Health reform comes with new rules for nonprofit hospitals
Filed under: Government, Health care reform, Hospitals
When I first started covering health care, I thought that a nonprofit hospital was one that didn’t make any money. It took longer than I should probably admit to come to understand that nonprofit/nonprofit status isn’t about making money. It’s mostly about paying taxes.
As this excellent recent story by M.B. Pell in The Atlanta Journal- Constitution shows, nonprofits may or may not have a healthy bottom line. They may or may not pay their top executives a lot of money. They may or may not provide really good care.
What questions do you have about health reform and how to cover it?
Joanne Kenen is AHCJ’s health reform topic leader. She is writing blog posts, tip sheets, articles and gathering resources to help our members cover the complex implementation of health reform. If you have questions or suggestions for future resources on the topic, please send them to joanne@healthjournalism.org.
What they don’t do is pay taxes. Nonprofits are supposed to be mission-driven. In exchange for serving their community, they get the tax exemption.
One little-known element of the health care reform law – which I highlighted in my first tip sheet on the anniversary of the law’s passage – sets new rules for nonprofits. They are required to assess community needs, and inform patients of charity policies. Some lawmakers, notably Sen. Chuck Grassley, an Iowa Republican, want tougher rules and oversight. The goal is to make sure they are providing enough service to the community to justify the tax break.
States, which make their own determination on who is exempt, may follow suit; in fact, Illinois just denied property tax exemptions to three hospitals.
As a report from the Hastings Center said, “A 2007 Internal Revenue Service report stated that about half of nonprofit hospitals spent 3 percent or less of revenues on charity care. Nowadays, hospitals are bringing in large amounts of money, paying their CEOs record amounts of compensation, and engaging in aggressive debt recovery actions.” Many of the hospitals use “sticker” prices to value their charity care, even though that’s not what the hospital gets from most patients.
In Georgia, the hospitals get millions in tax breaks. Nationally, the latest number I saw was $13 billion for federal taxes, and that doesn’t count state and local tax breaks. Pell explains:
Residents pay more in taxes because these hospitals are exempt. In exchange, taxpayer-subsidized hospitals are expected to provide charitable services - “a community benefit.”
But Georgia, like 35 other states, has no specific requirements hospitals must meet to justify these tax breaks.
And an Atlanta Journal-Constitution analysis of hospital data reveals that some not-for-profit hospitals provide less in community benefits - specifically, charity health care for the poor - than the tax-paying, for-profit hospitals they compete with.
It’s not all black and white; the article notes complexities such as a hospital that doesn’t provide much free care - but does heavily subsidize some local community clinics. And Georgia has instituted a “bed” tax on nonprofits and for profits alike to help generate some more money for Medicaid, which has been strapped during the nation’s economic crisis. Overall, it’s a good read and a roadmap for enterprise reporting in other communities. Pell wrote an article about how he did his reporting for AHCJ that spells out a number of tips for reporters.
That tip sheet has further resources, including advice on deciphering hospital financial records from this presentation from The Philadelphia Inquirer’s Karl Stark. If you are interested in the topic and are still daunted by the data, see if you can find a reliable local advocacy group who can help you sort them out, or a health care finance professor in your state who may be able to help you out.
