Prognosis: Profits

Legislators say they’ll press hospitals on charity care, sales tax exemption

aalexander@charlotteobserver.comApril 30, 2012 

U.S. Sen. Chuck Grassley, the most influential member of Congress on nonprofit issues, says most hospitals in North Carolina need to do more to help poor and uninsured patients.

Grassley, an Iowa Republican, was responding to articles by The News & Observer and The Charlotte Observer last week that found that most hospitals in the state spend less than 3 percent of their budgets on charity care.

“I don’t think they’re doing enough,” Grassley said.

The newspapers’ investigation, “Prognosis: Profits,” also found that some Triangle hospitals are making record profits, piling up huge cash reserves, marking up prices of drugs and procedures. Around the state, 25 hospital executives were paid more than $1 million in 2010 or 2011.

The investigation also found that when uninsured patients can’t afford to pay their bills, most North Carolina hospitals pursue them with collections agencies or lawsuits.

A North Carolina watchdog group, meanwhile, plans to pressure on Carolinas HealthCare System, based in Charlotte, to stop suing patients. The newspapers found that North Carolina hospitals filed more than 40,000 bill collections suits over a five-year period. Most of those were filed by just two entities – Carolinas Health Care, a multibillion-dollar system with 30 hospitals, and Wilkes Regional Hospital, a single hospital managed by Carolinas HealthCare.

Adam Searing, director of the N.C. Health Access Coalition, called the more than 12,000 suits filed by Carolinas HealthCare “staggering.” He said his group will pressure the system to stop the practice, either by staging a protest in Charlotte or pushing for legislation.

“I see this as a moral issue,” Searing said. “It is immoral to do what they do. … Their balance sheet adds to the argument they should not be doing this. It would be easy for them to do the right thing.”

Most North Carolina hospitals don’t sue patients, and at least one top hospital official, Cecilia Moore, the chief operating officer at Duke University Medical Center, called the practice “very old school.”

A shocked senator

The newspapers’ findings have outraged many North Carolinians, including some in positions of power.

Sen. Bob Rucho, co-chairman of the state Senate Finance Committee, has been irritated with hospitals since his son’s recent nasal surgery to improve his breathing. It was an outpatient operation that took less than five hours. Rucho said he was stunned by the $27,000 bill.

“I told them, ‘You guys need to find a way to control those costs,’ ” the Charlotte Republican said.

Rucho said he’ll consider whether large hospitals deserve their exemption from sales taxes, which returns about $200 million a year to hospitals statewide, most of it to large hospitals.

Rucho said the Senate would likely review that in the 2013 session, when Republicans plan to overhaul the tax code. A colleague in the state House, Republican Dale Folwell from Winston-Salem, introduced legislation last year to require that large hospitals pay some sales tax.

The bill died quickly following lobbying by the N.C. Hospital Association, which argued the move would increase health insurance premiums.

Folwell wants to return to his proposal to cap sales tax refunds for large nonprofits. His proposal would let state and local government keep an extra $100 million from 28 hospitals and six universities or colleges.

Hospital lobbyists bottled the bill up in committee, and it never got a hearing.

“People are shocked that big nonprofit hospitals get all their sales tax refunded ... but the public schools don’t,” Folwell said.

Mistaking their mission?

Charity care – free or reduced-price care for the poor or uninsured – varies widely among North Carolina hospitals, with some spending more than 13 percent of their budgets to provide free care and others spending less than 1 percent. No federal or state rules dictate how much charity care a hospital must provide.

“It tells me some (hospital) boards of trustees know what their mission is – and others don’t,” Grassley said.

Nonprofit hospitals in North Carolina don’t pay sales tax, property tax or state and federal income tax. The newspapers estimated those exemptions to be worth more than $800 million annually. In exchange, the hospitals are expected to give back to their communities, largely by providing care to those who can’t afford it.

Grassley noted that some for-profit hospitals are providing more charity care than nonprofit hospitals – and aren’t even receiving tax exemptions. And many nonprofit and for-profit hospitals pay their CEOs comparable amounts.

“Today, there’s not much difference between nonprofit and for-profit hospitals,” Grassley said.

Grassley said he hopes new provisions in the federal Affordable Care Act, now under review by the U.S. Supreme Court, will encourage nonprofit hospitals to act more charitably.

But if hospitals don’t improve in coming years, Grassley said, “we’ll set a very definite benchmark” about how much charity care nonprofit hospitals must provide.

Seeking transparency

Some leading North Carolina lawmakers, meanwhile, are talking about steps to make it easier for patients to find key information about hospital pricing and charity care.

Rep. Tricia Cotham, a Matthews Democrat, said she has received numerous emails and Facebook posts from constituents. “This is great to bring these things to the forefront, and start this discussion that needed to be started.”

Cotham said she’s interested in legislation proposed by U.S. Rep. Heath Shuler of Waynesville to ease the damage that medical debt can do to a person’s credit rating.

Folwell said the General Assembly also should make hospital costs more transparent and accessible.

“The average person doesn’t understand the bills and explanation of benefits they receive in the mail,” Folwell said. “When you are trying to determine the best place to go, your ability to get prices is zero.”

The U.S. health care system is complex, Folwell said, and fixing it won’t be easy.

“This problem is like marbleized meat. Every single good thing has a regulation or piece of fat attached to it, driving down access and driving up cost.”

Neff: 919-829-4516

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