distribute annual reports of the magnitude recommended here, I believe that communities, the news media and bond-rating agencies will become much more demanding of them. In fact, such reporting most likely will have to be even more frequent. Forward-thinking hospital systems should embrace improved information sharing and public accountability reporting as an integral part of their partnerships with the communities they serve.
Darryl Lippman is president and chief executive officer of Lippman Healthcare Advisors, Sylvania, Ohio. He's a former CEO of Mercy Health Partners of Toledo, Ohio.