Prognosis: Profits

Despite tax breaks, some NC hospitals deny care to poor

Many institutions offer little charity care; some lose money, say they can’t do more

jneff@newsobserver.comApril 23, 2012 

  • How generous are they?

    Most hospitals extend charity care on a sliding scale based on federal poverty guidelines, which are annual income of $11,170 for an individual and $23,050 for a family of four.

    The most generous policy is Novant Health’s. The company forgives the entire bill at 300 percent of the poverty guidelines. Sampson Regional Medical Center is at the other end of the spectrum, forgiving the entire bill for income at 125 percent or less of the poverty guidelines.

    Who’s eligible for Medicaid?

    Medicaid pays for health care for the disabled, poor children and their caregivers, and pregnant women.

    A family of four, including parents or caregivers, qualifies for Medicaid with a monthly income of $594 or less.

    Children under 6 qualify for Medicaid if their family of four has a monthly income of $3,725 or less. Children ages 6 to 18 qualify if the monthly income of their family of four is $1,863 or less.

    A pregnant woman qualifies for Medicaid if her family of four (including the unborn child) has a monthly income of $3,446 or less.

    Proving need is no easy task

    At some North Carolina hospitals, qualifying for charity care can be onerous. Among the pieces of information that Carolinas Medical Center-Pineville, south of Charlotte, requested in its 2010 charity care application:

    • Details on all forms of income, including alimony, child support and unemployment.

    • The tax values and loan amounts on all vehicles and real estate owned.

    • The account numbers and amounts deposited in all checking and savings accounts, CDs, stocks and bonds – along with the last deposit in each.

    • The cash value and face values of any life insurance and burial insurance contracts.

    When people are sick or recovering from serious medical problems, providing all that information can be daunting, patient advocates say.

    “We’ve talked with some people who, when confronted with an application like that, said ‘I didn’t even bother applying,’ ” said Mark Rukavina, executive director of the Access Project, a Boston-based nonprofit working to improve access to health care. “It seemed like they were trying to just get assets.”

    Some hospitals make it easier for patients to qualify. Novant, for instance, does “soft” credit checks on uninsured patients to determine whether they’re eligible for charity care.

    Who pays for the patients’ care?

    North Carolina hospitals say they lost $424 million in 2010 treating Medicaid patients, and they also lost money on Medicare and uninsured patients. Therefore, they say they have to charge more to those who are insured. Here’s a look at each group’s share of billed care, according to the N.C. Hospital Association:

    • Medicare, 45%
    • Private insurance, 27%
    • Medicaid, 16%
    • Uninsured, 9%
    • Other groups, 3%

  • There is not enough public data to precisely calculate the value of tax breaks for each of the state’s nonprofit hospitals. But the newspapers came up with estimates by using a study from the University of Pennsylvania’s Wharton School.

    That 2000 study – which examines the value of community benefits provided by hospitals – found that three large for-profit hospital chains spent about 4.4 percent of their budgets on taxes. (The newspapers arrived at the same percentage by examining taxes paid by one large for-profit hospital.)

    The newspapers multiplied that percentage by operating expenses to estimate the value of tax breaks for each nonprofit hospital.

    While that method won’t yield the precise value of each hospital’s tax breaks, it’s designed to generate a conservative estimate. North Carolina’s average sales tax rate is higher than the percentage used by the Wharton professors – meaning that, for many hospitals, the total value of tax breaks is likely to be higher than 4.4 percent.

  • Reporters from The News & Observer and The Charlotte Observer conducted scores of interviews with patients, hospital administrators, health care experts and others.

    They also examined thousands of pages of documents, including lawsuits, financial audits and hospital bills, as well as Medicare cost reports, IRS returns and community benefit reports filed by hospitals.

    Profit figures for Triangle hospital systems come from their audited statements. These statements combine the finances of the hospitals within a system, the doctors’ practice groups and other entities. The systems’ results differ from the results of the individual hospitals.

    Figures used with the map at newsobserver.com for the profit margins of individual hospitals are different. They come from the American Hospital Directory, a service that compiles financial data for thousands of hospitals nationwide. AHD’s profit figures are derived from data in Medicare cost reports, which hospitals are required to file each year with federal health officials.

    Our stories use total profit margins, which include investment income. Some hospital officials objected to the use of total profit margins; a better measure, they argue, is operating margin, which excludes investment income and reflects the profits from patient-care activities.

    Other experts, however, contend the total margin provides more insight into a hospital’s full financial picture. Investment income is meaningful, they say, because the money that hospitals invest comes largely from past profits.

    Both total and operating margins are listed in an online tool that allows readers to look up key information for every North Carolina hospital.

Second of five parts

Some North Carolina nonprofit hospitals, chartered to benefit their communities, are providing little charity care for the poor and uninsured.

