An Abuse By A Stakeholder Overlooked By President Obama’s Healthcare Team

Stanley Feld M.D.,FACP,MACE

President Obama’s healthcare stimulus package only has provisions for money to create new bureaucracies and provide money for old systems. It does not fund the creation of incentives to address systemic problems in the healthcare system. The needed systemic changes would increase efficiency of care and decrease waste.

“A report from the Internal Revenue Service found that a small minority of nonprofit hospitals provide the bulk of uncompensated care for the poor, rekindling concerns about the tax-exempt industry at a time when government aid to corporations is drawing fire.”

All the nonprofit hospital systems in America receive an estimated $12.6 billion of annual tax exemptions from the federal government. The tax benefit given to most hospital systems does not add any value to the care of most indigent patients. The majority of these hospital systems do not provide care commensurate with the tax benefit received. Yet charity hospital systems in major cities and counties (safety net hospital systems) are not receiving appropriate funding and are going bankrupt.

“On average, the study found, the 489 hospitals studied spent 9% of their revenue on community benefit. Overall, 58% of the hospitals reported uncompensated care amounts of less than or equal to 5% of total revenue. A little more than one-fifth of the hospitals reported aggregate community benefit expenditures of less than 2% of total revenue.”

When a nonprofit hospital system opens a new hospital in a suburb it maintains its nonprofit status in that new hospital without adding value to the care of the poor. This results in an increase in profit.

The entire nonprofit hospital industry receives an additional $32 billion in federal, state and local subsidies each year. The money received is a result of accounting losses reported by the hospital systems on reimbursement shortfalls according to a 2006 report by the Congressional Budget Office.

“Some hospitals provided the IRS their data based on charges, rather than costs, which could significantly skew results since hospital charges are inflated list prices that are negotiated down sharply by the government and private insurers.”

The devil is in the details. The accounting details are not transparent. Few people are interested in studying the details.

“The IRS also found that the top executives at a group of 20 hospitals it examined more closely earned an average of $1.4 million a year. At least one of the 20 hospitals was compensating its top executive excessively, the agency said. It declined to name any of the hospitals in the report.”

I know from private communications that many top executives of nonprofit hospital systems earn much more than $1.4 million dollars per year. When I started in practice in 1970 there were very few hospital administrators in the hospital. Now I there seems to be more hospital administrators in a hospital system than there are hospital beds. All this adds to the hospital systems’ overhead and the subsequent hospital subsidy.

“The IRS report may renew efforts in Congress to develop firm rules about how much community benefit nonprofit hospitals must provide to maintain their tax exemptions. Nonprofit hospitals account for the majority of hospitals in the U.S. In return for not paying taxes, they are expected to provide benefits to their communities, including charity care.”

Senator Charles Grassley the high ranking Republican on the Senate Finance Committee is the only Senator who has discussed this systemic defect in the healthcare system.

I have pointed out many abuses in the healthcare system that would save billions of dollars. These savings would generate enough funds to repair the healthcare system.

Senator Charles Grassely is considering introducing legislation that would require non profit hospital to spend a minimum amount on free care for the poor and set curbs on executive compensation and conflicts of interest for it to maintain its nonprofit status.

President Obama’s healthcare team is not focused on these problems. Right now President Obama is throwing money at the healthcare system much of which will be wasted because he is not focusing on curing the abuses.

"For the hospital sector, it’s really unfortunate, the timing of this report, because this gets dropped into a real toxic environment," said Michael Peregrine, an attorney for nonprofit hospitals at McDermott Will & Emery. "You’ve got people really upset about government subsidies to organizations," he said, noting that many consider tax exemptions a form of subsidy.”

What a meaningless statement. The hospital sector is receiving an undeserved subsidy. This subsidy is one of the reasons for the huge profits of the nonprofit hospital systems. The hospital system profits have resulted in huge hospital building programs. Hospital system must spend some of the profits in a visible manner. This is happening when medical innovation is making the brick and mortar hospital buildings obsolete.

One can say the taxpayer is subsidizing the expansion of obsolescence. Let’s see if the treasury department does anything about the Congressional Budget Office Report that surveyed only 489 hospitals. Only 20% of the hospitals accounted for 78% of the community benefit.

"There are good reasons for real variation in how hospitals meet their community benefit obligations," the AHA said. "A hospital in rural Iowa serves a very different community than one in New York City, and the programs and services they offer should be different."

This is another meaningless statement by a lobbying group for the hospital sector.

The tax exemption and other subsidies accounted for a much greater percentage of revenue than the total expenditure on community care. Clearly the rules have to be changed. If they are, hospitals will be forced to exhibit price transparency and become more efficient, and competitive.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.