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  1. 1. Massachusetts Acute Hospital Financial Performance: FY04 through FY08 Q3 Division of Health Care Finance and Policy December 2008
  2. 2. About this Report • This report is prepared in response to M.G.L. c. 118G, section 6A, which requires the Division of Heath Care Finance and Policy (DHCFP) to assess and report on Massachusetts acute hospital financial performance. • The report provides a statewide analysis of acute hospital audited financial data over a five-year period (FY04 through FY08 Q3). • The report examines hospital profitability, liquidity, and capital structure ratios in order to monitor the financial status of acute hospitals. • The report presents industry analyses by quartiles and medians and compares financial performance trends of different hospital cohorts: teaching, community, and disproportionate share hospitals. • Caution should be taken when interpreting quarterly results as quarterly performance may not necessarily be indicative of year end results. Quarterly data are cumulative and as filed by the hospitals. • The report is accompanied by individual hospital fact sheets detailing financial trends, which are available on the DHCFP website: www.mass.gov/dhcfp. Summary of Findings for Fiscal Year 2008 through Quarter 3 • Overall, Massachusetts acute hospital financial performance declined from FY07 through the first three quarters of FY08. • Most hospitals reported profitable financial performance, but fewer than in FY07; 68% reported positive total margins during the first three quarters of FY08 compared with 89% in FY07. • Liquidity remained fairly stable: acute hospitals took a few days longer to collect revenue while some hospitals paid bills in fewer days during the first three quarters of FY08 than in FY07. • Teaching versus Community Hospital Performance – Both teaching and community hospitals reported declines in total gains, but community hospitals reported steeper operating declines than teaching hospitals. Non-operating margins declined significantly more for teaching hospitals than for community hospitals during the first three quarters of FY08. – Teaching hospitals’ median current ratio improved, but declined for community hospitals suggesting a more difficult time meeting current obligations for this group. • Disproportionate Share Hospital Performance – Disproportionate share hospitals (DSHs) and all other hospitals as a group were less profitable overall during the first three quarters of FY08 than in FY07. However, DSH operating profits improved while all other hospitals as a group experienced steep declines in non-operating profits during the first three quarters of FY08.
  3. 3. Acute Hospital Total Margin Note: Total margin is the ratio of total income to total revenue. This slide shows a line graph displaying the trend in total margin by percentile from FY04 through FY08 Q3: • The 25th percentile had risen from 0.2% in FY04 to 1.7% in FY07, but has declined to -1.4% in FY08 Q3 • The median percentile had risen from 1.6% in FY04 to 3% in FY07, but has declined to 1.8% in FY08 Q3 • The 75th percentile had risen from 3.7% in FY04 to 5.8% in FY07, but has declined to 4.5% in FY08 Q3 The side bar reads: Many hospitals experienced declines in total profits with the financially weakest hospitals showing the steepest decline during the first three quarters of FY08. Twenty-one hospitals (32%) reported a total loss during the same period. Benchmark: Northeast US median FY06 = 3% Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 7% 6% 5.8% 5.9% 5.8% 5% 4% 4.5% 3% 3.7% 3.1% 3.1% 3.0% 2% 1.6% 1.6% 1.7% 1.8% 1% 0.8% 0% 0.2% -1% -2% -1.4% FY04 FY05 FY06 FY07 FY08 Q3 25th percentile Median 75th percentile
  4. 4. Acute Hospital Operating Margin Note: Operating margin is the ratio of operating income to total revenue. This slide shows a line graph displaying the trend in operating margin by percentile from FY04 through FY08 Q3: • The 25th percentile had risen from -1.7% in FY04 to positive 0.1%, but has declined to -2.2% in FY08 Q3 • The median percentile had risen from 0.8% in FY04 to 1.7% in FY07, but has declined to 1.1% in FY08 Q3 • The 75th percentile had risen from 2.9% in FY04 to 3.4% in FY07, but has declined to 2.9% in FY08 Q3 The side bar reads: Overall, operating margins declined, with the median operating margin declining from 1.7% in FY07 to 1.1% during the first three quarters of FY08. Twenty-six hospitals (39%) reported a loss from operations during the same period. 4% 3% 3.5% 3.4% 3.4% 2.9% 2.9% 2% 1.9% 1.7% 1.7% 1% 1.1% 0.8% 0% 0.1% 0.1% -0.2% -1% -2% -1.7% -2.2% -3% FY04 FY05 FY06 FY07 FY08 Q3 25th percentile Median 75th percentile
  5. 5. Acute Hospital Non-Operating Margin Note: Non-operating margin is the ratio of non-operating income to total revenue. This slide shows a line graph displaying the trend in non-operating margin by percentile FY04 through FY08 Q3: • The 25th percentile had risen from 0.2% in FY04 to positive 0.6% in FY07, but has declined to 0.1% in FY08 Q3 • The median percentile had risen from 0.9% in FY04 to 1.6% in FY07, but has declined to 0.8% in FY08 Q3 • The 75th percentile had risen from 2.1% in FY04 to 3.2% in FY07, but has declined to 1.9% in FY08 Q3 The side bar reads: Compared with FY07, many hospitals’ non-operating margins declined during the first three quarters of FY08. Nine hospitals reported a non-operating loss during the same period. 3.5% 3.0% 3.2% 2.5% 2.5% 2.5% 2.0% 2.1% 1.9% 1.5% 1.6% 1.3% 1.0% 1.2% 0.9% 0.8% 0.5% 0.6% 0.6% 0.5% 0.2% 0.1% 0.0% FY04 FY05 FY06 FY07 FY08 Q3 25th percentile Median 75th percentile