Johnnika Pyles, a 19-year-old student from Roxboro, had no insurance when she was discharged in June 2009 from Person Memorial Hospital.

When the $5,486 bill appeared on Pyles’ credit report, her mother called the hospital to ask if her daughter might qualify for charity care – free or reduced-price care for low-income patients.

Chief Financial Officer James Leis encouraged Pyles to file and mailed her a four-page charity care application and a written agreement called a promissory note. If Pyles paid off half of her debt, the promissory note said, the hospital would write off the other half.

But this arrangement was not charity. It was profit.

Medicare cost reports show that Person Memorial’s emergency room costs are about 21 percent of the charges billed. This means Pyles’ care cost Person Memorial roughly $1,150, so if she paid $2,743, the hospital would make a profit of more than 50 percent.

And the terms were onerous: If she fell behind on payments, the note would require Pyles to pay the full amount, plus any collection and legal fees.

Pyles, who was treated in the emergency room after an accident, did not sign the promissory note. She received no charity care, and a collection agency is still trying to collect the bill.

Nonprofit hospitals such as Person Memorial are exempt from property, sales and income taxes, breaks worth nearly $800 million a year statewide. In return, federal officials expect them to provide a benefit to their communities, in part by providing care to those who can’t afford it.

The 42-bed hospital in Roxboro spends less than 2 percent of its budget on charity care. And many other North Carolina hospitals are doing little to help those who need it, an investigation by The News & Observer and The Charlotte Observer found.

Tax breaks granted to the nonprofits average around 4.4 percent of budgets, the newspapers estimated, using taxes paid by for-profit hospitals. But most of the state’s hospitals that filed reports spent less than 3 percent of their budgets on charity care, and more than two-thirds spent less than the estimated value of their tax breaks.

There is no legal requirement that a hospital spend a specific amount on charity care. But experts say the charity care figures raise questions about whether some hospitals are earning their nonprofit status.

The newspapers found that:

• About a third of North Carolina hospitals spent less than 2 percent of their budgets on charity care in 2010. Most of these are small hospitals in rural areas, and many report that they are losing money.

• At some hospitals, profits far exceed charity care spending. In 2010, the most recent year broadly available, Duke’s three hospitals provided $64.1 million in charity care, or 3.3 percent of the budget. That year, Duke had an operating profit of $316 million, or 14 percent.

• In North Carolina, where nearly one in five residents under 65 lacks health insurance, some of the least charitable hospitals are located in counties where the needs are highest. Duplin General Hospital serves a high-poverty county in Eastern North Carolina where one in four people lacks health insurance. Its charity care spending is less than 1 percent of its budget.

• With virtually no rules governing charity care in North Carolina, hospitals vary widely in their practices. While the least generous hospitals are giving less than 1 percent of their budgets to free care, the most charitable hospital – Thomasville Medical Center – spent about 13 percent.

• Many uninsured patients are never offered financial assistance. More than a third of North Carolina hospitals – including Person Memorial and Gaston Memorial – provide no details about their charity care policies on their Web pages. And about two-thirds of the more than 35 uninsured patients interviewed by the newspapers say they were never informed about charity care policies when they sought treatment.

Jessica Curtis, director of the Hospital Accountability Project for Community Catalyst, called the number of hospitals spending less than 2 percent of their budgets on charity care “shocking.”

“But it’s shocking because it happens in almost every state,” said Curtis, whose Boston-based group works to improve access to hospital care. “It’s almost a blatant disregard for the needs of the poor.”

The big hospitals in the Triangle vary in their charity care. At Duke University Health System in 2010, charity care made up 3 percent of its budget. UNC Health Care, which includes Rex Hospital, provided charity care worth 5.2 percent of its budget. The Triangle’s least profitable hospital system, WakeMed, gave the most charity care: 7.5 percent of its budget.

Help in other ways

Officials at the state’s hospitals say charity care is just one of many ways they help the community.

They absorb millions in losses from treating Medicaid and Medicare patients, for example, because government reimbursement doesn’t cover their costs.

Hospitals also report that they lose millions more from treating uninsured patients who don’t pay their bills: In 2010, the N.C. Hospital Association says, hospitals classified $631 million of their accounts receivable as bad debt; those hospitals had operating profits of $1.4 billion.

Hospitals typically pursue bad debt via collection agencies; hospital officials believe a substantial portion of bad debt could instead be classified as charity care.

That issue cuts both ways; hospitals say not enough people apply for charity care, but advocates say that some hospitals keep the files as bad debt to continue trying to collect.

Hospitals also train doctors and nurses, sponsor wellness programs and support community clinics.

