At a time when health care costs continue to soar and about 47 million Americans do not have health insurance, Wisconsin’s nonprofit hospitals are flush with cash.
According to a new report, Wisconsin’s nonprofit hospitals accrued a combined $1 billion in total margins for 2005, the most recent year in which figures are available. The report, compiled by the Wisconsin Hospital Association, defines total margins as “all revenues minus all expenses.”
Hospital systems in southeastern Wisconsin during that same time posted total margins of $428.1 million (see accompanying chart).
Furthermore, because they are nonprofit entities, Wisconsin’s hospitals paid no income or property taxes.
In lieu of taxes, nonprofit hospitals are required to provide community benefits in the form of free health care to the uninsured and poor, access to health screenings and other services.
However, critics say the large margins indicate that hospital groups are acting more like big businesses instead of nonprofit charities.
State Sen. Russ Decker (D-Weston) said the margins are proof that Wisconsin’s health care providers are profiting while the number of uninsured people increases in the state.
“I want to show what’s going on,” Decker said. “Every year, health care (providers) continue to charge more and make more. To have nonprofit hospitals have $1 billion in profits is excessive.”
Elizabeth Wright, vice president of government affairs of the Citizens Against Government Waste (CAGW) in Washington, D.C., says nonprofit hospitals act much like for-profit businesses.
In CAGW’s Wastewatcher bulletin in July, Wright stated, “At a minimum, states, local communities and taxpayers should review the costs and billing procedures of their local hospitals …They need to discover if their local nonprofit hospitals are gouging the uninsured or cash-paying citizens and whether they are providing the appropriate amount of community benefits and charity care to justify their substantial tax exemptions. Only through education and action will people get their money’s worth from nonprofit hospitals.”
Steve Schwartz, health organizer for Citizen Action of Wisconsin, a nonprofit political activist group, agrees.
“We need to look at the real benefit that they’re providing to our community,” Schwartz said. “We need to make sure that their tax exemption is justified in this state and all municipalities they are located in. We have high (health care) costs, and we need to find out why.”
Dianne Kiehl, executive director of the Business Health Care Group of Southeastern Wisconsin, pointed to the enormous and ongoing new hospital building projects in the region (see accompanying story).
“Our group’s focus is getting the health care costs (in Milwaukee) to the Midwest average,” Kiehl. “If the hospitals have these types of profit margins, they’re obviously using them to invest in their organizations. Look at all of the building that’s going on. The question lies with what is the real need. There’s no process by which these projects get evaluated, and it’s difficult for us in the business community to know if these are needed.”
Jim Kurtz, owner of Waukesha-based Screen Specialists Ltd., who speaks internationally on global competitiveness, said lack of transparency about medical costs and the ongoing construction of new hospitals will hurt Wisconsin in the long run.
“We have hospital wars going on here, and we in southeastern Wisconsin should not be the brunt of the war,” Kurtz said. “It’s making us less competitive on an international basis. When I go to China and to Turkey, they’re getting smart. Who would come to Wisconsin if they have to deal with an extreme hospital building programω”
Free market pressures would go a long way toward driving down health care costs, Kurtz said, if health care procedures were subject to price transparency.
“How do you stop someone from spendingω You take the money away,” he said. “Maybe they (hospitals) will have to be a little more conservative. Maybe instead of building hospitals they will focus more on care.”
Tax-exempt
The Republican-controlled Congress conducted investigations last year into the levels of charity care provided by nonprofit hospitals throughout the nation.
A December study by the Congressional Budget Office (CBO) found negligible differences in the amounts of uncompensated care provided by nonprofit and for-profit hospitals.
“Nonprofit hospitals were more likely than otherwise similar for-profit hospitals to provide certain specialized services but were found to provide care to fewer Medicaid-covered patients as a share of their total patient population,” the report stated. “On average, nonprofit hospitals were found to operate in areas with higher average incomes, lower poverty rates and lower rates of uninsurance than for-profit hospitals.”
So, if the amount of charity care does not vary significantly between nonprofit and for-profit hospitals, it begs the question: Why should nonprofit hospitals receive tax-exempt status.
As one of his final acts as chairman of the House Ways and Means Committee, Congressman Bill Thomas (R-Calif.) recently introduced a bill to create minimum standards of charity care for tax-exempt hospitals.
“For those institutions that have been given much by their communities and by the American taxpayer, it’s reasonable to expect a minimum benefit to the community in return. Additionally, this legislation would create a more level playing field among hospitals. It’s my hope that this bill might serve as a discussion point in the next Congress,” Thomas said.