  6. 6. Acute Hospital Current Ratio Note: Current ratio is the ratio of current assets to current liabilities. This slide shows a line graph displaying the trend in current ratio by percentile from FY04 through FY08 Q3: • The 25th percentile has risen from 1.03% in FY04 to 1.15% in FY08 Q3 • The median percentile has declined from 1.60% in FY04 to 1.45% in FY08 Q3 • The 75th percentile has declined from 2.11% in FY04 to 1.89% in FY08 Q3 The side bar reads: A high current ratio indicates the ability to meet current liabilities and a lower probability of financial insolvency. Massachusetts acute hospitals’ short term liquidity declined on average, with the median current ratio falling to 1.45 during the first three quarters of FY08 from 1.55 in FY07. Benchmark: Northeast US median FY06 = 1.53 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 2.5 2.0 2.11 2.11 2.07 1.94 1.89 1.5 1.60 1.53 1.55 1.42 1.45 1.0 1.14 1.16 1.12 1.15 1.03 0.5 0.0 FY04 FY05 FY06 FY07 FY08 Q3 25th percentile Median 75th percentile
  7. 7. Acute Hospital Days in Accounts Receivable Note: Days in accounts receivable is the ratio of net patient accounts receivable to net patient service revenue / (quarters of data x 91.25). This slide shows a line graph displaying the trend in days in accounts receivable from FY04 through FY08 Q3: • The 25th percentile had dropped from 38 days to 36 days (FY04 to FY07), but has risen to 38 days in FY08 Q3 • The median percentile has dropped from 45 days in FY04 to 42 days where it has remained from FY05 to FY08 Q3 • The 75th percentile had dropped from 52 days to 46 days (FY04 to FY07), but has risen to 48 days in FY08 Q3 The side bar reads: The days in accounts receivable ratio measures the average number of days that patient receivables are outstanding, or the average collection period. The median number of days taken to collect revenue maintained a stable trend of 42 days during the first three quarters of FY08. Benchmark: Northeast US median FY06 = 47.7 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 60 52 50 48 47 48 45 46 42 42 42 42 40 38 38 35 36 36 30 20 10 0 FY04 FY05 FY06 FY07 FY08 Q3 25th percentile Median 75th percentile
  8. 8. Acute Hospital Average Payment Period Note: Average payment period is the ratio of current liabilities less estimated third-party settlements to total expenses less depreciation and amortization/quarters of data x 91.25. This slide shows a line graph displaying the trend in average payment period from FY04 through FY08 Q3: • The 25th percentile has remained between 43 and 44 days (currently 43 days) from FY04 through FY08 Q3 • The median percentile has remained between 51 and 52 days (currently 51 days) from FY04 through FY08 Q3 • The 75th percentile had remained between 63 and 64 days (FY04 to FY06) but has declined to 60 days where it has remained in both FY07 and FY08 Q3 The side bar reads: The average payment period ratio measures the time it takes to pay current liabilities. High values indicate potential liquidity problems. Massachusetts acute hospitals continued a stable trend in the number of days taken to pay creditors during the first three quarters of FY08. Benchmark: Northeast US median FY06 = 61.2 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 70 63 63 64 60 60 60 51 51 51 52 51 50 40 43 43 44 44 43 30 20 10 0 FY04 FY05 FY06 FY07 FY08 Q3 25th percentile Median 75th percentile
  9. 9. Acute Hospital Equity Financing Note: Equity financing is the ratio of total net assets to total assets. This slide shows a line graph displaying the trend in equity financing from FY04 through FY08 Q3: • The 25th percentile had risen from 25.5% to 32.9% from FY04 to FY07, but has declined slightly to 28.9% in FY08 Q3 • The median percentile had risen from 43.7% to 48.8% from FY04 to FY07, but has declined slightly to 46.7% in FY08 Q3 • The 75th percentile had risen from 60.9% to 63.9% from FY04 to FY07, but has declined slightly to 61.2% in FY08 Q3 The side bar reads: The equity financing ratio measures the proportion of total assets financed with equity. Acute hospitals’ equity financing declined slightly during the first three quarters of FY08. Benchmark: Northeast US median FY06 = 47.4% Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 70% 60% 63.9% 60.9% 61.0% 61.0% 61.2% 50% 48.8% 46.7% 40% 43.7% 42.7% 43.1% 30% 32.9% 28.9% 25.5% 26.9% 27.1% 20% 10% 0% FY04 FY05 FY06 FY07 FY08 Q3 25th percentile Median 75th percentile
  10. 10. Teaching and Community Hospitals •Inthis analysis, teaching hospitals are defined according to the Medicare Payment Advisory Commission’s (MedPAC) definition of a major teaching hospital: at least 25 full time equivalent medical school residents per one hundred inpatient beds. •The Division of Health Care Finance and Policy analyzed the most current hospital cost reports for the first three quarters of FY08 to determine which hospitals met this criteria. For the purposes of this analysis, the 15 hospitals meeting this criteria during the first three quarters of FY08 were assigned to the teaching cohort for all the years of this analysis. The table below shows a listing of teaching and community hospitals in Massachusetts: Teaching Hospitals Baystate Medical Center Beth Israel Deaconess Medical Center Boston Medical Center Brigham and Women's Hospital Cambridge Health Alliance Caritas St. Elizabeth's Medical Center Children's Hospital Boston Dana-Farber Cancer Institute Lahey Clinic Massachusetts Eye and Ear Infirmary Massachusetts General Hospital Mount Auburn Hospital Saint Vincent Hospital Tufts Medical Center UMass Memorial Medical Center Community Hospitals Anna Jaques Hospital Athol Memorial Hospital Baystate Franklin Medical Center Baystate Mary Lane Hospital Berkshire Medical Center B. I. Deaconess Hospital - Needham Cape Cod Hospital Caritas Carney Hospital Caritas Good Samaritan Medical Center Caritas Holy Family Hospital Caritas Norwood Hospital Clinton Hospital Cooley Dickinson Hospital Emerson Hospital Fairview Hospital Falmouth Hospital Faulkner Hospital Hallmark Health System, Inc.
