Hospitals’ ‘charity’: 2.3% of patient revenue vs. $60 billion in tax breaks

charity2-150x150Play this one out in your mind: a guy you know at church — he’ll be the first to let you know he makes $200,000 a year — tells you about how he gave to charity a junker car worth not more than $4,600 (2% of his income). Now what’s your reaction if you learn this guy got thousands of dollars in tax breaks for that giving?

Is this savvy business conduct? Or does it make you sputter even while sitting in the pews on Sunday?

Now multiply the sums involved, exponentially, and it should be cause for questions anew about the nation’s hospitals and their charitable care. As the Wall Street Journal reported of its dive into the institutions’ required federal disclosures:

“Nonprofit hospitals get billions of dollars in tax breaks in exchange for providing support to their communities. A Wall Street Journal analysis shows they are often not particularly generous. These charitable organizations, which comprise the majority of hospitals in the U.S., wrote off in aggregate 2.3% of their patient revenue on financial aid for patients’ medical bills. Their for-profit competitors, a category including publicly traded giants such as HCA Healthcare Inc., wrote off 3.4%, the Journal found in an analysis of the most-recent annual reports hospitals file with the federal government. Among nonprofits with the smallest shares of patient revenue going toward charity care — well under 1%  — were high-profile institutions including the biggest hospitals of California’s Stanford Medicine and Louisiana’s Ochsner Health systems. At Avera Health, a major hospital system in South Dakota, charity care was roughly half of 1% of patient revenue across all its 18 hospitals.”

Hospitals defend their charitable care, arguing their practices are appropriate and make good business sense. Indeed, their financial benefit — to the institutions — is considerable, the newspaper reported:

“In return for not paying taxes, nonprofit hospitals are supposed to provide community benefits. The clearest form is free or discounted care for poor patients who otherwise couldn’t afford it, say many health-policy experts. Hospitals have traditionally described the cost of erasing, or writing off, bills as spending on ‘charity care.’ Federal law requires nonprofit hospitals to have policies to assist such patients. But federal guidelines allow them broad freedom to write and implement those policies and don’t require hospitals to meet any specific targets for financial-assistance totals. The value of nonprofit hospitals’ subsidy from avoiding taxes is more than $60 billion a year, according to estimates by Johns Hopkins University professor Gerard Anderson.”

The three Wall Street Journal reporters who had to dig deep into complex financials from hospitals found the institutions had far less complicated practices to minimize their assistance to the poor, working poor, and uninsured — those who often pay premium prices for medical services and will be financially staggered by what too often becomes bankrupting, lifetime medical debt:

“Many nonprofit hospitals set restrictive policies that may deny financial aid to patients who can’t afford their care, sending some bills to collection agencies. Some won’t forgive bills even if a patient’s income is barely above the poverty level or require patients to tap retirement savings. Other nonprofits reject needy patients based on nonfinancial factors, such as immigration status, or whether they have insurance, even if limited coverage leaves them with large bills. Hospitals also often set up a gantlet for patients who do apply for aid, with detailed document demands and deadlines that can be difficult and confusing. What’s more, advocates say, hospitals sometimes fail to fully inform patients that they may qualify for what assistance there is, sending them multiple bills before they even apply for aid. Some grant aid only to people who live nearby, in certain cases defining the acceptable geography down to the ZIP Code.”

Just as his community might think hard and unkindly about the hypothetical joker described at this start of this item, the federal government is scrutinizing hospitals’ charity practices, and the broader issue of the institutions’ skyrocketing costs, the newspaper said:

“Hospitals’ financial assistance and billing practices are coming under new scrutiny along with concern about the prevalence of medical debt, including an investigation the U.S. Department of Health and Human Services announced in April. Around 17% of U.S. households face medical debt, according to data from the Census Bureau, and recent estimates of the total in collections range from $88 billion to $140 billion.”

In my practice, I see not only the harms that patients suffer while seeking medical services, but also their struggles to access and afford safe, efficient, and excellent health care. This has become an ordeal due to the skyrocketing cost, complexity, and uncertainty of treatments and prescription medications, too many of which turn out to be dangerous drugs.

As patient advocates look at ways to slash at medical costs that bankrupt patients, they have put hospitals squarely in their sights, as these institutions have become a major driver of spending, taking up roughly 1 of every 3 dollars spent in this area (~$1.2 trillion in 2018 alone).

Sure, hospitals and the people in them need to make a reasonable return. But grinding down patients and their families by grubbing mercilessly for every penny is a poor way for any enterprise to treat its customers. This kind of conduct is unacceptable when it targets and victimizes the poor and their desperate need for charitable care. Federal regulators and lawmakers must see that hospitals taking mere fractional percentage points in lower profits could transform the lives of so many struggling people in this country.

By the way, burdening patients with purported cost-control schemes also is not good — and it isn’t working. As experts are finding as they dig into huge disclosures by insurers and employers about their negotiated deals with hospitals in broad areas of medical care, the information is voluminous, complex, and requires considerable knowledge and expertise to decipher. Translation: The evidence is showing that transparency on medical costs may be good but expecting patients to become “savvy shoppers” without huge help isn’t feasible for now.

We have much work to do to both control the soaring cost of our health care system — the most expensive in the world — and the outcomes it produces, now the poorest outcomes among our peers in industrialized Western nations. We can and must do much better.

Patrick Malone & Associates, P.C. listed in Best Lawyers Rated by Super Lawyers Patrick A. Malone
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