Benefiting the community

When hospitals provide charity care, how much is enough? That’s a question under consideration in the California Legislature, and reverberating statewide, in light of a report put forth by the California Nurses Association (CNA) asserting that, on the whole, the state’s nonprofit hospitals gain more than they give.

The study, released earlier this month, was prepared by the Institute for Health and Socio-Economic Policy (IHSP), which says it’s “the exclusive research arm of the California Nurses Association/National Nurses United"—the state’s nursing union, affiliated with a nationwide organization. IHSP evaluated data from 2010 and determined that 196 nonprofit hospitals in the state provided $1.4 billion in charity care that year while reaping $3.2 billion in “government subsidies and other benefits from their not-for-profit status.”

In other words, the hospitals earned $1.8 billion above and beyond what they spent in caring for Californians who couldn’t afford their services. Therein lies the title of the report: “Benefiting from Charity Care: California Not-for-Profit Hospitals.”

The subsidies and benefits identified by IHSP are exemptions on federal and state income tax on net income, as well as federal and state income tax on charitable contributions, property tax, sales tax and bonds. When adding those up, then subtracting charity-care totals, IHSP found three-quarters of the state’s nonprofit hospitals came out ahead and one-quarter came out behind.

Butte County’s three large nonprofit hospitals fell in the latter group. According to the IHSP, in 2010:

• Enloe Medical Center spent approximately $977,000 more in charity care than it received in public benefits;

• Feather River Hospital spent $427,000 more;

• Oroville Hospital spent $1.8 million more.

“The fact is,” Enloe CEO Mike Wiltermood said, “Butte County hospitals look pretty good.”

Still, Wiltermood and administrators at the other two local hospitals have concerns about the report. Primarily, they question singling out charity care from the overall community benefit they say they provide (see accompanying chart, page 18).

For instance, both Wiltermood and Bob Wentz, CEO at Oroville Hospital, explained in phone interviews that they write off far more debt than what falls under the label of charity care. Their hospitals also provide other services at a loss, which can range from conducting health fairs and screenings to operating clinics and emergency rooms at a loss. Wiltermood also considers “subsidizing the lowest-paying Medicaid program in the country"—that is, Medi-Cal—to be the largest community benefit.

“What they’re saying [through the report] is the tax break is equal to or better than the benefit we give in the community,” Wiltermood said. “We could argue it goes beyond that—they’re focused very narrowly on tax break versus charity care.”

Part of the discussion of charity care involves a definition of terms. In a general sense, charity care entails providing medical treatment for uninsured or underinsured patients who are unable to pay for it. Hospitals are prohibited by law from turning away ill or injured people who seek care at their emergency rooms, regardless of ability to pay.

Hospitals have a more specific definition of the term “charity care” that doesn’t include all written-off debts. At Enloe, for instance, “our policy is to provide charity care under certain conditions—up to 450 percent of the poverty level,” Wiltermood said. People who work but don’t qualify for Medi-Cal and can’t afford private insurance still may have bills reduced or written off.

Oroville Hospital has a specific application process for charity care in which patients disclose their incomes and, if they haven’t already, apply for Medi-Cal. Those who don’t go through the process still may have co-payments or entire bills written off, Wentz explained, but they wouldn’t fall under “charity care.”

“Charity care is just a subset of write-offs the hospital does,” Wentz said. “People get access to the most sophisticated medical treatment they can get and we don’t look at their wallet.”

Other Northern California hospitals are similarly oriented, Wiltermood said. When patients need more intensive care than a North State facility can provide, Enloe seeks to transfer the patient to a larger medical center such as Sutter Memorial, UC San Francisco or Stanford Hospital—two of which (Sutter and Stanford) are hospitals the IHSP report says benefit more than they provide.

“When we send a patient to UCSF, Sutter or Stanford,” Wiltermood said, “they never deny our patient based on ability to pay. It’s important for people in Butte County to know that when we send patients out for a higher level of care, we get unconditional cooperation.”

If local patients were getting turned away, he added, he’d be more concerned.

Each hospital has distinct circumstances. Both Wiltermood and Wentz pointed out that property-tax assessments are much higher in certain areas of California than they are in the North State. As such, hospitals in those areas—for example, La Jolla, Palm Springs and Silicon Valley—will derive more benefit from the property-tax exemption.

Context is significant—"I think it’s important to look at how much a hospital is making and if they’re making a reasonable effort to provide charity care in the community,” Wiltermood said. “I’m afraid that because of a few apparently out-of-whack facilities, we’ll all get subject to actions in the Legislature that are overly punitive. …

“In general,” said Wiltermood, “it’s a point worth discussing: What is the value of our tax base, and are we providing the value we should be? Everybody has their own answer.”

A legislative committee held a hearing on the matter Aug. 15. A week earlier, the state auditor’s office released a report “concerning whether nonprofit hospitals are providing a public benefit that justifies their tax-exempt status and whether the purchase or consolidation of nonprofit hospitals has resulted in reduced access to or affected the pricing of health care.”

State Auditor Elaine Howle concluded that “state law clearly states that the amount of community benefits provided cannot be used to justify the tax-exempt status of nonprofit hospitals. Additionally, we found that no statutory standard or methodology exists for hospitals to follow when calculating these benefits.” In addition, hospitals use different measures for establishing poverty levels “as allowed by state law” and conditions differ even in hospitals within the same organization.

That may be one reason why Feather River had a negative net benefit in the IHSP report but its parent organization, Adventist Health System, overall had a positive net benefit.

In a statement emailed to the CN&R, Feather River Hospital CEO Kevin Erich questioned the motives and methodology behind the report. Erich said, in part: “Although the union is claiming that the data comes from publicly available sources, it has been manipulated to advance this particular union’s agenda. We are not aware that any other state agency or other independent source has ever calculated the data in this manner.

“Our records show substantially higher dollar amounts being provided to the community in benefits than those reflected in the referenced report. … Communities benefit tremendously from a local hospital providing access to care, as well as supporting the local economy, and Feather River Hospital is proud to serve this community and meet their needs.”