  11. 11. Harrington Memorial Hospital Health Alliance Hospital Heywood Hospital Holyoke Medical Center Hubbard Regional Hospital Jordan Hospital Lawrence General Hospital Lowell General Hospital Marlborough Hospital Martha's Vineyard Hospital Mercy Medical Center Merrimack Valley Hospital MetroWest Medical Center Milford Regional Medical Center Milton Hospital Morton Hospital and Medical Center Nantucket Cottage Hospital Nashoba Valley Medical Center New England Baptist Hospital Newton-Wellesley Hospital Noble Hospital North Adams Regional Hospital North Shore Medical Center, Inc. Northeast Hospital Quincy Medical Center Saint Anne's Hospital Saints Medical Center Signature Healthcare Brockton Hospital South Shore Hospital Southcoast Hospitals Group Sturdy Memorial Hospital Winchester Hospital
  12. 12. The image below shows the originally formatted listing of teaching and community hospitals in Massachusetts
  13. 13. Acute Hospital Median Total Margin Teaching vs. Community Hospitals Note: Total margin is the ratio of total income to total revenue. This slide shows a line graph displaying the trend in total margin for teaching hospitals, community hospitals, and the statewide hospital industry overall from FY04 through FY08 Q3: • Teaching had risen from 3.0% to 7.2% (FY04 to FY07), but has declined to 3.7% as of FY08 Q3 • Community had risen from 1.1% to 2.7% (FY04 to FY07), but has declined to 1.7% as of FY08 Q3 • Statewide percentile had risen from 1.6% to 3.0% (FY04 to FY07), but has declined to 1.8% as of FY08 Q3 The side bar reads: Teaching hospitals had significantly higher profitability than community hospitals in each of the past five years. However, both teaching and community hospitals experienced declines in median total margin during the first three quarters of FY08 compared with FY07. Three teaching hospitals reported losses during the first three quarters of FY08 compared with one in FY07. Benchmark: Northeast US median FY06 = 3% Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 8% 7.2% 7% 6.0% 6% 4.9% 5% 4% 3.7% 3.1% 3.1% 3.0% 3% 3.0% 2.8% 2.7% 1.8% 2% 1.6% 2.5% 1% 1.6% 1.1% 0% FY04 FY05 FY06 FY07 FY08 Q3 Teaching Community Statewide
  14. 14. Acute Hospital Total Margin Teaching vs. Community Hospitals, FY08 Q3 Note: Total margin is the ratio of total income to total revenue. This slide shows a bar graph displaying the range of total margin for teaching hospitals and community hospitals for FY08 Q3: • Teaching hospitals range from -5.3 to 9.9 for FY08 Q3 • The overall median for teaching hospitals is 3.7% for FY08 Q3 • Community hospitals range from -17.4% to 12% for FY08 Q3 • The overall median for community hospitals is 1.6% FY08 Q3 • The overall median for all hospitals is 1.8% for FY08 Q3 The side bar reads: The overall financial performance of acute hospitals varies widely by teaching status. The median total margin was 3.7% for teaching hospitals compared with 1.6% for community hospitals during the first three quarters of FY08. Benchmark: Northeast US median FY06 = 3% Teaching Hospitals Community Hospitals Median: 1.6% Median: 3.7% 12% 9.9% 1.8% Overall Median -5.3% -17.4%
  15. 15. Acute Hospital Median Operating Margin Teaching vs. Community Hospitals Note: Operating margin is the ratio of operating income to total revenue. This slide shows a line graph displaying the trend in operating margin for teaching hospitals, community hospitals, and the statewide hospital industry overall from FY04 through FY08 Q3: • Teaching had risen from 2.0% to 3.1% (FY04 through FY07), but has declined slightly to 2.8% for FY08 Q3 • Community had risen from 0.1% to 1.8% (FY04 through FY06), but declined to 1.4% in FY07 and declined further to 0.6% in FY08 Q3 • Statewide had risen from 0.8% to 1.9% (FY04 through FY06), but declined to 1.7% in FY07 and declined further to 1.1% in FY08 Q3 The side bar reads: The median operating margin declined more sharply for community hospitals than for teaching hospitals during the first three quarters of FY08 compared with FY07. 4% 3.2% 3.1% 3% 2.8% 2.8% 2.0% 1.9% 2% 1.7% 1.7% 1.8% 1.1% 1.1% 1.4% 1% 0.8% 0.6% 0.1% 0% FY04 FY05 FY06 FY07 FY08 Q3 Teaching Community Statewide
  16. 16. Acute Hospital Operating Margin Teaching vs. Community Hospitals, FY08 Q3 Note: Operating margin is the ratio of operating income to total revenue. This slide shows a bar graph displaying the range of operating margin for teaching hospitals and community hospitals for 2007: • Teaching hospitals range from -6.6% to 7.4% for FY08 Q3 • The overall median for teaching hospitals is 2.8% FY08 Q3 • Community hospitals range from -14.2% to 8.4% for FY08 Q3 • The overall median for community hospitals is 0.6% FY08 Q3 • The overall median for all hospitals is 1.1 for FY08 Q3 The side bar reads: Both teaching and community hospitals vary in operating margin performance. However, the median operating margin for teaching hospitals was significantly higher than it was for community hospitals (2.8% vs. 0.6%) during the first three quarters of FY08. Teaching Hospitals Community Hospitals Median: 0.6% Median: 2.8% 8.4% 7.4% 1.1% Overall Median -6.6% -14.2%
