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