Officials with the N.C. Hospital Association, the group that lobbies for the state’s hospital industry, say their members work hard to help the poor. Charity care spending in North Carolina rose to about $853 million in fiscal 2010, the hospital association says – almost twice the amount spent in the pre-recession days of 2006.

Some of the hospitals that spend the least on charity care can’t afford to do more, says Don Dalton, a spokesman for the hospital association. That’s because they’re among the state’s most financially challenged hospitals. Many are in rural areas and treat a larger proportion of uninsured patients.

“The resources available for them to do vastly more charity care are probably not there,” Dalton says. “Those hospitals are struggling.”

So are people in Person County, north of Durham along the Virginia border. Unemployment is nearly 11 percent, and about 15 percent of the residents live in poverty.

Medicaid provides health care for only some poor people: children and at times their parents, the disabled and pregnant women. So there are some low-income people not covered by Medicaid who are not getting accepted for charity care.

Shelia Pyles works with the town of Roxboro as an accounting clerk. But her daughter, living away from home, was not covered under her mother’s health insurance at work. So Shelia Pyles called the hospital.

After her talks with Person officials about getting charity care for her daughter, Pyles recounted her conversation in a letter to the CFO and hospital attorney: “You stated to me on the phone ‘we don’t tell no one about Charity Care because we are a small hospital.’ ”

Person is among the rural hospitals that are losing money, primarily because they have a lot of uninsured patients. In 2010, the hospital reported a 4 percent loss.

Chad Brown, the new CEO of Person Memorial, said the hospital should be making its charity care policy known.

Pyles’ experience “is not a common practice; that is not our practice,” Brown said.

Brown said he did not know how many promissory notes were held by the hospital, but he said he thinks there are only a few.

“I don’t know if it is acceptable,” he said.

The Pyleses sent in the charity care application but refused to fill out the promissory note. They received no charity care from Person, they said.

“That sounds like what a predatory lender or a loan shark would do, not a local community hospital,” said Adam Searing, director of the North Carolina Health Access Coalition. “They forgot the ‘non’ part of nonprofit.”

Johnnika Pyles did get other charity care, however. She was transferred from Person Memorial to Duke Hospital, which wrote off her entire $9,012.20 bill.

No notice of charity

Some of the least-generous hospitals are located in communities where the needs are high.

In Duplin County, where many families work jobs in poultry plants or farm fields, advocates for the poor say it’s difficult to get financial assistance for uninsured people with large hospital bills.

Sonia Royes, a social worker for Catholic Charities, said she has tried about six times to get financial assistance for uninsured clients who had bills from Duplin General Hospital – and has never succeeded. She called the hospital in January 2011, asking if there was help available for one uninsured client. The official told her the hospital had no charity care policy.

Duplin General spent about $245,000 on charity care in 2010 – less than 1 percent of its budget. The hospital reported a total loss of 7 percent that year.

According to hospital policy, uninsured patients can qualify for free care if their income is less than 200 percent of the poverty level. An individual with an income of $21,780 would have qualified in 2011, or a family of four with an income of $44,700. Also, their household net worth must be less than $25,000.

But it was news to Maria Christina Jimenez Lopez that the 101-bed hospital had a charity care policy.

In March 2011, intense pelvic pain kept Lopez from sleeping. Worried that she had a hernia, she went to the hospital. She had no health insurance, so she asked hospital officials if they provided any type of financial assistance.

“They told me they didn’t have any kind of assistance,” said Lopez, 33, who says her pain stems from years of priming tobacco. “Here you pay for the cost of the treatment. That’s what they told me.”

Duplin General has billed her nearly $4,000, she says. The hospital later began calling her, asking her how she intended to pay.

“I keep getting bills,” she said. “I don’t know how I am going to pay them.”

Officials for Duplin General say many patients simply don’t bring in the financial documentation that the hospital requires to prove that they’re eligible for charity care.

“Our charity care could be a lot higher,” said Lucinda Crawford, vice president of financial services. “It’s sometimes a challenge for folks to bring in financial information and to follow up on a charity care application.”

Duplin General is now part of Vidant Health, based in Greenville. Hospital CEO Jay Briley said that if the hospital is judged by another measure – the amount of “unreimbursed” care it provides – “we are providing a much higher rate” than many other hospitals. In 2010, the hospital reported losing about $1.1 million on Medicaid patients and about $4.3 million on “bad debt” patients who never paid their bills.

Duplin’s 18-to-1 ratio of bad debt to charity care is high and indicates that many patients who would qualify for charity aren’t getting it. WakeMed, for example, has a ratio of 1-to-6; UNC Hospitals’ is 1-to-14.

And the results of not getting charity care can be painful. Duplin General, like many other hospitals, routinely sends collection agencies to try to recover some of that money – a practice that can damage a patient’s credit.