  17. 17. Acute Hospital Median Non-Operating Margin Teaching vs. Community Hospitals Note: Non-operating margin is the ratio of non-operating income to total revenue. This slide shows a line graph displaying the trend in non-operating margin for teaching hospitals, community hospitals, and the statewide hospital industry overall from FY04 through FY08 Q3: • Teaching hospitals had risen from 1.7% to 4.6% (FY 04 through FY07), but experienced a significant decrease to 0.9% in FY08 Q3 • Community hospitals had risen from 0.8% to 1.4% (FY 04 through FY07), but declined to 0.7% in FY08 Q3 • Statewide hospitals percentile had risen from 0.9% to 1.6% (FY 04 through FY07), but declined to 0.8% in FY08 Q3 The side bar reads: Teaching hospitals experienced a significant decrease in their median non-operating margin during the first three quarters of FY08 compared with FY07. Community hospitals median non- operating margin also declined. 5% 4.6% 4% 3% 2.5% 1.9% 2% 1.7% 1.6% 1.3% 1.2% 0.9% 1.4% 1% 0.9% 1.1% 1.1% 0.8% 0.8% 0.7% 0% FY04 FY05 FY06 FY07 FY08 Q3 Teaching Community Statewide
  18. 18. Acute Hospital Non-Operating Margin Teaching vs. Community Hospitals, FY08 Q3 Note: Non-operating margin is the ratio of non-operating income to total revenue. This slide shows a bar graph displaying the range of non-operating margin for teaching hospitals and community hospitals for 2007: • Teaching hospitals range from -2.2% to 4.4% for FY08 Q3 • The overall median for teaching hospitals is 0.9% FY08 Q3 • Community hospitals range from -9.9% to 6.8% for FY08 Q3 • The overall median for community hospitals is 0.7% FY08 Q3 • The overall median for all hospitals is 0.8% for FY08 Q3 The side bar reads: Non-operating margin performance varies widely by hospital teaching status. However, the median non-operating margin was quite similar for both teaching and community hospitals (0.9% and 0.7%) during the first three quarters of FY08. Teaching Hospitals Community Hospitals Median: 0.7% Median: 0.9% 6.8% 4.4% 0.8% Overall Median -2.2% -9.9%
  19. 19. Acute Hospital Median Current Ratio Teaching vs. Community Hospitals Note: Current ratio is the ratio of current assets to current liabilities. This slide shows a line graph displaying the trend in current ratio for teaching hospitals, community hospitals, and the statewide hospital industry overall from FY04 through FY08 Q3: • Teaching hospitals fell from 1.72 to 1.36 from FY04 to FY06, but improved from 1.36 to 1.49 between FY06 and FY07 and from 1.49 to 1.60 in FY08 Q3 • Community hospitals rose from 1.50 to 1.58 between FY04 and FY07, but declined to 1.44 in FY08 Q3 • Statewide hospitals declined from 1.60 to 1.53 between FY04 and FY05, declined further to 1.46 in FY06, improved to 1.55 in FY07, but declined to 1.44 in FY08 Q3 The side bar reads: Current ratios for teaching and community hospitals have varied over time. However, during the first three quarters of FY08 the median current ratio improved for teaching hospitals, but declined for community hospitals. Benchmark: Northeast US median FY06 = 1.53 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 1.90 1.80 1.70 1.72 1.61 1.60 1.60 1.58 1.60 1.53 1.55 1.50 1.50 1.50 1.44 1.45 1.49 1.42 1.44 1.40 1.36 1.30 FY04 FY05 FY06 FY07 FY08 Q3 Teaching Community Statewide
  20. 20. Acute Hospital Median Days in Accounts Receivable Teaching vs. Community Hospitals Note: Days in accounts receivable is the ratio of net patient accounts receivable to net patient service revenue / (quarters of data x 91.25). This slide shows a line graph displaying the trend in days in accounts receivable for teaching hospitals, community hospitals, and the statewide hospital industry overall from FY04 through FY08 Q3: • Teaching hospitals declined from 40 days to 36 days (FY04 to FY5) rose to 41 days in FY0, 42 days in FY07, and to 46 days in FY08 Q3 • Community hospitals declined from 46 days to 42 days between FY04 and FY05, held steady at 42 days in FY06 and FY07, and declined slightly to 41 days in FY08 Q3 • Statewide hospitals declined from 45 days to 42 days between FY04 and FY05 and has held steady at 42 days in FY06, FY07, and FY08 The side bar reads: During the first three quarters of FY08 teaching hospitals took about five days longer than community hospitals to collect revenue. Benchmark: Northeast US median FY06 = 47.7 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 46 46 45 46 45 44 43 42 42 42 42 42 41 41 41 40 40 39 38 37 36 36 35 FY04 FY05 FY06 FY07 FY08 Q3 Teaching Community Statewide
  21. 21. Acute Hospital Median Average Payment Period Teaching vs. Community Hospitals Note: Average payment period is the ratio of current liabilities less estimated third-party settlements to total expenses less depreciation and amortization/quarters of data x 91.25. This slide shows a line graph displaying the trend in days in average payment period for teaching hospitals, community hospitals, and the statewide hospital industry overall from FY04 through FY08 Q3: • Teaching hospitals were 56 days in FY04, 57 days in FY05, 52 days in FY06, 55 days in FY07 and 51 days in FY08 Q3 • Community hospitals were 50 days in FY04, 49 days in FY05, 51 days in FY06, 52 days in FY07 and 52 days in FY08 Q3 • Statewide hospitals were 51 days in FY04, FY05, and FY06, rose slightly to 52 days in FY07 and declined slightly to 51 days in FY08 Q3 The side bar reads: During the first three quarters of FY08 teaching hospitals took fewer days to pay their bills, managing on average to take one day less than community hospitals to pay their bills. Benchmark: Northeast US median FY06 = 61.2 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 57 57 56 56 55 55 54 53 52 52 52 52 51 51 51 51 51 50 50 49 49 FY04 FY05 FY06 FY07 FY08 Q3 Teaching Community Statewide
