Why Policymakers Should Use Audited Financial Statements to Assess Health Systems' Financial Health

Policymakers often rely on income-related metrics of the hospital facility alone as reported in the Medicare Cost Report to inform policy decisions.  Yet, this approach provides only a limited view of a hospital’s financial health. This paper presents a replicable method for a comprehensive analysis of the financial performance of hospitals in the context of their membership in health systems.  It identifies a broader range of policy-relevant financial indicators of hospital financial health than those reported in an income statement. Finally, it derives these indicators by standardizing information provided in audited financial statements, the gold standard source of financial data for all organizations. A national data base of AFSs with standardized reporting would be an important tool for more informed and socially beneficial policymaking. From the Publisher:  Hear an audio interview  about this article with author Nancy Kane