Center for Health Information and Analysis - Finding 1

The Center for Health Information and Analysis did not appropriately monitor the financial conditions of acute care hospitals and health systems.

Overview

During the audit period, the Center for Health Information and Analysis (CHIA) did not appropriately monitor the financial condition of acute care hospitals and health systems in Massachusetts. Specifically, our review of CHIA’s Massachusetts Acute Hospital Financial Performance reports for fiscal years 2021 and 2022 revealed that CHIA did not identify or examine acute hospitals that CHIA considered to be in financial distress or at risk of closing or discontinuing essential services. During the audit period, the Department of Public Health received notification from six acute care hospitals for either closure or the discontinuation of essential services, as detailed in the table below:

Hospital Name	Department or Hospital Closure	Date of Closure
Anna Jaques Hospital	Inpatient Pediatric Services	September 24, 2021
Tufts Medical Center	Pediatric Unit and Pediatric Intensive Care Unit	July 1, 2022
Shriners Hospitals for Children—Springfield	All Hospital Services	October 31, 2022
Steward Norwood Hospital	Obstetrics Services	April 20, 2022
MetroWest Medical Center	Infusion and Radiation Oncology Services	October 31, 2022
Beth Israel Lahey Health—Beverly Hospital	Birth Center Services	September 8, 2022

CHIA’s 2021 and 2022 Massachusetts Acute Hospital Financial Performance Reports make no mention of these six acute care hospitals being at risk for closure or discontinuing essential services. Additionally, we also found that CHIA’s reports did not provide data for 2 out of 61 acute care hospitals in Massachusetts during fiscal year 2021. We also found that CHIA did not complete any health system profiles² for any of the eight hospitals owned by Steward Health Care during the audit period.

By not receiving, analyzing, and reporting on data related to hospitals and health systems in Massachusetts, CHIA limited its own ability to identify and address concerns regarding hospitals at risk of closing. This may have prevented policymakers from becoming aware of these issues and taking actions to prevent or soften the impacts of these issues. Overall, CHIA appears to have overlooked the risk of hospital closures in the Commonwealth. The map below illustrates the relationship between cities and towns that were affected during the audit period by acute care hospitals that (1) closed, (2) discontinued essential services, and/or (3) did not file financial reporting with CHIA. There is a direct correlation between hospitals that did not file financial reporting with CHIA and those that ultimately either discontinued an essential service or closed entirely. This map highlights that effect at the community level.

Authoritative Guidance

Section 8(c) of Chapter 12C of the Massachusetts General Laws states,

The center shall also collect and analyze such data as it considers necessary in order to better protect the public’s interest in monitoring the financial conditions of acute hospitals. The information shall be analyzed on an industry-wide and hospital-specific basis and shall include, but not be limited to: (1) gross and net patient service revenues; (2) sources of hospital revenue, including revenue excluded from consideration in the establishment of hospital rates and charges under section 13G of chapter118E [of the General Laws]; (3) private sector charges; (4) trends in inpatient and outpatient case mix, payer mix, hospital volume and length of stay; (5) total payroll as a per cent of operating expenses, as well as the salary and benefits of the top 10 highest compensated employees, identified by position description and specialty; and (6) other relevant measures of financial health or distress.

The center shall publish annual reports and establish a continuing program of investigation and study of financial trends in the acute hospital industry, including an analysis of systemic instabilities or inefficiencies that contribute to financial distress in the acute hospital industry. The reports shall include an identification and examination of hospitals that the center considers to be in financial distress, including any hospitals at risk of closing or discontinuing essential health services, as defined by the department of public health under section 51G of chapter 111 [of the General Laws], as a result of financial distress.

Reasons for Issue

It is CHIA’s responsibility to monitor the financial conditions of acute care hospitals in Massachusetts. It could not adequately perform this monitoring due to the fact that some acute care hospitals either never filed or were late with filing the required financial reports with CHIA. CHIA is empowered with enforcement mechanisms to help compel the production of these reports. See Finding 2 for more information.

Recommendations

1. CHIA should ensure that it monitors the financial conditions of all acute care hospitals in Massachusetts. To start, it should ensure that acute care hospitals file their financial reporting, in full and on time. When acute care hospitals do not file financial information by CHIA’s deadlines, CHIA should fine acute care hospitals and petition the Superior Court, as appropriate.
2. CHIA should identify and examine hospitals that are at risk of closure or discontinuing essential services and include this in its annual Massachusetts Acute Hospital and Health System Financial Performance Reports.

