Non-profit healthcare - "Nonprofit is a misnomer - it's nontaxable"

Today's Wall St. Journal features a front-page story about nonprofit hospitals. The line in the title is a quote from the article, attributed to Edward Novack, president of for-profit Sacred Heart Hospital in Chicago.

WSJ says "about 60%" of U.S. hospitals are nonprofits, 23% are for-profit, and 17% are run by counties, states, or the Federal government. So nonprofit hospitals make up the bulk of hospital care, which accounts for 31% of medical care costs. Highly relevant, then, to any discussion on rising health care costs.

Nonprofit hospitals are generally 501(c)(3) "charitable organizations," and used to be required, under IRS code, to provide charity care for the poor. When Medicare/Medicaid were created, hospitals claimed that the demand for charity care would become too small for the hospitals to meet minimum requirements for charity care, so the IRS rules moved away from requiring hospitals to care for the poor, and moved towards requiring hospitals to provide a more generic "community benefit."

Hospitals classify some interesting things as "community benefit." One hospital cited in the article, BJC HealthCare out of St. Louis, classifies employee salaries as "community benefit"; spokeswoman June Fowler justifies this classification by saying, "The impact that any organization that's job-producing and buying goods has on a community is of benefit to that community." Other hospitals use their research and/or medical training programs to meet community benefit requirements.

One of the most galling "community benefit" claims is the write-off between "normal charges" and Medicare/Medicaid reimbursements. If a procedure costs $50, and the hospital used to charge $100, they raise the price to $300 and then claim $225 in "community benefit" when Medicare reimburses them $75.

But they're not-for-profit - surely the money they take in goes to good use? The article compares several hospitals in Chicago; Northwestern Memorial (nonprofit) derives 6% of revenues from Medicaid, while for-profit Sacred Heart derives 62% of revenue from Medicaid and then pays taxes on their building and their profits.

Where, then, does the money go? The article includes a chart of "Some of the best paid nonprofit hospital CEOs" with compensation ranging from $3.3 Million to $16.4 Million. For context, the article cites two for-profit hospitals' executive compensation - but under $250k. Executive compensation can include reimbursement of Country Club dues - because it gives the executive access to "potential donors." That's right - despite big piles of cash reserves, minimal charity care, exclusive luxury accommodations, etc. - a contribution to the local glitz and glam hospital is a tax deduction as long as it's a nonprofit under IRS regulations. Nonprofit hospital construction spending is climbing, and Northwestern Memorial provides an example of some of the expenditures - not just building plant and medical equipment, but also flat-screen TVs and room service, with Lake Michigan views from some rooms.

When you build a luxury hospital for the wealthy, how do you keep the riff-raff out? How about aggressive collections. The percentage of uninsured patients at Northwestern Memorial is reportedly less than 5%. Fret not, dear reader, Northwestern's CFO, Peter McCanna, tells WSJ that they only sued 82 patients in 2006 and 2007. The article doesn't mention how many accounts were sent to collection agencies, nor whether the hospital uses kind-and-gentle collections agents or the more aggressive, call-people-at-work-and-never-let-up types.

Yes, folks, the real problem with health care in this country must surely be greedy health-insurance companies - it couldn't possibly be greedy doctors, greedy hospitals, greedy labs - or ineffectual tax law. Oversimplification of a problem leads to oversimplification of the solution, which isn't a solution at all.