Audit expert: UVM Health Network’s finances readable but policy needs clearer goals; outside hospitals drag metrics

Nancy Kane, professor emerita at the Harvard T.H. Chan School of Public Health, briefed the Senate Health and Welfare committee and asked legislators to define the policy questions they want answered before ordering new audits of hospital systems.

Kane said audited financial statements and a standard set of financial metrics — profitability (operating and total margins), liquidity (days cash on hand and absolute cash and investments), solvency (long‑term debt as a share of capitalization and debt‑service coverage) and capital adequacy (capital spending relative to depreciation and average age of plant) — can give a credible, audited picture of a system’s finances. But she cautioned an audit’s value depends on the questions policymakers want answered and noted that many operational efficiency questions require cost accounting data rather than external financial statements.

“What financial data is very helpful for is looking at financial implications of any rate decision,” Kane said. “It helps identify financially advantaged or very wealthy systems versus sustainable systems versus distressed systems. It does not tell you whether the health system is efficient or not.”

Kane presented a peer comparison of the University of Vermont Health Network (UVMHN) and several Northeast academic medical systems, showing how payer mix, cash and investments, debt burden and capital spending affect ratios. She said UVMHN’s operating margin and days‑cash figures fall in the range of peer hospitals; the full consolidated network’s results are weaker when recent New York hospital affiliates are included in the consolidated statements.

Using UVMHN as an example, Kane said the UVM Medical Center — viewed as a standalone hospital in the financial filings — performs differently than the consolidated health network. “In almost every metric, the medical center, if it was standalone, does better than the system, except the days cash on hand,” Kane said. “That’s because the parent has half the days cash on hand. It redistributes it.” Kane also said the consolidated network’s debt service coverage and profitability are lower when affiliates outside Vermont are consolidated into the results, and that the network’s capital expenditures per depreciation had recently risen after a period of lower spending.

Kane urged the committee to ensure it has staff or contracted expertise that can interpret hospital financials for policymaking and cautioned against “going down a rabbit hole” asking auditors for operational details that will not directly help set policy. “I think what you’re looking for is someone who can understand the data and interpret the data,” she said. She recommended the Green Mountain Care Board or the committee hire financial analysts who can translate audited data into policy‑relevant findings and noted a state‑level policy program should decide “what’s affordable” and how to weigh capital investment, clinical services and strategic choices such as out‑of‑state affiliations.

Kane told senators that audited financial statements are credible and useful for fiscal policy and for creditors, and that timeliness — annual audits with quarterly unaudited statements — should inform expectations about how quickly the state can analyze changes. She also pointed to specific indicators senators could use, including days cash on hand, debt‑to‑capital ratios, debt‑service coverage and capital spending relative to depreciation, to determine whether a system is sustainable or in distress.

Committee senators thanked Kane for the overview and said they expect to use financial metrics and independent analysis in drafting oversight and reform proposals; they also asked for further follow‑up and technical assistance from her as the panel refines legislative options.