Transparency as a solution to hospital capacity issues related to COVID-19

In the initial stages of the COVID-19 pandemic, many US hospitals could not provide an adequate supply of beds to meet demand. Solving the problem of hospital bed capacity is of great importance in the “new normal”, which requires recognizing that SARS-CoV-2 is only one of many respiratory viruses in circulation and that there will be a continued need for hospital-based care. The booming variant of Omicron is already overwhelming US hospitals due to high hospitalization rates. Globally, the United States has a relatively low number of hospital beds – only 2.8 beds per thousand people compared to 8.0 beds per thousand people in Germany.

Past attempts to offset hospital bed shortages through capacity sharing have generally failed, in part because of the persistence of an independent hospital culture. Better coordination between institutions could potentially alleviate the problem. Pinar Karaca-Mandic and Zachary Levin of the University of Minnesota identified some of the missed opportunities for coordination in areas with two or more hospitals. In 2020, between the two largest hospitals in Spokane County, Washington, one with 583 beds was 30% occupied, while the other with 536 beds was 92% occupied. Karaca-Mandic and Levin’s analysis found a similar trend elsewhere, with 189 metro area hospitals and 224 metro intensive care units having high occupancy coefficients of variation, showing the extent of variability from the population average.

Transparency as a solution

A widely cited proposal to increase hospital capacity calls for the creation of a permanent government corps of public health personnel to manage surge capacity while simultaneously responding to emergencies. We admire this idea, but with the pressing shortage of medical personnel, who would staff this body? And how could a body of government personnel acquire the knowledge necessary to take over the management of the capacities of independent private hospitals? As a demonstration of the government’s inability to fulfill this role, according to a recent Government Accountability Office report, the already overstretched Department of Health and Human Services (HHS) has been largely ineffective in improving the US response to COVID-19.

Alternatively, hospitals could help mitigate capacity issues themselves by creating their own surge capacity plans within individual and community networks. But they have not done so to date.

One way to ensure that independent hospitals spend the resources to create the plans for these networks is to require them to define their surge capacity plans using a new accounting standard, as specified by the Financial Accounting Standards Board (FASB) . The FASB is the independent not-for-profit organization authorized by the Securities and Exchange Commission (SEC) to set the accounting standards required for public companies and not-for-profit organizations, including hospitals. The standard would require hospitals to note their plans for dealing with capacity increases in their financial records, most likely in the form of accounts called “contingent liabilities,” events that may result in future expenditures. Although we cannot specify the exact content, as the FASB generally publishes standards that reflect its extensive consultative and deliberative processes, in general, hospitals should assess the financial implications of capacity increases and explain how they have obtained this estimate.

This new approach does not add work for HHS. Instead, it relies on a different organization, the FASB, with its mission of transparency and proven ability to get the job done. The SEC’s long history of collaborative working relationships with and for stakeholders would bring this culture to the creation of an accounting standard for hospital surge capacity plans.

How to make transparency possible

Transparency as a solution often fails due to a lack of enforcement or overly complex regulations. When the Trump administration demanded price transparency with personalized, real-time access to cost-sharing information, hospitals largely ignored it due to the reporting burden and minor penalties of $300 a day. . President Joe Biden’s executive order strengthened the rule with heavier fines of $5,500 a day. Unfortunately, the executive order also imposed a tangle of new requirements, including asking HHS to finish implementing rules that prevent surprise hospital billing. Likewise, HHS’ multimillion-dollar partnership with the American Hospital Association to build “the ability to identify and disseminate crucial information during the forming moments of a crisis” has yet to adopt guidelines. of implementation.

How do these complex requirements, such as preventing surprise billings, network charge overruns, and law enforcement, housed within HHS, a $1.4 trillion organization with so many other responsibilities, can they create the required transparency?

Unlike approaches that rely on HHS, our recommended solution for building hospital capacity is more likely to work because it harnesses the power of the SEC, which for nearly a century has been widely imitated for its success as a transparency agency. Under the SEC, the FASB’s singular focus on transparency helps ensure that enforceable standards are created.

Although the SEC is not perfect, it has helped reform once opaque financial markets with accessible, timely, relevant and reliable reporting standards that have enabled better allocation of resources by investors. If these results were replicated in health care, in the short term, patients could select hospitals with more adequate surge capacity devices, and investors in hospital debt and equity would reward them. In the longer term, less performing facilities will be motivated to improve, or new ones will appear.

Standards for hospital surge capacity plans that follow typical SEC requirements should include the following four essential elements:

Consistency and relevance

First, a disclosure standard should be designed so that the surge capacity plans of different hospitals can be easily compared. Although the FASB standards are not recipe for recipe, they are specific enough that financial analysts feel comfortable comparing financial statements from different organizations.

When the FASB develops a standard for a particular issue, it must judge that the cost of complying with that standard is less than the expected benefit. FASB governors are able and motivated to shape a standard that clearly addresses measurement issues because they are measurement and investment experts. FASB governors are primarily drawn from accounting professions, finance/accounting academics, or practitioners primarily concerned with the refinement of measurement instruments, rather than industry players primarily concerned with the effect of transparency on their share cake.

These standards are usually created in response to requests from the many FASB advisors. Advisers include the public policy and business press, members of the Financial Accounting Standards Advisory Committee and the Emerging Issues Task Force, as well as members of the FASB Board of Directors and constituent representatives, including the SEC and the Accounting Standards Executive Committee. The FASB is home to several advisory boards, including the Investor Advisory Board, the Financial Accounting Standards Advisory Board, and the Nonprofit Organizations Advisory Board.

Reliability

When President Franklin Delano Roosevelt created the SEC, the 1933 law was often referred to as the Truth in Securities Act. He hoped to help investors duped by a previous unreliability in disclosures. The SEC has helped ensure reliability by requiring verification of financial information by independent experts, such as the Big Four accounting firms. Auditors verify that financial statements and related information comply with generally accepted accounting principles, including FASB standards. An “unqualified” audit opinion indicates that the auditor has concluded that the financial statements sufficiently conform to accounting principles. Auditors’ opinions that are “qualified” or “adverse” can significantly harm an organization’s solvency and credibility, thereby increasing its cost of capital.

Accessibility

Third, peak capacity transparency data plans should be readily available to consumers. The Electronic Data Collection, Analysis and Retrieval System (EDGAR), the SEC’s accessible database, can easily include immediate, standardized, reliable data on individual hospital surge capacity plans.

Understandability

Fourth, an outside expert audience should analyze the plan data and frame it in a way that it is understandable to a general audience. A slew of securities analysts, such as Bloomberg, S&P, Morningstar and Fitch Ratings, already review EDGAR data to assess nonprofit hospital debt and for-profit hospital financial instruments. These analysts not only know the industry and finance/accounting, but are also journalists whose purpose is to communicate with investors, including those who do not understand the full depth of technical nomenclature that characterizes FASB standards.

Substantial impact?

The host of literature on whether SEC-mandated financial transparency affects financial markets overwhelmingly concludes that the answer is yes.

For-profit hospitals and debt-supported nonprofits that lack adequate surge capacity plans may be financially hit hard by new requirements, of the type we are proposing. They will likely be considered riskier than hospitals that have credible surge capacity plans. Nonprofit hospitals with excellent surge capacity may experience increased donations, which is strongly correlated with good performance.

The “new normal” requires a variety of initiatives, including realistic surge capacity plans. Our actionable transparency measures will help avert another calamity in the inevitable next cycle of this outbreak.

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