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Hospital Reserves

Hospital Reserves

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Published by BostonGlobe
Read the full reports on hospital financial reserves and performance.
Read the full reports on hospital financial reserves and performance.

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Published by: BostonGlobe on May 17, 2010
Copyright:Attribution Non-commercial


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Study of the Reserves, Endowments,andSurpluses of Hospitals inMassachusetts
Deval L. Patrick, GovernorCommonwealth of Massachusetts Timothy P. MurrayLieutenant Governor JudyAnn Bigby, SecretaryExecutive Office of Health and Human ServicesDavid Morales, CommissionerDivision of Health Care Finance and Policy
 Table of Contents
Executive SummaryI.IntroductionII.Study MethodologyIII.Definition of Hospital SurplusIV.Why Hospitals Need to Accumulate Financial ResourcesV.Massachusetts Hospital Market Overview
Financial Status of Massachusetts HospitalsVII.Hospital SystemsVIII.Comparison of Hospital Financial Regulation to Other StatesHospital Community BenefitsRecommendationsAppendix 1: Glossary of TermsAppendix 2: Public Input SessionAppendix 3: Hospital Subgroup ClassificationsAppendix 4: Hospital Financial DataAppendix 5: Hospital System MapsAppendix 6: System Structure ExamplesAcknowledgements
Executive Summary
Section 35 of Chapter 305 of the Acts of 2008,
 An Act to Promote Cost Containment, Transparency, and Efficiency in the Delivery of Quality HealthCare
, requires that the Division of Health Care Finance and Policy (DHCFP), inconjunction with the Division of Insurance (DOI), conduct a study of thereserves, endowments, and surpluses of health insurers and hospitals. Perstatute, the goal of the study is to provide information to assist both DHCFPand DOI with the examination of “options and alternatives available to theCommonwealth to provide regulation, oversight and disposition of thereserves, endowments and surpluses of health insurers and hospitals.”DHCFP selected the firm Hinckley, Allen & Tringale to perform analyses andprepare draft reports to assist the agency in responding to the requirementsof Section 35. This report examines the reserves, endowments, andsurpluses of hospitals. Analysis and review of the reserves and surpluses of health insurers is provided in a separate report, which is available atwww.mass.gov/dhcfp.
Definition of Hospital Surplus
While relatively clear standards for insurer surplus have been developed, it ismore complicated to analyze hospital surplus for several reasons, whichinclude, but are not limited to, the following:
 The terms “surplus” and “reserves” do not have entirelyclear meanings in the context of hospitals. “Surplus” could refer tooperating or total profits, accumulated profits, the difference betweentotal assets and total liabilities, the amount of unrestricted net assets,or accumulated cash and marketable securities in excess of workingcapital needs. Hospitals do not generally designate assets as“reserves” except for certain liquid assets set aside to meet debtservice requirements.
Regulatory environment:
While hospitals are required to reportfinancial information to state regulatory agencies, there are nostandards, federal or state, for hospitals regarding necessary orappropriate levels of surplus.
: Hospitals need financial resources for a larger variety of purposes than insurers, whose major need for accumulated financialresources is solvency protection in the event of unanticipated medicalclaims payments or investment losses.
Diversity of hospitals
: The sixty-six acute care hospitals inMassachusetts are a varied group across multiple dimensions, such assize, range of services, teaching status, payer mix, geographic

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