Too Many Tax-Exempt Hospitals Serve Their Profits Before Their Community

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As if there were not already ample justification for today’s high level of public cynicism, it now looks as though a growing number of charitable hospitals have been putting revenues ahead of serving underserved and low-income populations at the expense of the taxpayers.

A non-profit or charitable hospital evokes images of people at their best: dedicated physicians and tireless nurses tending to the needs of people of modest means or no means at all. Granting these institutions tax-exempt status is expensive for local and state governments. However, the loss of billions of dollars in tax revenues is seen as a worthy price to pay for maintaining this part of the social safety net, whether in rural areas or big cities to provide cover gaps in access to health care.

There has been a growing problem, however, the extreme growth of charitable hospitals. More specifically, a few bad actors are using their tax-exempt status to increase revenues and grow their fiefdoms. But what’s most egregious is that in many of these instances, they are failing to provide the care to the community that a charitable hospital has promised.

Several examples have come to light that shatter the vaunted image of the charitable hospital. U.S. Senator Chuck Grassley recently published an opinion editorial shining a light on some of these examples. For instance, “the University of Chicago Medical Center pushed to steer poor, uninsured patients with non-urgent needs to local clinics instead of admitting them to its emergency room.” In fact, according to a report by the Government Accountability Office, “nonprofit hospitals and for-profit hospitals were virtually indistinguishable in their levels of uncompensated care.”

As business models change and cost pressures grow in today’s rapidly shifting health care landscape, the lines can quickly and consistently become more blurred with many of the entities that proclaim to be charitable actually mirror some of their largest for-profit competitors. For example, in 2015 tax court judge, Vito Bianco, determined that the failure of a Morristown, New Jersey hospital affiliated with Atlantic Health System Inc., to demonstrate its non-profit eligibility was just the tip of a complicated arrangement that rendered the hospital’s non-profit status a “legal fiction.” The judge ruled that the hospital failed to meet the legal standards for a charitable hospital.

In Bianco’s brief, the judge specifically noted that part of his decision was a result of the hospital operating as a "labyrinthine corporate structures, intertwined with both non-profit and for-profit subsidiaries and unaffiliated corporate entities." This type of maze has raised concern elsewhere in the country.

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In Colorado, the University of Colorado Health (UCHealth) system has set up a network of corporate, for-profit, and non-profit entities that prompts questions about its charitable mission. The elaborate arrangement allows UC Health to enjoy the perks of being categorized as a nonprofit hospital, such as hefty tax benefits, but many have raised concerns about the quality of care given to low-income and underserved patients. Most recently, UCHealth partnered with Adeptus Health, a for-profit company that overseas and operates free-standing Emergency Rooms (ER), previously known as First Choice. UCHealth holds a majority stake in Adeptus Health’s freestanding emergency rooms, but these emergency rooms have drawn intense scrutiny for double billing and complaints of freestanding ERs siphoning off the best-insured patients.

Similar to the University of Chicago, the University of Colorado Hospital, an entity with a financial connection to UCHealth’s hospital systems, has also been accused of making it difficult for Medicaid patients to receive proper care. Even still, UC Health receives millions in tax-payer programs, like Medicare and Medicaid, though government surveys indicate that these same facilities are routinely ranked below the national average by Medicaid patients.

These practices have clearly drawn the ire and scrutiny of Sen. Grassley a legendary scourge of all kinds of dishonesty, obfuscation, and manipulation of federal laws. A few years ago, when NPR and ProPublica reported that non-profit hospitals had garnished wages of poor individuals and even sued working-class patients, an “astounded” Grassley started asking tough questions. As Congress begins to grapple with tax reform, Grassley, the former chairman of the Senate Finance Committee, is almost certain to try to rein in which hospitals are worthy of tax-exempt status.

The tax-exempt status for charitable, religious and non-profit institutions is part of a societal trust that is meant to encourage the “better angels” of our nature. When hospitals conspire to hang onto their tax-exempt status to get a leg up on their competitors, but scrimp on providing care for needy people and even hound them over unpaid bills, it’s clear that more than the tax code needs repair.