If you Google, you will find stories about highly paid executives at nonprofit hospitals – that’s a good part of the story, and one that readers/listeners/viewers can grasp, but it’s not the whole story. Nancy Kane, a professor at Harvard School of Public Health, (who explained a lot of this to me some years ago) wrote on this topic a lot for a while, but when I did a quick check, most of the work I found was several years old. Here are some current resources to help reporters check into the nonprofit hospitals in their areas:
Related
- Follow the numbers to report on hospital executives’ compensation packages, M.B. Pell
- Hospital CEO pay has some ill at ease: $1 million-plus salaries drawing new scrutiny, The Atlanta Journal-Constitution
- Are hospital CEOs making too much money?, The Atlanta Journal-Constitution
AHCJ tip sheets
- Digging into hospital finances: Recent trends and five key documents
- Reporting on the business of health care
- How to understand a 990
- Changes to 990 forms make hospital finance investigations necessary
- Tools for covering hospitals: Financial documents
- Tools for covering hospitals: Hospital stories to do
- Understanding hospital issues
Related stories
- Charity Care: How Much is Enough?, Wisconsin State Journal
- In Their Debt, The (Baltimore) Sun
Md. hospitals sue patients despite state subsidies: Investigation finds policies for offering charity care to low-income patients vary widely - St. Vincent’s Is the Lehman Brothers of Hospitals, New York Magazine
- Hospitals, Inc.: Rising Costs, Growing Clout, Kaiser Health News
Report looks at nonprofits’ health reporting
Maralee Schwartz, a Shorenstein Center Fellow at Harvard University, has written a report titled “Getting It for Free: When Foundations Provide the News on Health.” (35-page PDF)
She points out that using stories produced by nonprofit foundations “raises questions that go to the heart of the journalistic enterprise and its role in American democracy: Does the very availability of content about a pet issue of a particular foundation mean that coverage will be skewed? Does nonprofit journalism mean lower standards? How does a newspaper safeguard integrity and independence?”
The report also looks at the economic challenges that editors are facing, including the results of a survey AHCJ and the Kaiser Family Foundation did in March.
Schwartz, formerly a political reporter and editor at The Washington Post, takes a close look at Kaiser Health News. Schwartz also writes about efforts in various states to create nonprofit organizations to do health reporting, including the Center for California Health Care Journalism, which first partnered with the Merced Sun Star for a project. Other similar projects include the Kansas Health Institute News Service and Health News Florida.
The report includes interviews with reporters and editors at the nonprofit organizations and at newspapers that have used their work, including AHCJ board member Karl Stark.
Schwartz concludes that “Most of the experts interviewed expressed hope that this trend can be supported. They also agreed that objections about the dilution of independence and journalistic standards can be addressed by developing odes of conduct, for lack of a better phrase, so that both editors and readers can have confidence in the work produced by Kaiser or ProPublica, or a variety of other nonprofits.”
Foundations’ role in health reform is changing
Some philanthropic foundations and think tanks in California are frustrated that efforts to finance studies and projects have done little to improve medicine. So some are taking on a crusading role for health care reform in Sacramento, which is the state capitol, and Congress, according to the Los Angeles Times.
Breaking from more traditional practice, several have staffed offices in Sacramento and hired experienced former advisers to lawmakers in hopes of educating legislators. However, as the paper points out, this may be risky, since nonprofits are barred under Internal Revenue Service rules from lobbying or engaging in partisan politics.
Here’s one example: the California Endowment, a foundation based in Los Angeles with more than $3 billion in assets, has hired Daniel Zingale, a senior adviser to Gov. Arnold Schwarzenegger, to encourage policies the endowment favors. Such as? Ensuring that all children have health coverage and making doctors and hospitals focus more on disease prevention and the management of chronic ailments, the Times tells us.
“We really consider ourselves to be supporting positive change and not just making grants,” Dr. Robert Ross, the endowment’s president, tells the paper. As for the California HealthCare Foundation, its Sacramento office employs a former legislative health expert to ensure the foundation’s research topics are relevant to legislative agendas.
“Our view is the legislature is not facing a shortage of recommendations but a shortage of reliable information,” Dr. Mark Smith, president of the foundation, tells the Times.
Sally Pipes, president of the Pacific Research Institute, a conservative think tank based in San Francisco, says foundations risk undermining the credibility of their research by wading into policy deliberations. “I think that’s a bad move for them, because I think they will be really tarred as lobbyists,” Pipes tells the paper. “I don’t think lobbyists have the respect of economists or researchers.”
What do you think? How far should foundations go in pushing for legislative change?
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