Since we first wrote about the “profitable crisis” that benefits nonprofit hospitals and large healthcare systems, a new report was just published confirming the widespread rip-off healthcare consumers and taxpayers continue to endure.
Our original posting painted a very damning portrait of the sinister greed practiced by these healthcare behemoths who claim to be benevolent community leaders and sources of charitable care.
Just days ago, the Lown Institute of Boston, MA. released a study based on IRS reports that showed that our country’s largest nonprofit healthcare systems and hospitals reaped $26 billion in tax breaks and writeoffs above the amount of community work and charity care they are required to provide to maintain their nonprofit, tax-free status.
Lo and behold two of the top offenders — Kaiser Permanente and Providence — were the subject of our initial local report on how “nonprofit” hospitals are actually “cash cows.”
According to the Lown Institute report, Kaiser recorded $1.3 billion in tax write-offs above the amount of community charity care they provided. Providence, which owns Santa Rosa’s Memorial, Healdsburg and Petaluma hospitals recorded $1 billion tax write-offs above its charity care expenses.
Sutter of Sacramento, another major presence in Sonoma County reported a $330 million “fair share” deficit.
In the Lown report, of the 171 nonprofit hospitals in California, 160 had “fair share” deficits. Again, this is according to IRS records.
“When four out of five nonprofit hospitals do not meet obligations to benefit their community, it’s a sign that regulations and incentives need to be revisited,” said Vikas Saini, MD, president of the Lown Institute. “Everyone wants to see their local hospital thrive, but not at the expense of the communities they serve.”
In the March 5 California election voters narrowly approved Prop. 1, a bond to provide $6.4 billion for mental health and homeless programs. If California’s nonprofit healthcare systems would have provided the amount of “fair share” community service and charitable care required to equal their $3.5 billion in tax write-offs in just last year, voters would not have needed to put this extra tax on themselves.
Below is our original news report and commentary:
A profitable crisis
American’s healthcare system is not a system
I was recently a patient at two local hospitals following a vehicle accident and a cardiac arrest wake-up call that ended very well for me. The three-day stay reminded me how great hospital workers can be and how terrible our healthcare system is. How long has it now been that we’ve had a declared “national healthcare crisis?” If something goes on forever, can it still be called a crisis?
It’s not so much a miracle that tens or hundreds of thousands of lives are saved every day by emergency paramedics and hospital nurses and doctors. The true miracle is how our chaotic, expensive and profit-driven healthcare system hasn’t made paupers out of half our nation’s population by now. (Even so, unpaid healthcare bills remain the leading cause of personal bankruptcy cases.)
America has never had a national or rational healthcare system. As a nation we’ve never decided whether healthcare should be an inalienable right, a commodity to be bought and sold or an essential service of government like our schools, police and public infrastructure.
What we’ve ended up with is a complex system ruled by private insurance companies and global pharmaceutical corporations. Hospital ownership is dominated by investor-owned mega-networks and goliath nonprofit entities like Kaiser, Providence, Advent Health and a few others. Money flows through a byzantine reimbursement formula that fuels a fee-for-service model. Public assistance for the indigent is never more than minimally funded and we have a tax system that rewards all of the above and none of the rest of us.
The fee-for-service (healthcare as a commodity) system is used across 97% of all our hospitals, clinics and doctor offices. This system rewards healthcare providers for writing the most bills and pushing the most pills. It does not reward them for quality care, preventative services or promoting community well-being.
What we do not have — and what most of the rest of the world’s developed countries do have — is a “managed care” or a value-based system. In these systems doctors and hospitals are paid to prevent illness and promote health. They are reimbursed based on quality service surveys and healthy patient censuses and not by how many bills they submit.
When is a nonprofit not a nonprofit?
Right now the United States healthcare system is dominated by huge nonprofit corporations. These nonprofits own 58% of all the hospital beds in America. (In my home county of Sonoma in northern California, they own 100% of the hospital beds.) The dominance of nonprofit ownership is driven by favorable federal tax laws that exempt these 503(c) corporations from federal, property, sales and most local taxes. These exemptions totaled $28 billion in 2020 across America.
These nonprofit healthcare corporations like my local Kaiser, Sutter, and Providence St. Joseph are supposed to provide “public good” and “charity care” in exchange for their tax exemptions. As you might be ready to guess this is not what is happening. The IRS’ Community Benefit Standards that awards corporations their 503(c) exemption were last revised in 1969 and today are poorly monitored and seldom enforced.
Calling these hospitals nonprofits can be confusing because it does not mean they can’t make a profit. They do. Oh boy, do they. They make profits that approach billions each year.
Sutter Medical of Sacramento reported a $271 million profit in 2020. In that same year Sutter reported millions in operating losses at its Sonoma County facilities and clinics. A very similar bottom-line profile was recorded by Kaiser Permanente in the same time period.
These large medical nonprofits are organized in many layers of regional sub-corporations and usually with an umbrella nonprofit “foundation.” Just like Big Oil and giant off-shore corporations like Apple, Microsoft and others, these corporations have mastered how to park millions of proceeds into their “benevolent” foundations while reporting most of their expenses at the local clinic and regional hospital operations level.