“The question that Congress has been asking is that are we getting our money’s worth from the hospitalsω” said Rep. Paul Ryan (R-Wis.), who also was a member of the committee. Ryan said he is skeptical that the newly elected Congress to be controlled by Democrats will make it a priority to measure and monitor the community benefits of nonprofit hospitals.
The lack of transparency in health care makes comparing prices between services at different hospitals impossible, Ryan said.
“We don’t have an apples-to-apples way to measure the benefits to taxpayers from (the hospitals’) break of not paying income taxes,” Ryan said.
“You can give away millions in charity care, but it’s unclear how much of that money is taking care of people in the community,” Schwartz said.
Earlier this year, the margins posted by nonprofit hospital groups prompted the Internal Revenue Service to launch a compliance check for nonprofit hospitals, sending a questionnaire to 545 hospitals across the country. The 72-question form is reportedly designed to help the IRS determine if the hospitals are keeping sufficient records, according to a PricewaterhouseCoopers report.
Hospitals respond
Bill Bazan, vice president of the metropolitan Milwaukee region for the Wisconsin Hospital Association Inc., says the total margins between hospitals’ revenues and expenses in the WHA report cited by Decker are misleading.
“Every year, Sen. Decker issues a similar press release, using erroneous facts and figures to criticize the so-called profits (of hospital systems) without a full understanding of what they’re all about,” Bazan said. “Sen. Decker refers to more than $1 billion in profits, but more than half of those numbers are from investment income, philanthropic foundations, gift shop sales and other fund-raisers. It’s important to know that two and one-half cents of every dollar in health care premiums is attributed to patient care. And that is hardly what is causing the increases in health care (costs) in southeastern Wisconsin.”
Positive margins enable hospitals to reinvest in infrastructure and take care of lower-income patients who aren’t able to pay, said Julie Swiderski, vice president of government and community relations with Wheaton Franciscan Healthcare.
“We like to think of all of that as money to reinvest in our hospitals and communities,” Swiderski said. “We exist to serve and benefit communities in that way. We give care to anyone that comes to us. We’re in the business of taking care of people. No person is denied access based on their ability to pay.”
Positive margins also ensure that hospitals have the latest technology, the best quality facilities and the highest-trained professionals, Bazan said.
“When you examine where those profits or margins are going, they’re going toward creating new and updated facilities, the latest technology, medical information and record technology,” Bazan said. “That’s the whole point – you have to reinvest in hospitals. No one wants to go to a hospital that’s on the margins. Look at what happened to St. Michael Hospital. It closed.”
St. Michael Hospital, located on Milwaukee’s northwest side, closed in June 2006. The hospital, operated by Wheaton-Franciscan Healthcare, lost almost $23 million in fiscal 2005 and lost about $24.6 million in 2004.
Spokespersons with Aurora Health Care and Froedtert Memorial Lutheran Hospital declined to comment for this report, referring questions to the WHA. Officials with ProHealth Care, Columbia-St. Mary’s and Children’s Hospital of Wisconsin could not be reached for comment.
The margins that hospitals report (in the accompanying chart) document the money left after accounting for the hospitals’ expenses, including charity care and bad debt, according to George Quinn, senior vice president of the WHA.
Medicare and Medicaid only pay a portion of the costs of procedures, Bazan said. Medicaid is the state-administered health care plan for low-income people. Medicare is federally administered for people ages 65 years old and older.
“They (hospitals) need to have a solid financial bottom line to reinvest in the services that hospitals provide to the community,” Bazan said. “These do not come cheap.”
Although Wisconsin’s nonprofit hospitals are posting significant total margins, they also are providing valuable charity care for the communities they serve, Bazan said.
Wisconsin’s hospitals treated almost 250,000 charity care patients in 2005, according to the WHA’s 2006 Community Benefit Survey. Total community benefits for 2005 in the state are listed at more than $900 million.
That figure includes $159 million in charity care, $518.5 million in Medicaid shortfalls, $15 million in nursing home losses, $97 million in medical education and $51 million in non-billed community benefits programs.
Despite those losses, the hospitals still posted significant total margins.
State Rep. Jon Richards (D-Milwaukee), co-sponsor of the Wisconsin Health Plan, said the high costs of health care and the large number of uninsured people are forcing the state to consider different options for the administration of health care.
“We’re getting to the tipping point where a big chunk of people can’t afford (health care),” Richards said. “And a big chunk of companies can’t afford to provide it to their employees.”
Richards said it is appropriate for the government to step in and monitor nonprofit hospitals’ margins and community benefits.
“I think that costs in hospitals are something that we have to examine,” he said. “We see national studies that show that health care and hospital costs (in Wisconsin) are out of line with the rest of the country. It’s fair to ask why that is and what can we do to fix it.”
Editor’s Note: State Sen. Russ Decker is not related to SBT reporter Eric Decker.
