In the initial phases 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 but one of several circulating respiratory viruses and there will be an ongoing need for hospital-based care. The burgeoning Omicron variant is already overwhelming US hospitals because of high rates of hospitalization. When looked at globally, the US has relatively low numbers of hospital beds—only 2.8 beds per thousand people compared to 8.0 beds per thousand people in Germany.
Past attempts to compensate for hospital bed shortages through sharing capacity have generally failed, in part, because of the persistence of an independent hospital culture. Better coordination among facilities could potentially alleviate the issue. Pinar Karaca-Mandic and Zachary Levin of the University of Minnesota have 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 percent occupied, while the other with 536 beds was 92 percent occupied. Karaca-Mandic and Levin’s analysis revealed a similar pattern elsewhere, with 189 metropolitan area hospitals and 224 metro intensive care units having high coefficients of variation in occupancy, showing the extent of variability in relation to the mean of the population.
Transparency As A Solution
One widely cited proposal for increasing hospital capacity calls for the creation of a standing 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 corps? And how could a government personnel corps gain the knowledge necessary to take over the capacity management of independent private hospitals? As a demonstration of the government’s inadequacy to fill this role, according to a recent Government Accountability Office report, the already overburdened Department of Health and Human Services (HHS) has been largely ineffectual in improving the US response to COVID-19.
Alternatively, hospitals could help to alleviate capacity problems themselves by creating their own surge capacity plans within individual and community networks. But they have not done so to date.
One way to assure that independent hospitals expend the resources to create the plans for these networks is to require them to delineate their surge capacity plans using a new accounting standard, as specified by the Financial Accountings Standards Board (FASB). The FASB is the independent nonprofit empowered by the Securities and Exchange Commission (SEC) to set the accounting standards required for public companies and nonprofits, including hospitals. The standard would require hospitals to note their plans for meeting surges in capacity in their financial disclosures, most likely as accounts called “contingent liabilities,” events that are likely to cause expenses in the future. Although we cannot specify the exact content because the FASB typically publishes standards that reflect its broad consultation and deliberation processes, in general, it would require the hospitals to estimate the financial consequences of meeting surges in capacity and to explain how they derived that estimate.
This new approach does not add work for HHS. Rather, it relies on a different organization, the FASB, with its mission for transparency and renowned ability to get the job done. The SEC’s long history of collaborative working relationships with and for stakeholders would bring that culture to the creation of an accounting standard for hospital surge capacity plans.
How To Make Transparency Happen
Transparency as a solution often fails because of a lack of enforcement or overly complex regulations. When the Trump administration required price transparency with real-time, personalized access to cost-sharing information, hospitals largely ignored it because of the burden imposed by reporting and minor penalties of $300 per day. President Joe Biden’s executive order reinforced the rule with heftier fines of $5,500 daily. Unfortunately, the executive order also imposed a tangle of new requirements, including directing HHS to finish implementing rules that prevent surprise hospital billing. Similarly, the HHS multi-million dollar partnership with the American Hospital Association to bolster the “ability to identify and disseminate crucial information during the formative moments of a crisis” has yet to carry implementation guidelines.
How can these complex requirements—such as preventing surprise billing, excess out of network charges and enforcement—housed within the HHS, a $1.4 trillion organization that has so many other responsibilities, engender the required transparency?
In contrast to approaches that rely on HHS, our recommended solution for building hospital capacity is more likely to work because it uses the power of the SEC, which for nearly a century has been widely emulated for its success as a transparency agency. Under the SEC, the FASB’s singular purpose for transparency helps to assure that enforceable standards will be created.
Although the SEC is hardly perfect, it helped to reform once opaque financial markets with accessible, timely, relevant, and trustworthy information standards that enabled better resource allocation by investors. Were these results replicated in health care, in the short term, patients could select hospitals with more adequate surge capacity arrangements and investors in hospital debt and equity would reward them. In the longer run, lower-performing facilities will be motivated to improve, or new ones will emerge.
Standards for hospitals surge capacity plans that follow typical SEC requirements should include the following four essential elements:
Uniformity And Relevance
First, a standard of disclosure should be designed so that the plans for surge capacity of different hospitals can be readily compared. Although FASB standards are not cookbook recipes, they are sufficiently specific for financial analysts to feel comfortable comparing the financial statements of different organizations.
When the FASB develops a standard for a particular issue, they must judge that the cost of complying with this standard is less than the expected benefit. The FASB’s governors are capable and motivated to fashion a standard that clearly addresses issues of measurement because they are measurement and investment experts. FASB governors are primarily drawn from accounting professions, finance/accounting academics, or practitioners who are primarily concerned with perfecting measurement instruments, rather than industry stakeholders who are primarily concerned with the effect of transparency on their slice of the pie.
These standards are typically created in response to requests from the FASB’s many advisors. Advisers include the public policy and business press, Financial Accounting Standards Advisory Committee and Emerging Issues Task Force members, and board members and representatives of FASB constituents including the SEC and the Accounting Standards Executive Committee. The FASB houses several advisory boards including the Investor Advisory Committee, the Financial Accounting Standards Advisory Council, and the Not-for-Profit Advisory Committee.
Trustworthiness
When President Franklin Delano Roosevelt created the SEC, the 1933 law was often called the Truth in Securities Act. He hoped to help investors duped by a prior lack of trustworthiness in disclosures. The SEC has helped assure trustworthiness by requiring auditing of financial disclosures by independent experts, such as the big four accounting firms. The auditors test whether the financial statements and related disclosures comply with generally accepted accounting principles, including the FASB standards. A “clean” audit opinion indicates that the auditor has found the financial statements to sufficiently conform to accounting principles. Auditor opinions that are “qualified” or “adverse” can materially injure an organization’s credit worthiness and credibility, thus increasing their cost of capital.
Accessibility
Third, the plans for surge capacity transparency data should be readily accessible for consumers. The Electronic Data Gathering, Analysis, and Retrieval system (EDGAR), the SEC’s accessible database, can readily include immediate, standardized trustworthy data about the surge capacity plans of individual hospitals.
Understandability
Fourth, an expert outside audience should analyze plan data and frame them so they are understandable to a general audience. A host of securities analysts, such as Bloomberg, S&P, Morningstar, and Fitch Ratings already comb EDGAR’s data to assess nonprofit hospitals’ debt and for-profit hospitals’ financial instruments. These analysts are not only knowledgeable about the industry and finance/accounting, but also are journalists whose purpose is to communicate with investors, including those who do not understand the full depth of the technical nomenclature that characterizes FASB standards.
Substantial Impact?
The host of literature about whether SEC-mandated financial transparency affects the financial markets overwhelmingly concludes that the answer is yes.
For-profit hospitals and debt-financed nonprofits that lack adequate surge capacity plans may be financially hard hit by new requirements, of the kind we propose. They will likely be rated as riskier than hospitals that have credible plans for surge capacity. Nonprofit hospitals with excellent surge capacity may experience a boost in donations, which are strongly correlated to good performance.
The “new normal” requires a variety of initiatives, including realistic plans for surge capacity. Our feasible transparency stepswill help to avoid yet another calamity in the next inevitable cycle of this epidemic.
Article From: Health Affairs
Author: Regina E. HerzlingerRichard J. Boxer