  22. 22. Acute Hospital Median Equity Financing Teaching vs. Community Hospitals Note: Equity financing is the ratio of total net assets to total assets. This slide shows a line graph displaying the trend in equity financing for teaching hospitals, community hospitals, and the statewide hospital industry overall from FY04 through FY08 Q3: • Teaching hospitals were 47.4% in FY04, 45.9% in FY05, 48.7% in FY06, 54.7 in FY07 and 50.5% in FY08 Q3 • Community hospitals were 43.1% in FY04, 40.4% in FY05, 43.0% in FY06, 43.4 in FY07 and 39.6% in FY08 Q3 • Statewide hospitals h were 43.7% in FY04, 42.7% in FY05, 43.1% in FY06, 48.9 in FY07 and 46.7% in FY08 Q3 The side bar reads: Teaching hospitals have greater equity financing than community hospitals. The median equity financing ratio declined for teaching and community hospitals during the first three quarters of FY08. Benchmark: Northeast US median FY06 = 47.4% Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 60% 54.7% 55% 50.5% 50% 48.7% 48.9% 47.4% 46.7% 45.9% 45% 43.7% 42.7% 43.1% 43.1% 43.0% 43.4% 40% 40.4% 39.6% 35% FY04 FY05 FY06 FY07 FY08 Q3 Teaching Community Statewide
  23. 23. Disproportionate Share and All Other Hospitals • In this analysis, the Division of Health Care Finance and Policy defines disproportionate share hospitals (DSHs) as those hospitals with a large percentage (63% or more) of patient charges attributed to Medicare, Medicaid, other government payers, and free care. • Based on this definition, there are 16 disproportionate share hospitals in Massachusetts. The table below shows a listing of disproportionate share hospitals (DSHs) in Massachusetts: Disproportionate Share Hospitals Berkshire Medical Center Boston Medical Center Cambridge Health Alliance Cape Cod Hospital Caritas Carney Hospital Caritas St. Elizabeth's Medical Center Holyoke Medical Center Lawrence General Hospital Mercy Medical Center Merrimack Valley Hospital Quincy Medical Center Saint Anne's Hospital Saint Vincent Hospital Signature Healthcare Brockton Hospital Southcoast Hospitals Group Wing Memorial Hospital All Other Hospitals Anna Jaques Hospital Athol Memorial Hospital Baystate Franklin Medical Center Baystate Mary Lane Hospital Baystate Medical Center B. I. Deaconess Hospital - Needham Beth Israel Deaconess Medical Center Brigham and Women's Hospital Caritas Good Samaritan Medical Center Caritas Holy Family Hospital Caritas Norwood Hospital Children's Hospital Boston Clinton Hospital Cooley Dickinson Hospital Dana-Farber Cancer Institute Emerson Hospital Fairview Hospital
  24. 24. Falmouth Hospital Faulkner Hospital Hallmark Health System, Inc. Harrington Memorial Hospital Health Alliance Hospital Heywood Hospital Hubbard Regional Hospital Jordan Hospital Lahey Clinic Lowell General Hospital Marlborough Hospital Martha's Vineyard Hospital Massachusetts Eye and Ear Infirmary Massachusetts General Hospital MetroWest Medical Center Milford Regional Medical Center Milton Hospital Morton Hospital and Medical Center Mount Auburn Hospital Nantucket Cottage Hospital Nashoba Valley Medical Center New England Baptist Hospital Newton-Wellesley Hospital Noble Hospital North Adams Regional Hospital North Shore Medical Center, Inc. Northeast Hospital Saints Medical Center South Shore Hospital Sturdy Memorial Hospital Tufts Medical Center UMass Memorial Medical Center Winchester Hospital
  25. 25. The image below shows the originally formatted listing of disproportionate share hospitals (DSHs) in Massachusetts
  26. 26. Acute Hospital Median Total Margin Disproportionate Share vs. All Other Hospitals Note: Total margin is the ratio of total income to total revenue. This slide shows a line graph displaying the trend in total margin for disproportionate share hospitals (DSHs) in Massachusetts from FY04 through FY08 Q3: • Disproportionate share hospitals median total margins was 0.7% in FY04, rose to 1.7% in FY05, rose to 2.5% in FY06, declined slightly to 2.3% in FY07, and declined further to 1.6% in FY08 Q3 • All other hospitals median total margins was 1.9% in FY04, rose to 3.7% in FY05, declined to 3.3% in FY06, rose to 3.8% in FY07, and declined to 1.9% in FY08 Q3 • Statewide median total margins was 1.6% in FY04, rose to 3.1% in FY05, held steady at 3.1% in FY06, declined slightly to 3.0% in FY07, and declined to 1.8% in FY08 Q3 The side bar reads: Disproportionate share hospitals generally have lower total profitability than other hospitals. However, all other hospitals experienced a significant decline in total profits, narrowing the gap with disproportionate share hospitals during the first three quarters of FY08. Benchmark: Northeast US median FY06 = 3% Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 4% 3.8% 3.7% 3.3% 3% 3.1% 3.1% 3.0% 2.5% 1.9% 2.3% 1.9% 2% 1.8% 1.7% 1.6% 1.6% 1% 0.7% 0% FY04 FY05 FY06 FY07 FY08 Q3 DSH All Other Statewide