Based on testimony in an ongoing anti-trust court case in San Francisco, Sutter’s financial picture includes a deferred $209 million in federal payroll tax, an additional $13 million tax credit, receipt of $812 million in federal COVID-19 relief funds and a $990 million advance from the federal Centers for Medicare & Medicaid Services (CMS.) Court documents also show Sutter Health’s cash assets doubled from 2019 to 2020, from $505 million to $1.169 billion.
On a national level, the largest nonprofits have been on a merger and acquisition binge of late, especially seeking “cross-market” mergers with pharmacy giants like CVS and insurance companies like United Health and Anthem. All these boardroom maneuvers seek to strengthen regional market dominance and monopolistic pricing for purchased drugs and contracted insurance reimbursement levels. Any concern for patient quality of care seems to be an afterthought.
Since the enactment of the Affordable Care Act (Obamacare) in 2010 that instantly added 30 million new patients to the system, patient revenues increased by 15% while “charity care” decreased by 35%. At the largest healthcare corporations, according to a recent Politico investigative report, executive and administrative salaries increased by 93% while drug prices rose by 15% and the average nurses’ salary improved by just 3%.
How nonprofits are so profitable
To be eligible for billions of tax forgiveness, 503(c) healthcare corporations must complete a written Community Health Needs Assessment (CHNA) report each year and make it available to the public. The CHNA must include target activities aimed at a “community benefit” and the report also must include budgeted allocations of programs, staff and funds to answer the listed “needs.”
The current CHNA process has many flaws. Each corporation and not the IRS or other government agency — federal or local — decides what meets the definition of a community health need. There is no outside oversight or checks and balances. While Sonoma County’s three big nonprofits (Sutter, Kaiser and Providence) all show some levels of community outreach and coordination with the local public health agency, they are not required to do so.
Hence, many of the items these nonprofits include in their CHNA plan are self-serving programs that include staff training, employee incentives and special clinics or community education programs that are funded with pass-through federal funds.
It is accepted as normal procedure for the nonprofit corporations to count their unpaid Medicare and Medicaid costs as “contributions” where for-profit healthcare providers must simply take a write-off.
In Sonoma County, Kaiser, Sutter and Providence St. Joseph are among the largest private employers. These corporations own large medical campuses and office buildings — all property tax free. It’s as if they are the Catholic Church.
As evidence of seeking community input for writing its annual CHNA report last year, Providence said it conducted 11 stakeholder interviews. The 11 individuals were all CEOs of local public and private healthcare groups. No patients were interviewed.
In reporting on its Santa Rosa facilities CHNA results for 2021, Kaiser reported serving 22,005 patients with Medicaid and other government program support at a cost of just over $5 million. (For the record, these cases are mandatory.) For the same time period, Kaiser reported voluntarily serving 90 “charitable health coverage” patients at a total cost of $217. Go ahead and draw your own conclusions.
One more thing …
Under the new Affordable Care Act, many new restrictions on pricing and profit margins have been set by the federal law. Big Pharma corporations and the investor-owned healthcare networks are limited to annual profit margins below 15 or 20 percent. Under the IRS 503(c) chapter, nonprofit healthcare corporations do not have any profit limits.
America’s perpetual healthcare crisis has continually evolved from one set of crises to another. We’ve come a long way since the advent of Blue Cross hospital insurance in 1929 and the addition of Blue Shield for insuring doctor’s visits in 1948. Since those times, we’ve gone through wave after wave of annual insurance premium increases, paid through employer and workplace group plans. Many millions of workers have never had health insurance.
Healthcare expenditures equal 20% of America’s Gross National Product (GNP) with the addition of Medicare in 1965 and the expansions under the Affordable Care Act (ACA) in 2010.
Through all these times, and despite the untiring hero work of millions of doctors, nurses and other healthcare providers, America’s wellness and quality of care has never matched the billions of dollars spent.
Right now, about a quarter of the nation’s $4.3 trillion in healthcare spending is for treating preventable diseases and chronic conditions. Another quarter is considered unaccounted for as waste or unnecessary fees.
Almost as old as the national healthcare crisis itself, are the cries for a single payer system or nationalized medicine. Obamacare was designed to build a bridge to take us in these directions and it has vastly improved access to affordable care for millions of previously uninsured and under-served individuals with more promises to come.
Still on tap over the next few years are additional mandates from Obamacare and CMS for caregiver requirements that aim to steer our fee-for-service system to a value-based preventative and wellness system.
We could all most definitely profit from that.
— Rollie Atkinson
12-27-2023
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Rollie I'm glad you survived the accident and heart event so you can keep up the good work you are doing.
Glad you are ok. Thanks for another song to the choir 🤓. Not only for profit medicine, but variable choice in how well facilities perform. Medicare sends an annual data survey in the Fall to help one learn how hospitals perform. Data is shown for both medical out comes as well as patient satisfaction. We’re stuck with mediocrity in the local area. https://www.medicare.gov/care-compare/