EARNINGS MANAGEMENT IN U.S. HOSPITALS.

Area of Science:

• Healthcare Management
• Financial Accounting
• Health Economics

Background:

• Hospital financial reporting is complex, involving unique regulatory and operational factors.
• Understanding earnings management practices is crucial for assessing financial integrity in the healthcare sector.

Purpose of the Study:

• To investigate hospital management practices of manipulating financial earnings within Generally Accepted Accounting Principles (GAAP).
• To identify economic determinants of earnings management behavior in U.S. hospitals.

Main Methods:

• Regression analyses were performed on financial data from U.S. hospitals reimbursed by Medicare.
• Discretionary accruals were regressed against hospital characteristics including size, profitability, liquidity, efficiency, labor cost, and ownership.

Main Results:

• Hospitals with higher profit margins, liquidity, and patient receivables were associated with increased earnings management.
• Larger hospitals with higher debt levels and asset turnover showed less earnings manipulation.
• Non-profit hospital managers were more likely to engage in accounting accrual manipulation ('window-dressing') than public hospital managers.

Conclusions:

• Direct evidence confirms the use of discretionary accruals for managing financial earnings in U.S. hospitals.
• Findings highlight the pervasiveness of accounting manipulation and impact the integrity of financial reporting in the healthcare sector.