  27. 27. Acute Hospital Median Operating Margin Disproportionate Share vs. All Other Hospitals Note: Operating margin is the ratio of operating income to total revenue. This slide shows a line graph displaying the trend in operating margin for disproportionate share hospitals (DSHs) in Massachusetts from FY04 through FY08 Q3: • Disproportionate share hospitals operating margin was -0.5% in FY04, rose to 0.4% in FY05, rose to 0.5% in FY06 and declined slightly to 0.3% in FY07, and rose to 1.1% in FY08 Q3 • All other hospitals operating margin was 0.9% in FY04, rose to 1.9% in FY05, rose to 2.2% in FY06, declined slightly 2.0% in FY07, and declined further to 1.1% in FY08 Q3 • Statewide operating margin was 0.8% in FY04, rose to 1.7% in FY05, rose to 1.9% in FY06, declined slightly to 1.7% in FY07 and declined further to 1.1% in FY08 Q3 The side bar reads: Historically, disproportionate share hospitals tend to be less profitable from operations than other hospitals. However, during the first three quarters of FY08, median operating margin was the same for all hospitals due to the increase for disproportionate hospitals and the decrease for all other hospitals in median operating margin. 3% 2.2% 2.0% 1.9% 2% 1.9% 1.7% 1.7% 0.9% 1.1% 1% 0.8% 0.5% 0.4% 0.3% 0% FY04 FY05 FY06 FY07 FY08 Q3 -0.5% -1% DSH All Other Statewide
  28. 28. Acute Hospital Median Non-Operating Margin Disproportionate Share vs. All Other Hospitals Note: Non-operating margin is the ratio of non-operating income to total revenue. This slide shows a line graph displaying the trend in non-operating margin for disproportionate share hospitals (DSHs) in Massachusetts from FY04 through FY08Q3: • Disproportionate share hospitals non-operating margin was 0.9% in FY04, held steady at 0.9% in FY05, rose to 1.3% in FY06 and rose slightly to 1.4% in FY07, and decreased steeply to 0.4% in FY08 Q3 • All other hospitals non-operating margin was 1.0% in FY04, rose to 1.3% in FY05, fell to 1.1% in FY06 and rose to 1.8% in FY07, and decreased steeply to 0.9% in FY08 Q3 • Statewide non-operating margin was 0.9% in FY04, rose to 1.3% in FY05, fell slightly to 1.2% in FY06 and rose to 1.6% in FY07, and decreased steeply to 0.8% in FY08 Q3 The side bar reads: Non-operating profits decreased steeply for all hospitals during the first three quarters of FY08. 2.0% 1.8% 1.5% 1.6% 1.3% 1.3% 1.4% 1.2% 1.0% 1.1% 0.9% 1.0% 0.9% 0.9% 0.8% 0.5% 0.4% 0.0% FY04 FY05 FY06 FY07 FY08 Q3 DSH All Other Statewide
  29. 29. Acute Hospital Median Current Ratio Disproportionate Share vs. All Other Hospitals Note: Current ratio is the ratio of current assets to current liabilities. This slide shows a line graph displaying the trend in current ratio for disproportionate share hospitals (DSHs) in Massachusetts from FY04 through FY08 Q3: • Disproportionate share hospitals current ratio was 1.33 in FY04, rose slightly to 1.34 FY05, declined to 1.28 FY06, rose to 1.44% in FY07, and declined to 1.29 in FY08 Q3 • All other hospitals current ratio was 1.61% in FY04, rose to 1.69% in FY05, declined to 1.47% in FY06 and rose to 1.60% in FY07, and declined to 1.58 in FY08 Q3 • Statewide current ratio was 1.60% in FY04, declined to 1.53% in FY05, declined to 1.42% in FY06, rose to 1.55% in FY07, and declined to 1.45 in FY08 Q3 The side bar reads: Disproportionate share hospitals’ ability to pay current bills is not as strong as that of other hospitals. Their median current ratio of 1.29 during the first three quarters of FY08 was lower than the statewide median of 1.45. Benchmark: Northeast US median FY06 = 1.53 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 1.8 1.69 1.7 1.61 1.60 1.58 1.6 1.60 1.5 1.47 1.55 1.53 1.4 1.44 1.45 1.42 1.3 1.33 1.34 1.28 1.29 1.2 1.1 FY04 FY05 FY06 FY07 FY08 Q3 DSH All Other Statewide
  30. 30. Acute Hospital Median Days in Accounts Receivable Disproportionate Share vs. All Other Hospitals Note: Days in accounts receivable is the ratio of net patient accounts receivable to net patient service revenue / (quarters of data x 91.25). This slide shows a line graph displaying the trend (FY08 through FY08 Q3) in median days in accounts receivable for disproportionate share hospitals (DSHs) in Massachusetts FY08 through FY08 Q3: • Disproportionate share hospitals median days in accounts receivable was 41 days in FY04, rose to 44 days in FY05, declined to 40 days in FY06, rose to 41 days in FY07, and was 42 days in FY08 Q3 • All other hospitals median days in accounts receivable was 46 days in FY04, declined to 41 days in FY05, and has held steady at 42 days in FY06 and FY07 and was 42 days in FY08 Q3 • Statewide current ratio median days in accounts receivable was 45 days in FY04, declined to 42 days in FY05, and has held steady at 42 days in FY06, FY07, and FY08 Q3 The side bar reads: Disproportionate share hospitals and all other hospitals take about 42 days to collect their accounts receivables. Benchmark: Northeast US median FY06 = 47.7 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 47 46 46 45 45 44 44 43 42 42 42 42 42 41 41 41 41 40 40 39 FY04 FY05 FY06 FY07 FY08 Q3 DSH All Other Statewide