Auditee’s Response

Since its inception in 2012, CHIA has consistently collected, analyzed and reported data on the financial performance of hospitals and health systems in a timely and complete manner. The period between July 1, 2021, and June 30, 2023, is no exception. CHIA’s work in this area has been reliably used to support public processes administered by other state agencies, by policymakers for awareness of market developments, by the legislature for bill development, by industry for benchmarking purposes, and by the press for public reporting.

CHIA has been resolute in its position that hospitals must comply with all financial reporting requirements under General Laws and regulations, including providing audited financial statements. CHIA’s authority in this area is broadly recognized. With one notable exception, all hospital systems have made good faith efforts to comply with CHIA’s reporting requirements and timelines.

CHIA stipulates that hospital financial data be submitted within 45 days after the close of the quarter. From there, the agency takes approximately 45 days to review the data, resolve any necessary questions, and produce a publicly available analysis. (Additional analyses based on year-end financials are also produced following a similar process. Those analyses follow a different timeline as the annual financial data is due within 100 days after year end and require a more extensive review.) Reasonable extensions – typically between two and four weeks – are offered to ensure the completeness and accuracy of the data CHIA receives and reports on. Such extensions are authorized by the governing regulation and have never impeded CHIA’s ability to meet its obligations to provide quarterly financial updates within approximately 90 days of the close of the quarter.

As of December 20, 2024, CHIA has amended the regulatory hospital cost report deadlines in [Section 9.04 of Title 957 of the Code of Massachusetts Regulations] to align with agency practice and provide filers sufficient time (affording filers 30 additional days) to prepare complete and accurate data.

Steward Health Care’s non-compliance with data reporting requirements resulted in CHIA fining the system which has been the subject of ongoing litigation. In 2023, the Superior Court ruled in CHIA’s favor affirming Steward’s obligation to submit its financial data to the agency. Steward appealed this decision, and the matter is still in Appeals Court, but “stayed” until the bankruptcy case is resolved. During the period between July 1, 2021, and June 30, 2023, CHIA consistently published quarterly and annual financial performance reports for acute hospitals and health systems. Each report was accompanied by a detailed databook providing complete balance sheets, statements of operations, and 10 calculated financial metrics focused on profitability, liquidity, and solvency for each acute hospital, as well as their associated health system and affiliated physician organizations. In addition, interactive dashboards were available on the website and updated quarterly to provide comparative displays on acute hospital revenues and expenses, profitability margins, and other relevant financial metrics. This information was utilized to examine the hospitals’ financial health and provided sufficient data to identify financial distress. Additionally, the hospital closure and discontinuation of services cited in the report were due to low demand and low utilization, rather than financial distress reported by the hospitals.

Auditor’s Reply

In its response, CHIA states that it has consistently collected, analyzed, and reported on the financial data of acute care hospitals and health systems in a timely manner. Although this may be true for many acute care hospitals in Massachusetts, CHIA does not dispute that the two acute care hospitals and one health system (which oversees eight acute care hospitals in Massachusetts) highlighted in this finding did not file required financial reporting with CHIA within its regulatory deadlines.

Additionally, in its response, CHIA states that Steward Health Care’s noncompliance with financial reporting requirements resulted in CHIA’s initially fining the Steward Health Care health system in 2017 and that the matter has been subject to ongoing litigation since that time. However, the legal proceedings that CHIA described in its response should not have limited CHIA from continuing to issue fines to Steward Health Care for each instance that it refused to comply with financial reporting filing requirements.

Further, in its response, CHIA states that it published quarterly and annual financial performance reports for acute care hospitals and health systems, which calculated various financial metrics that provided sufficient data to identify financial distress. However, this reporting did not include an identification of hospitals considered to be in financial distress as required by Section 8(c) of Chapter 12C of the General Laws. Additionally, CHIA states that the hospital closures identified in our finding were due to low utilization rather than financial distress. However, as required by Section 8(c) of Chapter 12C of the General Laws, CHIA’s analyses of acute care hospitals should include trends in inpatient and outpatient case mix, payer mix, hospital volume, and length of stay, which are all indicators of hospital utilization.

CHIA failed to identify and publicly report on hospitals in financial distress—whether that distress was caused by low utilization or other reasons. It also did not publicly report indicators of hospital utilization that could have assisted others in drawing conclusions regarding hospital stability. We cannot know how this may have impacted the recent closures of the Steward Health Care hospitals, but we believe it is reasonable to conclude these failures resulted in delayed identification of these problems, delayed prioritization of solutions, and likely increased the financial and human cost and complexity of these issues.

2.    A health system profile includes financial information, such as operating revenue, profit and loss, operating margin, nonoperating margin, total margin, and net assets. 

Date published:	January 3, 2025