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Hospitals’ abuse of charity care puts communities at risk

Capitol Weekly, 3/12/13

Malinda Markowitz, RN

By Malinda Markowitz, RN

If there’s any label that has lost all meaning it must be “non-profit” hospital.

Long gone are the days when hospitals were small institutions, focused on patient care, and run by local boards accountable to their local communities.

Today, most “non-profit” hospitals are part of mega corporate chains, operated in secret by corporate executives whose dedication to the bottom line far exceeds their dwindling interest in community service.

That’s one major reason for the introduction of AB 975, by Assembly members Bob Wieckowski and Rob Bonta.

The goal of AB 975 is to end the particular scam that characterizes much of the provision of charity care and community benefit by California’s giant non-profit hospitals which rack up profits that would make Goldfinger blush – in part by exploiting their tax exempt status at public expense.

In 2010 alone, California private, non-profit hospitals harvested more than $1.8 billion in government subsidies and benefits from their tax exempt status beyond what they provided in charity care according to a 2012 California Nurses Association report based on publicly available data.

Half of California non-profit hospitals allotted 2.46 percent or less of their operating expenses on charity care, well below the one time federal standard of 5 percent needed to maintain tax exempt status.

Meanwhile non-profits hospitals accumulated $4.5 billion in profits that same year, nearly half of it by two of California’s largest chains Sutter Health and Kaiser Permanente. Those same systems handed out pay packages of over $1 million each to 45 top executives.

The impact for many struggling California cities and counties was especially severe – with losses of more than $1 billion in 2010 as a result of these tax exemptions and what the counties had to pay directly to hospitals in their geographic area to provide charity care for the indigent.

Add in the scorched earth practice of many of these hospitals in cutting patient services they deem insufficiently profitable, especially mental health, women’s, and children’s care, while emphasizing more profitable enterprises like boutique surgery centers and lightly regulated outpatient clinics. The obvious conclusion, more accountability and public oversight is sorely needed.

It’s not just a California trend. A Bank of America survey, Time magazine reported last month,  found that “the 2,900 nonprofit hospitals across the country, which are exempt from income taxes, actually end up averaging higher operating profit margins than the 1,000 for-profit hospitals after the for-profits’ income-tax obligations are deducted. In health care, being nonprofit produces more profit.”

One way they pile up such wealth is by abuse of their tax exempt status partly by counting such dubious practices as marketing and cutting costs (meaning services, not executive salaries) as a supposed community benefit.

Such questionable activity prompted a report last year by the State Auditor’s Office. Speaking at a Sacramento hearing in August, Principal Auditor Grant Parks explained that “state law does not require specific amounts of community benefit to justify (hospital’s) tax exempt status.” He noted that “state law is fairly permissive on what can be counted as community benefit…It’s like the Wild West of what is required.” 

Unlike California, 11 states can suspend tax exempt status. Texas and Alabama require specific thresholds for how much charity care a non-profit must provide, clearly a sign that greater accountability is not a radical idea. Indiana, Maryland, and Texas levy civil penalties for late filings of reports – all of which are well beyond what California requires. 

AB 975 is intended to bring California up to at least the model of Texas. It would more clearly define what constitutes charity care as the direct provision of care to the uninsured or underinsured, not promotional activities or cost containment, and set similar standards for community benefit programs.

Additionally, AB 975 would improve reporting for how hospitals meet those obligations, with the idea that greater transparency should be an expectation for corporate institutions that taxpayers finance through tax exemptions, and it exempts rural general acute care hospitals (so much for the false argument of harming rural communities) as well as public and district hospitals.

With health care costs continuing to spin out of control, California nurses commend Assembly members Wieckowski and Bonta for not only advocating for their communities, but for all of California to ensure that nonprofit hospitals are fulfilling their missions as entities that provide charity care and community benefits in exchange for their tax benefitted status.

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Ed's Note: Malinda Markowitz is a registered nurse and co-president of the California Nurses Association which is the sponsor of AB 975


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