Well-deserved scrutiny of not-for-profit hospitals continues

Traffic sign reading ExemptIn a study released June 24 by the journal Health Affairs, the value of the tax exemption that hospitals receive for being nonprofits jumped to $24.6 billion in 2011, about twice what it was 10 years earlier. The jump prompted many critics to re-ask the question, Are we getting enough in return for these increasingly hefty tax breaks?

Hospital execs responded by pointing to a different figure, one from the IRS showing that not-for-profit hospitals reported $62.4 billion in “community benefit” expenditures in 2011. As Tom Nickels, senior vice president at the American Hospital Association, said in The Washington Post, “Today’s report shows that what nonprofit hospitals provide in terms of benefit to their communities far exceeds the value of tax exemptions hospitals receive.”

I’m sorry, but count me skeptical on this dollar amount.

What, exactly, is community benefit?

To begin with, it’s fairly obvious that the definition of community benefit is not the same for everyone. Communities are looking for things like outreach programs in chronic disease management; hospitals are claiming other things, like medical staff training. Meanwhile, the IRS doesn’t audit these expenditures, so hospitals are free to stretch the meaning of community benefit to include the defibrillator they provide at the golf course—a marketing tool, if I ever heard one.

Some states are trying their best to clarify matters. The California state legislature defeated in May a bill that would standardize reporting by nonprofit health care companies and require more input from community leaders and organizations in hospitals’ giving plans. The bill is likely to be taken up again in the next legislative session, and I expect to see similar efforts at both federal and state levels.

High price of hospital-owned services is the culprit.

But I believe the largest contributor to the disparity in dollar value between community benefit and tax exemption is due, not to confusion about what qualifies as community benefit, but to the inflated prices that hospitals charge for their services.

You’ve seen it on your hospital bill. Staggering sums of money charged for your overnight stay, your surgery, your tests, your nursing care, your medications. Charges that are essentially meaningless and will never be collected. Add to these charges a “facility fee,” which is routinely tacked on to patients’ bills for services provided not only in the hospital, but also at outpatient care centers and doctors’ offices that have been purchased by the hospital.

If you’re lucky enough to have insurance, these inflated charges often vanish (the “adjustments” line on your invoice). If you’re one of the unfortunates without insurance—or if you just have poor insurance—this elephant is what you owe, and what the hospital will claim as a community benefit if it can’t collect.

I am happy to agree that indigent care is a community benefit. But the value of that benefit today is magnified beyond comprehension, as large, urban hospital systems total up the spurious sums that they charge the uninsured.

Until we address the high prices that begin each health care conversation in the United States, we will continue to see the cost of U.S. health care rise.

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