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Fair Value Accounting for Health Care Entities: Impact on Hospital Performance Reporting

The Journal of Health Care Finance

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Field Value
 
Title Fair Value Accounting for Health Care Entities: Impact on Hospital Performance Reporting
 
Creator Kane, DBA, Nancy M.; Department of Health Policy and Management
Harvard Chan School of Public Health
Boston, Massachusetts USA
 
Description Fair value accounting principles were extended to not-for-profit hospital financial instruments with readily determinable values starting in fiscal year 1996; their impact on reported hospital and health system financial performance has greatly increased since then. Fair value accounting requires the reporting of unrealized gains and losses on financial instruments, which are usually temporary and are created by short-term capital market behavior. These unrealized gains/losses are often included in hospital annual earnings and profit margins.Large investment portfolios of many hospitals generate both realized and unrealized returns that often exceed the income generated by hospital operations. Accounting rules allow for significant variation in the way unrealized returns on financial instruments are reported in hospital financial statements, including those used for most health services research. This paper explores the impact on hospital total margins of the unrealized returns themselves, as well as the impact of how those returns are reported. Using three examples, the results suggest that fair value accounting has likely introduced significant “noise” into inter-hospital and time trend comparisons of hospital financial performance. The credibility of critical financial information about our hospitals and health systems is undermined by our lack of knowledge and ability to adjust for current FVA practices. 
 
Publisher Worldwebtalk.com, Inc.
 
Contributor —
 
Date 2016-11-28
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://healthfinancejournal.com/index.php/johcf/article/view/108
 
Source Journal of Health Care Finance; Vol 43, No 2, Fall 2016
 
Language eng
 
Relation http://healthfinancejournal.com/index.php/johcf/article/view/108/112
 
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