  31. 31. Acute Hospital Median Average Payment Period Disproportionate Share vs. All Other Hospitals Note: Average payment period is the ratio of current liabilities less estimated third-party settlements to total expenses less depreciation and amortization/quarters of data x 91.25. This slide shows a line graph displaying the trend in median average payment period for disproportionate share hospitals (DSHs) in Massachusetts from FY04 through FY08 Q3: • Disproportionate share hospitals median average payment period was 56 days in FY04, rose to 57 days in FY05, declined to 55 days in FY06, declined to 52 days in FY07 and rose to 54 days in FY08 Q3 • All other hospitals median days in average payment period was 50 days in FY04, rose slightly to 51 days in FY05, declined slightly to 50 days in FY06, rose to 52 days in FY07 and declined to 49 days in FY08 Q3 • Statewide current ratio median days in average payment period was 51 days in FY04, held steady at 51 days in FY05 and FY06, rose slightly to 52 days in FY07 and declined slightly to 51 days in FY08 Q3 The side bar reads: Historically, disproportionate share hospitals have taken longer to pay bills than other hospitals. During the first three quarters of FY08, disproportionate share hospitals took about five days longer to pay their bills than all other hospitals. Benchmark: Northeast US median FY06 = 61.2 Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 58 57 57 56 56 55 55 54 54 53 52 52 51 51 51 51 51 50 50 50 49 49 48 FY04 FY05 FY06 FY07 FY08 Q3 DSH All Other Statewide
  32. 32. Acute Hospital Median Equity Financing Disproportionate Share vs. All Other Hospitals Note: Equity financing is the ratio of total net assets to total assets. This slide shows a line graph displaying the trend in equity financing for disproportionate share hospitals (DSHs) in Massachusetts from FY04 through FY08 Q3s: • Disproportionate share hospitals equity financing was 40.0% in FY04, 37.8% in FY05, 39.3% in FY06, 41.3 in FY07 and 38.3% in FY08 Q3 • All other hospitals equity financing was 46.9% in FY04, 47.2% in FY05, 45.7% in FY06, 48.9% in FY07 and 47.7% in FY08 Q3 • Statewide hospitals equity financing was 43.7% in FY04, 42.7% in FY05, 43.1% in FY06, 48.9 in FY07 and 46.7% in FY08 Q3 The side bar reads: The median equity financing ratio decreased for all hospitals during the first three quarters of FY08. Benchmark: Northeast US median FY06 = 47.4% Benchmark Source: 2008 Almanac of Hospital Financial and Operating Indicators, INGENIX 50% 48.9% 47.7% 46.9% 47.2% 45.7% 46.7% 45% 43.7% 43.1% 42.7% 41.3% 40% 40.0% 39.3% 38.3% 37.8% 35% FY04 FY05 FY06 FY07 FY08 Q3 DSH All Other Statewide
  33. 33. Acute Hospital Financial Performance, FY08 Q1 through Q3 The table below outlines Acute Hospital Financial Performance, FY08 Q3. The table is divided by teaching and community hospitals and contains each hospital's information regarding operating margin, non-operating margin, total margin, and profit (loss). Note: Recently, government employers, including Cambridge Health Alliance, were required to implement a new government accounting rule (GASB 45) that required them to record in their financial statements the present value of future retiree health benefit costs. In complying with this new rule, Cambridge Health Alliance’s balance sheet reflects a $221.9M liability and associated operating expense of $12.7M for its 2008 fiscal year. Operating Non-Operating Hospitals Total Margin Profit (Loss) Margin Margin Teaching Baystate Medical Center 5.42% 3.89% 9.31% $60,743,000 Beth Israel Deaconess Medical Center 2.26% 3.49% 5.75% $53,690,000 Boston Medical Center 6.00% 0.10% 6.11% $47,181,515 Brigham and Women's Hospital 6.00% 0.02% 6.01% $84,831,000 Cambridge Health Alliance -6.57% 1.25% -5.32% ($25,388,760) Caritas St. Elizabeth's Medical Center 2.37% -2.16% 0.20% $550,854 Children's Hospital Boston 5.56% 4.36% 9.93% $89,728,000 Dana-Farber Cancer Institute -5.01% 2.96% -2.05% ($10,780,533) Lahey Clinic 2.80% 0.94% 3.74% $22,309,696 Massachusetts Eye and Ear Infirmary -2.26% -1.31% -3.56% ($3,153,402) Massachusetts General Hospital 3.86% -0.22% 3.64% $66,607,000 Mount Auburn Hospital 6.14% 1.25% 7.39% $15,381,677 Saint Vincent Hospital 7.41% 0.00% 7.41% $12,852,060 Tufts Medical Center 0.54% 0.89% 1.43% $6,393,000 UMass Memorial Medical Center 2.45% 0.77% 3.22% $29,020,936 Community Anna Jaques Hospital -0.37% 0.47% 0.10% $75,382 Athol Memorial Hospital 1.16% 0.26% 1.42% $240,585 Baystate Franklin Medical Center -2.54% 0.98% -1.57% ($968,000) Baystate Mary Lane Hospital -0.26% 2.29% 2.03% $487,000 Berkshire Medical Center 1.85% 1.94% 3.79% $9,117,173 Beth Israel Deaconess Hospital- 0.73% 0.43% 1.17% $399,623 Needham Cape Cod Hospital -5.00% -0.73% -5.73% ($14,777,196) Caritas Carney Hospital 4.83% 0.21% 5.04% $4,566,218 Caritas Good Samaritan Medical Center 1.49% 0.15% 1.64% $2,261,423 Caritas Holy Family Hospital 1.53% 0.00% 1.53% $1,730,594 Caritas Norwood Hospital 0.75% -0.96% -0.21% ($242,327) Clinton Hospital -0.76% 2.52% 1.75% $332,470 Cooley Dickinson Hospital 4.20% 0.75% 4.96% $6,099,998 Emerson Hospital -2.77% 0.67% -2.10% ($2,577,427) Fairview Hospital 1.79% 1.10% 2.89% $750,713 Falmouth Hospital -2.56% 1.37% -1.19% ($1,199,320) Faulkner Hospital 1.01% 0.71% 1.72% $2,199,000
