State Recommendations Would Make Hospital Finances More Transparent

Andrew Kitchenman | July 21, 2014 | Health Care
O’Dowd seeks web posting of reports, rejects executive salary disclosure for private for-profits

State Health Commissioner Mary O'Dowd.
Hospitals would be required to post annual and quarterly financial reports on their websites, a potentially significant increase in transparency, under recommendations made by the state health commissioner.

Commissioner Mary E. O’Dowd recommended in a new report that the audited annual report be posted within 180 days of the end of the fiscal year, which for most hospitals would mean late June, and that unaudited quarterly reports be posted within 60 days of the end of the quarter.

Concerns about the growth of for-profit hospitals — and the lower financial reporting standards that they are subjected to — prompted the Legislature to pass a bill last year that bolstered these standards. While Gov. Chris Christie conditionally vetoed the bill, he and lawmakers agreed to a law that required the report and recommendations. Opponents of for-profit hospitals have expressed concern that the expansion of these hospitals will lead to reduced services and less public accountability.

Both a critic of for-profit hospitals and a spokeswoman for the state’s largest hospital association had a mixed response to the recommendations — for very different reasons. Union officials praised the increased access to hospital’s financial reports, but wished the report had gone further in equalizing the reporting requirements of for-profits with nonprofits. New Jersey Hospital Association officials said they would work with the state on some recommendations, but felt that publicly releasing unaudited statements could be harmful.

O’Dowd wrote in a letter to Christie attached to the report that she struck a balance “between the unique and important nature of healthcare services, the significant amount of public funds hospitals receive and the need to prevent placing an undue burden on healthcare providers.”

She also called for the state Department of Health to work with stakeholders to explore public reporting contracts with related parties, such as a business that shares a common corporate parent with the hospital, to prevent self-dealing and conflicts of interest.

O’Dowd decided against recommending disclosure of some information sought by labor unions and other critics of the growth in for-profit hospitals. In particular, she didn’t recommend that privately held for-profit hospitals be required to disclose the compensation of board members, officers and other highly paid employees, or for all-profits to disclose the details of payments to their highest-paid independent contractors.

Absent federal requirements, “the public need for compensation information has not been clearly demonstrated and is outweighed by the privacy rights of the organization and its employees wherein its payment structure may provide it with more flexibility, incentive or agility to experiment with new and, possibly, improved methods or results,” according to the report.

O’Dowd recommended that hospitals that engage in arrangements where they sell their property and sign a lease for it — known as “sale-leasebacks” — notify the state before making such deals and let the public know at their annual meetings. Union officials would like to see these deals publicly announced prior to being signed.

She also recommended that the department “consistently levy an escalating fine or penalty for each day” that financial statements are delayed. This issue has been in the public eye due to the failure of the for-profit Meadowlands Hospital Medical Center to complete audited statements for 2012 and 2013. Hospital officials have said that the 2012 report will be available soon, to be followed by work to complete the 2013 statement.

Jeanne Otersen, policy director for Health Professionals and Allied Employees union, welcomed many of the recommendations in the report, but expressed disappointment that privately held for-profits would continue to be able to keep some information private.

The recommendations “are a recognition that there are real concerns with what is behind the door at for-profit hospitals,” Otersen said, adding: “At the same time, I don’t think people will get a full financial picture of where their healthcare dollars are going without information such as what are the terms and conditions of a sale-leaseback.”

Otersen added that it’s not clear whether the recommendations can be adopted by the state immediately or must undergo the state rulemaking process, which can be protracted. The report wasn’t announced until after the close of business on Friday.

O’Dowd wrote that the department would consider the appropriateness of new rulemaking, the development of guidance documents and stakeholder engagement to carry out the recommendations.

Despite these concerns, Otersen said the public reporting and posting of audited annual and unaudited quarterly statements would be a significant advance.

“Being able to implement these regulations and enforce them, I think, will be a real test,” she said.

New Jersey Hospital Association spokeswoman Kerry McKean Kelly said association officials are committed to working with the state on enhanced transparency, but “have significant concerns, including the public reporting of unaudited quarterly financial statements.

“They are internal working documents with proprietary information,” Kelly said in a statement. “Sharing that information, especially in an unaudited fashion, could confuse consumers and pose risks to the hospital’s business operations and plans.”

Kelly added that the report focused solely on hospitals, while insurers and other segments of healthcare should be held to the same level of responsibility.

O’Dowd wrote that the state has already implemented one of the report’s recommendations: a healthcare transparency website that provides publicly available information about healthcare facilities, as well as how to request hospital inspection reports and file a complaint hospital or insurance services.

Currently, while hospitals must provide annual audited financial statements to the state, they sometimes miss state deadlines and the reports usually aren’t posted on hospital websites. In addition, hospitals that are part of national for-profit chains, such as Memorial Hospital of Salem County and St. Luke’s Hospital Warren, don’t file separate audited financial statements for their New Jersey facilities. If the recommendations were implemented, they would require these hospitals to do so.

Required public access to unaudited quarterly statements is much more limited. Only those hospitals that have bond debt through the New Jersey Health Care Facilities Financing Authority must report quarterly statements, and that information isn’t posted on hospital sites.