Hospital Charity Care: Could it become the Cap and Trade of the health care industry?

A debate rages in Illinois about how much of its annual revenue a hospital must spend on charity care and still qualify for the tax abatement offered due to their non-profit status. In 2010, a downstate Illinois hospital in the Provena system lost its tax exempt status after allocating only about 0.7% of its annual revenue as charity care.

In September of this year, the State challenged the property tax exemptions of 3 more hospitals. State regulators use a narrow definition of charity care limiting the dollars they count to free clinical services provided to patients on hospital campuses and ignoring other significant community benefit such as funding community wellness and preventive programs, teaching, and research.

Now comes a proposal from the Illinois Department of Revenue -- a carrot and stick approach to encourage hospitals to provide more pure charity care in exchange for tax credits. If a hospital does more direct charity care, the more tax credits it gets. If it does less, the more taxes it pays. Perhaps the taxes paid could even be directed into funds to shore up the State's Medicaid program or go into an account to support community clinics.

To me it sounds like the power industry's carbon cap and trade program for carbon emissions.

Although the proposal is creative and could encourage laggard hospitals to pull their charity care weight, the first thing to do is to agree on what counts as charity care. Is it the narrow definition of providing free care for a patient in the hospital or an x-ray or scan? Or does it include the broader resources that hospitals provide as community benefit? The more taxes a hospital has to pay, the less community benefit it will want to provide.

Non-profit hospitals are not paying shareholders and investors. They are reinvesting in the community. As one of the only expanding industries in our sputtering economy, their new buildings and projects create jobs, massive durable goods and supply orders, and community investment.

Let's hope that in the effort to evaluate and redesign hospitals' commitments to community benefit, that we don't end up in the trauma unit with a shot to our own collective foot.

Less Access (Again!) for Women to Deliver Babies in Chicago

I heard last night from my counterpart at a sister community health center in Chicago which uses Lincoln Park Hospital (the former Grant Hospital) as their hospital to deliver babies. The CEO of Lincoln Park had contacted him to say that the hospital was abruptly stopping maternity services effective immediately.

The Chicago Tribune reported on Thursday October 9, 2008 that the hospital was for sale and at risk of closing.

For almost a year, Lincoln Park has been reaching out to community health centers in an attempt to increase maternal services utilization by attracting Medicaid insured women. This is a potential money-maker for community hospitals.

Our sister agency, on a Friday night, had to scramble to find a place to safely deliver their babies. As community health centers, we take care of patients regardless of their ability to pay. As a result, those most affected by this abrupt move are expectant mothers living in poverty and covered by Medicaid.


Over the past year or so several North Side hospitals have limited or closed their maternity services. Weiss Hospital closed its maternity services (with plenty of advance notice), Advocate Illinois Masonic Hospital has no room at the inn for more normal-risk Medicaid deliveries, neither does Swedish Hospital. There is definitely an unhealthy pattern here.

One of the drivers of hospitals getting out of the baby delivering business may be malpractice costs. But that's a whole different subject.

The current situation raises the question: if you are a pregnant woman, living in poverty, on the North Side or Northwest Side of Chicago, and you are insured by Medicaid, where will you go to deliver your baby? Where will your doctor be able to attend to your birth with you?

Because of this very same dilemma, Erie Family Health Center will now start delivering babies at Norwegian American Hospital (moving almost 500 deliveries per year from Advocate Illinois Masonic Hospital). We will continue our long-term relationship with Northwestern’s Prentice Women’s Hospital where we deliver over 1,100 babies per year.  END OF POST. THANK YOU FOR READING.

Northwestern Memorial Hospital Plants Flag in Sand - El Norte

Northwestern Memorial Hospital made public the purchase of a 10 acre parcel of land in the north west suburbs, the Chicago Tribune reported today. The location is Northbrook near Interstate 294.

This brings to light an interesting battle of the giants of health care in northern Illinois. Advocate is moving to acquire Condell Medical Center in Libertyville, IL, apparently beating out Lake Forest Hospital for the prize. Evanston Northwestern Health Care (ENHC) is to acquire Rush North Shore in Skokie. Not too long ago ENHC, which acquired Highland Park Hospital in 2000, was allowed to keep it in a ruling by the FTC that examined the "anti-competitive" nature of that acquisition.

Before we know it there will be juggling in med school affiliations. The Chicago Tribune suggests today that Rosalind Franklin University (the former Chicago Med) might get into bed with ENHC leaving Northwestern University Feinberg School of Medicine to find another affiliate.

Stay tuned.

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Chicago Area Hospital Profits Spawn Debate: What is community benefit?

When Crain's Chicago Business published the 2007 net profits for Chicago Area Hospitals people once again began to ask how much profit can a non-profit have?  Most of the hospitals are non-profit corporations and therefore they receive special dispensation when it comes to real estate taxes.  They don't pay; they provide community benefit in lieu of taxes.  A legitimate debate rages regarding what constitutes community benefit. But first, let's look at the magnitude of the profits for the top 3.

Northwestern Memorial Hospital leads with $142.9M net profit on $1,125.5M (yes, that's $1.125 billion) total revenue, University of Chicago Medical Center next with $140.7M on $1,077.5M total revenue (yes, that's billion again), Rush University Medical Center is next with $120.7M profit on total revenue of $842.1M. Let's assume what I think to be true: these profits are after the hospitals deduct from their operating statements the following -- money spent on charity care, bad debt, funds donated to their respective medical schools for research and teaching, and allowances for insufficient payments from Medicaid and Medicare.

Enter Illinois Attorney General Lisa Madigan who proposes that the only legitimate expense hospitals can count as community benefit is charity care. The other categories listed above don't count. Moreover, the Attorney General's goal for charity care expenses alone should be 8% of total hospital revenue.

Charity care dollars are those spent to hospitalize or otherwise care for a patient who is uninsured and will end up paying little to nothing out of pocket. Bad debt is money that insurance companies and patients should have paid and did not. This would include a patient from the gold coast who just doesn't pay or an insured patient who owes co-payment and cannot or does not pay. Academic medical centers tend to support their affiliated medical schools with donations for research and teaching, a case of one non-profit donating to another. Finally, neither Medicaid or Medicaid reimburse hospitals for the full cost of care. The gap between what government funded insurance pays and what the hospital's cost is considered donated care by most hospitals. Which of these should constitute community benefit? Hospitals would argue all. The Attorney General argues that only charity care counts.

What about hospital donations to their academically affiliated medical schools for research and teaching? If a medical school uses the money and finds a new treatment or a cure for breast cancer, isn't that community benefit? We all benefit, yet the definition of charity care is not met. What about the difference between what Medicare or Medicaid pays and what costs the hospital incurs (not the total charges, just the cost of the service)? This is more of a gray area in my view to be resolved by effective policy making by Congress and the Centers for Medicaid and Medicare. Until policy-making resolves this issue, I think hospitals can legitimately argue that they are providing charity care to many Medicaid and Medicare patients. Bad debt? Another gray area, but those that can pay and refuse should not be counted as charity care cases.

That still leaves the question of what to do with the profits.  When a hospital invests in its infrastructure, builds new buildings and purchases new scanners and equipment, they use profit and donations to pay for it and argue that this too is community benefit.

Much of this debate should play out much more publicly than it has so far.  Recent articles in the Wall Street Journal and Chicago Tribune seem to give less than a fair shake to the hospitals' arguments.  I'm all in favor of charity care since our health center's patients benefit from it.  But I'm also in favor of curing breast cancer, diabetes and training stellar students to become great doctors.  

Let's have more of an open debate. And let's use the profits wisely benefit those who need care the most. END OF POST