Despite consensus that financial disclosure fosters investor confidence, many of the nation's not-for-profit hospitals and systems have been slow to ease investor access by posting their audited financial statements on the Web.
Five of the 10 largest not-for-profit health systems based on revenue do not post annual financial disclosures on their Web sites or any other publicly accessible site, according to an informal survey by Modern Healthcare (See chart). According to experts, large systems are the most likely to post data because they have significant debt.
Some foot-dragging has occurred despite pressure over the past 18 months from corporate accounting scandals.
Yet soon, new pressure will come to bear on not-for-profit hospitals and systems, along with other issuers of municipal bonds, to make their financial disclosures easily and freely available to the public via the Web, just as the financial reports of public companies are.
The Muni Council, a group representing various municipal bond market participants including issuers, dealers and investors, voted earlier this year to create a central repository for financial filings. The repository, use of which would be mandatory for required filings, could be up and running as early as Jan. 1, 2004, council member Relmond Van Daniker told Modern Healthcare. Van Daniker is executive director of the National Association of State Auditors, Comptrollers and Treasurers.
The repository immediately will log documents and post them on the Web, where they can be searched and accessed for free, much like the Securities and Exchange Commission's EDGAR database. It would overhaul an existing paper-based system in which municipal bond issuers send documents to four separate repositories, which charge fees for access to the documents and use inconsistent filing methods.
The central repository would make it easier for bond issuers to comply with disclosure requirements by allowing electronic filings and sending electronic reminders when documents are due. The system also would issue receipts so that issuers can prove that they have complied with the requirements of their bond covenants.
It's hoped that increased transparency will instill investor confidence in the bond market, resulting in better access to capital for issuers.
"We've had this steady drumbeat coming from the investors and coming from the analysts saying, `You need to make that information more accessible,' " said Martha Garner, a director in the national office of PricewaterhouseCoopers, Florham Park, N.J. Garner represents the Healthcare Financial Management Association on the Muni Council.
The council has received five bids for the project and is establishing a corporation to do the contracting. While cost estimates have not been disclosed, it's expected to be financed with a small percentage of proceeds from bond issues.
Van Daniker estimates that as many as 70% of municipal bond issuers fail to comply with filing requirements, which he said makes him nervous, given the current climate of increasing government oversight of corporate financial transparency. Currently, the municipal bond market is not as heavily regulated as public stocks. Van Daniker said he believes the system can achieve 80% to 90% compliance by making it easier to identify issuers that fail to file.
Systems that post data on the Web report heavy usage. Sutter Health, Sacramento, Calif., had at least 539 visits to the financial area of its Web page in the second quarter of this year. The 26-hospital system releases its annual audited financial statement in April.
Catholic Health Initiatives, Denver, began posting financial statements on its Web sites three years ago (Oct. 16, 2000, p. 92). Since then, the Web site has become the preferred means for investors to get information, officials said. "The comments we get from investors are that they are accessing it, and it's timely," said Linda MacDonald, vice president of treasury service at the 68-hospital system.
Many others have taken an alternative route. Within the last year or so, about 100 hospitals and systems have elected to post their financial data on the Web site of Digital Assurance Certification, Winter Park, Fla., a subsidiary of Ernst & Young that specializes in municipal disclosure. The DAC site, dac-ey.com, provides free public access to all documents.
But others said they do not see a need to expand access to their financial data and view their Web sites as tools for use by consumers rather than investors. Their Web sites only give brief financial overviews, such as balance sheets and revenue and admissions figures.
Adventist Health System, Winter Park, Fla., which has 37 hospitals and about $2 billion in outstanding bonds, sends hard copies of statements to investors and potential investors that request them, said Paul Rathbun, vice president of finance. He said Adventist is considering sending statements electronically, but investors have not asked for data to be posted on the system's Web site.
As far as public access to the data, he said, "The footnotes are so technical that it's probably not usable to the layperson."
Similarly, the issue has "never come up" at Catholic Health East, spokesman Sal Foti said. But Foti said the 31-hospital system's new chief financial officer, Peter DeAngelis Jr., who took over last month, plans to look into Web disclosures and make a recommendation to senior management.
Some hospitals and systems, particularly those that operate in small competitive markets, are reluctant to release financial data widely for competitive reasons, experts said. In some cases, lawyers have advised against making any disclosures that are not required by law.
" `Why do it if I don't have to?' I think that's been the traditional view," Garner said. Still, she said, with increasing government and public demand for financial transparency, "I think there is increasingly a mindset shift among not-for-profit healthcare organizations."