Duplin General’s officials say they’ve recently beefed up efforts to make uninsured patients aware of their charity care policy.

Until recently, Crawford said, emergency patients didn’t routinely interact with a counselor who explained the policy. But the hospital changed that last year, so emergency department patients now can talk with a financial counselor before they are discharged.

At some hospitals, it’s not easy for patients to learn what financial assistance might be available.

Many patients told the newspapers no one ever mentioned the availability of financial assistance. And as of November 2011, more than two-thirds of the state’s hospitals didn’t post their full charity care policies online.

No firm standards

Health care advocates say it’s inexcusable that some North Carolina hospitals spend so little on charity care.

They note that Illinois tax officials last year denied property tax exemptions to three hospitals that spent less than 2 percent of their patient revenue on charity care. That followed a 2010 ruling by the Illinois Supreme Court, which concluded that one hospital wasn’t providing enough charity care to qualify for a tax exemption.

Curtis, of Community Catalyst, said it’s “unacceptable” for any nonprofit hospital to spend less than 1 percent of its budget on charity care.

“A hospital spending that little on charity care in a community with high needs raises questions about that hospital’s commitment to the community,” she said.

In North Carolina, as in most other states, hospitals aren’t required to spend a single dollar on charity care. Federal rules stipulate that nonprofit hospitals must provide some “community benefit,” but the regulations don’t specify what those benefits must be.

In 2007, the U.S. Senate Finance Committee proposed requiring nonprofit hospitals to spend at least 5 percent of their budgets on charity care – a standard that only about a fifth of North Carolina’s hospitals met in 2010. That proposal never became law.

No group or agency compiles national statistics on what hospitals spend on charity care. But North Carolina hospitals appear to be providing less charity care than those in Texas, one of the few states that require hospitals to meet a minimum level of care for the poor.

In Texas, most hospitals spend more than 4 percent of their budgets on charity care; in North Carolina, most spend less than 3 percent. North Carolina hospitals provide more charity care, on average, than those in California. California’s hospitals operate on significantly smaller profit margins.

Duke’s charity care numbers are low compared to those of its neighbors.

But by other measures, the hospital system appears generous. Duke gives an immediate 50 percent discount to all uninsured patients. It gave $8 million to Lincoln Community Health Center and other programs that help the needy.

Almost all of Duke’s charity care goes to Durham residents using the emergency room, said Kenneth Morris, the chief financial officer. Duke’s profits come principally from well-insured out-of-town patients seeking care for cancer, heart problems and neurosurgery.

Overstating good deeds

About 1.6 million North Carolinians lack health insurance, and there’s no question that the state’s hospitals have allowed many of them to get free care.

But some hospitals overstate their contributions, taking credit for “community benefits” that do little to improve patient care.

The N.C. Hospital Association allows its members to take credit for losses from Medicare patients. Other agencies – including the IRS and the Catholic Hospital Association – say that shouldn’t count as a community benefit. One reason: Federal studies have concluded that efficient hospitals can make a small profit treating Medicare patients.

Dalton suggested the hospital association may change what it counts as community benefit to more closely reflect the IRS rules.

Tight standard for help

Rachael Shehan has no health insurance and virtually no income. But when serious respiratory problems strike, Caldwell Memorial Hospital has never provided financial help, she said. Instead, the 39-year-old Lenoir resident says, the hospital has sent bill collectors who have hounded her for payment and ruined her credit.

Now, she says, she sometimes bursts into tears when medical problems arise. She relies on food stamps and gets help from friends.

Such help is crucial in Caldwell County, a community in the Blue Ridge foothills where nearly one in five residents lives in poverty. The hospital spends less than 2 percent of its budget on charity care.

But Don Gardner, the hospital’s vice president of finance, said that’s just a part of its good works.

Caldwell Memorial provides about $1.3 million worth of services each year to a clinic for needy residents. It also reported losing about $2.9 million treating Medicaid patients in 2010.

“I have no doubts that we’ve done a yeoman’s job of providing service, regardless of ability to pay,” Gardner said.

The hospital gives charity care to county residents who earn less than 125 percent of the poverty level.

About 3,500 of the hospital’s patients got free care last year, Gardner said. But many more – about 7,000 to 8,000 – got calls or letters from collections agencies.

Shehan was among them.

The hospital has repeatedly put her on plans that require monthly payments that she can’t afford. Her bills from the hospital now total more than $15,000, she estimates.

Now, she says, her credit is so bad she has been turned down for a small loan and can’t buy a car.

“I think (the hospital) should offer help,” Shehan said. “There’s an awful lot of people who need it.”

Washington correspondent Franco Ordoñez contributed to this report.

To read other stories in our "Prognosis: Profits" series, click here.

Neff: 919-829-4516

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