  34. 34. Hospitals Non-Operating Operating Margin Total Margin Profit (Loss) (continued) Margin Community (continued) Hallmark Health -0.20% 2.76% 2.56% $5,315,000 Harrington Memorial Hospital -7.53% -9.88% -17.40% ($8,342,086) Health Alliance Hospital 5.12% 0.74% 5.86% $6,796,368 Heywood Hospital -0.15% 2.27% 2.12% $1,416,856 Holyoke Medical Center -3.31% 0.67% -2.64% ($2,394,641) Hubbard Regional Hospital -3.93% 0.00% -3.94% ($683,571) Jordan Hospital -1.28% 0.98% -0.30% ($411,041) Lawrence General Hospital 1.52% 0.65% 2.17% $2,654,000 Lowell General Hospital 1.56% -3.52% -1.96% ($2,630,770) Marlborough Hospital -3.81% 1.33% -2.47% ($1,143,750) Martha's Vineyard Hospital 2.04% 3.59% 5.63% $3,448,035 Mercy Medical Center -2.81% 1.31% -1.51% ($1,521,059) Merrimack Valley Hospital -6.94% 0.00% -6.94% ($2,858,229) MetroWest Medical Center -3.62% 0.21% -3.41% ($7,454,804) Milford Regional Medical Center 2.90% 2.67% 5.57% $7,281,065 Milton Hospital -3.41% -3.37% -6.78% ($3,005,331) Morton Hospital and Medical 2.76% 5.78% 8.53% $8,345,181 Center Nantucket Cottage Hospital -14.21% 6.84% -7.36% ($1,606,000) Nashoba Valley Medical Center 0.22% 0.00% 0.22% $76,541 New England Baptist Hospital 1.36% 3.10% 4.47% $6,116,000 Newton-Wellesley Hospital 3.42% 1.56% 4.97% $12,645,000 Noble Hospital -1.08% 0.39% -0.69% ($273,636) North Adams Regional Hospital 5.96% 1.50% 7.45% $3,530,121 North Shore Medical Center 1.73% 0.23% 1.96% $6,479,000 Northeast Hospital 0.52% 1.88% 2.40% $5,465,888 Quincy Medical Center -2.14% 6.02% 3.88% $3,313,692 Saint Anne's Hospital 4.82% -3.07% 1.75% $1,774,203 Saints Medical Center -1.51% 0.02% -1.49% ($1,483,000) Signature Healthcare Brockton -3.07% 3.49% 0.43% $645,670 Hospital South Shore Hospital 1.65% 0.89% 2.55% $6,879,342 Southcoast Hospitals Group 3.34% 0.05% 3.39% $15,328,835 Sturdy Memorial Hospital 8.43% 3.55% 11.98% $13,770,375 Winchester Hospital 2.50% 1.50% 4.20% $5,063,531 Wing Memorial Hospital 0.80% 0.80% 1.60% $481,553
  35. 35. Report Notes • The findings in this report are based on the filings of 66 acute hospitals; sixty one hospitals have fiscal year ends October 1 through September 30. Five hospitals have different year ends: Cambridge Health Alliance, MetroWest Medical Center, and St. Vincent Hospital have June 30 year ends, Martha’s Vineyard Hospital has a March 31 year end, and Mercy Medical Center has a December 31 year end. • Depending on the organization of each hospital, data may exclude other aspects of some hospitals’ financial health, such as financial performance of endowments or the financial health of parent companies or other affiliated organizations. • Quartile values can shed light on information about the distribution of financial ratio values across hospitals. Often, averages can be materially affected by outlier/extreme values at the low and high ends of a distribution. Examining quartiles, therefore, is a preferred means of assessing the overall distribution of values across hospitals. For instance, the ratio values of one-quarter of the hospitals at the lower end of the distribution will fall at or below the 25th quartile value. Similarly, the ratio values of one-quarter of the hospitals at the upper end of the distribution will fall at or above the 75th quartile value. The 50th percentile is the median of the distribution of values. Half of the hospitals’ financial ratio values will fall below the median, and half will fall above the median. These quartile measures are particularly useful when a distribution is markedly skewed, or where it is generally symmetrical but includes a few outliers. • This report uses benchmarks from the 2008 Almanac of Hospital Financial and Operating Indicators published by Ingenix. There is a two-year lag from the publication data, therefore the most current benchmark data for this report are for 2006 data. The Almanac does not provide benchmarks for operating or non-operating margins. • Total margin is the ratio of total income to total revenue. • Operating margin is the ratio of operating income to total revenue. • Non-operating margin is the ratio of non-operating income to total revenue. • Current ratio is the ratio of current assets to current liabilities. • A current ratio value of 1.0 indicates that a hospital has one dollar held in current assets per dollar of current liabilities. Values below 1.0 are considered strongly unfavorable and highlight an organization’s illiquid position. • Days in accounts receivable is the ratio of net patient accounts receivable to net patient service revenue / (quarters of data x 91.25). • Average payment period is the ratio of current liabilities less estimated third-party settlements to total expenses less depreciation and amortization / quarters of data x 91.25. • Equity financing is the ratio of total net assets to total assets.
  36. 36. Report Contributors: Cindy Wacks, Mary Byrnes, and Peg O’Brien Division of Health Care Finance and Policy Two Boylston Street Boston, MA 02116 Phone: (627) 988-3100 Fax: (617) 727-7662 Website: www.mass.gov/dhcfp Publication Number: 09-219-04 HCF

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