The study of capital purchases and capital financing discussed in the article was conducted by Cost Report Data Resources, LLC, and was based on available cost report data for all types of hospitals, including short-term acute care, critical access, rehabilitation, psychiatric, and long-term hospitals. For reasons explained below, hospital cost reporting periods ending in calendar years (CY) 2001 and 2007 were analyzed.
The following is a list of the data sources used for this study, with descriptions of where the data are found in the Medicare cost reports (worksheets, parts, lines, and columns):
Types of capital assets purchased
- Land-A-7, part 1, line 1, column 2 + A-7, part 2, line 1, column 2
- Land improvements-A-7, part 1, line 2, column 2 + A-7, part 2, line 2, column 2
- Buildings and fixtures-A-7, part 1, line 3, column 2 + A-7, part 2, line 3, column 2
- Building improvements-A-7, part 1, line 4, column 2 + A-7, part 2, line 4, column 2
- Fixed equipment-A-7, part 1, line 5, column 2 + A-7, part 2, line 5, column 2
- Moveable equipment-A-7, part 1, line 6, column 2 + A-7, part 2, line 6, column 2
Average age of plant
- Total accumulated depreciation-G, column 1, lines 13.01 + 14.01 + 15.01 + 16.01 + 17.01 + 18.01 + 19.01
- Total depreciation expense-A-7, part 3, line 5, column 9 (Note 1)
- Average age of plant-total accumulated depreciation/total depreciation expense
- Total net income from all sources: G-3, line 31
- Total depreciation expense: same as above
- Total long-term liabilities: G, line 42, column 1
- Notes and loans payable (current liabilities): G, line 31, column 1
- Total long-term debt: total long-term liabilities + notes and loans payable
- Change in long-term debt: total long-term debt (current period) - total long-term debt (previous period)
- Total long-term debt: same as above
- Total fixed assets net of depreciation: G, line 21, column 1
- Total long-term debt-same as above
- Total lease expense-A-7, part 3, line 5, column 10a
- Total interest expense-A-7, part 3, line 5, column 11 (Note 1)
- Total lease and interest expense-total lease expense + total interest expense
The Medicare cost reports used in this study were obtained from the Centers for Medicare and Medicaid Services (CMS). The Healthcare Cost Report Information System (HCRIS) dataset contains the most recent version (i.e., as submitted, settled, reopened) of each cost report filed with CMS since federal fiscal year (FFY) 1996. The most recent HCRIS dataset available at the time of this study was for the cutoff at June 30, 2009. All cost report data were assigned to each calendar year (CY) based on the cost report end date.
This study focused on more than 45,000 Medicare cost reports filed by hospitals from CY 2000 to CY 2008.
We choose 2001 and 2007 because we wanted to include at least a five year period for analysis. 2007 is the most recent complete period available but we had to select a 2001 beginning point due to an interruption in the availability of important information during reporting periods ending in 2002 through 2004. (Hospitals receiving 100 percent federal prospective payment for capital were not required to complete Parts III and IV of Worksheet A-7 for cost reports beginning on or after Oct. 1, 2001 and ending before Feb. 29, 2004. This worksheet is the source of depreciation, lease and interest expense.)
Only 12-month reports were used in the study. Also, because changes in long-term debt (recorded on current year versus previous year balance sheets) were studied, we included only hospitals that reported consistently on a "same store" basis from CY 2000 to CY 2001 and from CY 2006 to CY 2007. Lastly, reports were excluded if they contained missing or unreasonable data--for example, if a report did not include all of the data elements studied from the balance sheet (G), income statement (G-3), and capital reconciliation worksheets (A-7).
After making the exclusions above, the following numbers of hospitals were included in the study:
- All hospitals, 2001 = 3,141 (government = 526; not-for-profit = 1,970; for-profit = 645)
- All hospitals, 2007 = 3,301 (government = 632; not-for-profit = 1,892; for-profit = 777)
a. Medicare cost reporting rules require hospitals to report total depreciation, lease, and interest costs on the cost report and further require that these costs be "adjusted" to calculate the amounts of such costs that Medicare considers "allowable" for purposes of computing cost-to-charge ratios and other purposes. Adjustment may be required to add in home office costs, exclude costs not related to patient care, and for other reasons. Hospitals are required to certify the accuracy of their Medicare allowable costs. For these reasons, this study considered only Medicare allowable depreciation, lease, and interest costs.
Publication Date: Sunday, November 01, 2009