California hospitals are required to submit Annual Disclosure Reports containing financial and statistical information within four months of the close of the hospital's fiscal year. The Office of Statewide Health Planning and Development produces an electronic data file that contains selected information from the annual reports. We used the data submitted by the hospitals for fiscal years ending in 1998. The file contains 455 hospital reports, of which 383 are for hospitals classified as general acute care by the state. This includes cancer hospitals and children's hospitals that are excluded from the Medicare prospective payment system. The most common fiscal year ends are June 30 (39%) and December 31 (30%).
The report uses five payer categories: Medicare, Medi-Cal, County Indigent Programs, Other Third Parties (includes contractual purchasers and indemnity payers) and Other Payers. Medi-Cal patients enrolled in Medi-Cal HMOs are included in the Other Third Parties category. The County Indigent Programs category includes all patients for whom the county is responsible. The Other Payer category includes all patients not covered by a third party payer and includes self-pay patients and indigent patients who are not a county responsibility (CA OSHPD, 2000). While gross revenues by payer are reported separately for inpatient and outpatient services, information on contractual allowances and bad debt by payer is combined for inpatient and outpatient services. Key data that we used included the following:
- Gross revenues. Revenues by payer are collected separately for inpatient and outpatient services. Since Medi-Cal patients enrolled in HMOs are in the Other Third Parties category, Medicaid revenues are understated. About 51 percent of Medicaid enrollees are in managed care (KFF, 2002).
- Medicaid shortfalls. These can be determined only for fee-for-service enrollees only. The report provides information on Medicaid gross patient revenues, Medi-Cal contractual adjustments, and net revenues (gross revenues less contractual allowances and other deductions from revenue, including charity care and bad debt related to Medi-Cal non-managed care enrollees).
- Bad debt and uncompensated care. Bad debt is reported as a deduction from revenue and is not included in operating expense. A single line item is reported for bad debt.
- Medicaid DSH payments. Medicaid DSH payments are reported as a credit to Medicaid contractual adjustments. DSH funds transferred from the hospitals to a related public entity (i.e. intergovernmental transfers) are reported as a non-operating expense.
The California Association of Public Hospitals provided us with additional information on federal fiscal year 1998 DSH payments and IGTs.