Nonprofit health systems have been under fire over the last several years for practices that have made some question whether or not they should be able to continue as nonprofits. Here are some of the top reasons why nonprofits are facing increased scrutiny:
1. Tax breaks
For years, nonprofit hospitals have been given tax breaks in exchange for providing charity care and other community benefits. Lately, nonprofits have been under fire for not doing enough to "earn" their tax-exempt status. In May, members of the California Nurses Association marched at the state capitol to demand a bill to toughen reporting requirements by nonprofit hospitals on what they are providing in exchange for their tax-exempt status. The California bill would tighten the state's definition of what qualifies as a community benefit and standardize reporting by nonprofit hospitals.
In Chicago, Pittsburgh and other locations, several nonprofit hospitals have lost their property tax exemptions for failing to provide enough community benefits. Margo Gorchow, vice president of community relations and development at Botsford Hospital in MI, told Crain's Detroit Business that national standards for community benefits could provide clarity for all nonprofit hospitals. "The challenge to nonprofits will be the implementation of non-reimbursable programs (and) activities in a time of declining margins that have been used to support mission-based, government-required community health outreach," she said.
Not everyone agrees that standardization is a good idea. Lori Boyce, director of business tax services with Deloitte Tax LLP in Detroit, told Crain's Detroit Business that setting a community benefit standard could backfire. "If the IRS or some states set a minimum standard of, say, 5%, then some hospitals might cut back to the minimum," she said. "Some are doing more than 10%."
2. Executive pay
Despite public outrage over multimillion dollar benefits packages for nonprofit healthcare executives, their pay continues to rise. According to Modern Healthcare, the average 2012 cash compensation for nonprofit hospital CEOs was $2.2 million, with the lowest being $178,810 and the highest being $10.7 million. Critics say the high salaries paid to nonprofit hospital executives undermine the nonprofit mission. "It is somewhat unique in the nonprofit sector that you have a class of CEOs that are working for public charities that are becoming millionaires," Ken Berger, president and CEO of Charity Navigator, told Modern Healthcare.
But some consultants believe salaries have to be competitive in order for nonprofits to compete with for-profits for top talent. "Not everyone can step up and step into running a healthcare system with 25 to 50 hospitals," Tom Flannery, a partner with the consulting firm Mercer, told Modern Healthcare. "It's a heck of a complex job."
3. Overcharging the uninsured.
The amounts people pay for hospital costs vary widely based on their insurance coverage or lack thereof. The uninsured are often the ones who end up with the highest costs. "It's unconscionable," David Himmelstein, a professor at City University School of Public Health at Hunter College in New York, told Bloomberg Business. "It adds to the already grave suffering of the uninsured."
For nonprofit hospitals, an internal revenue service regulation imposes "limitations on charges for emergency or other medically necessary care to not more than the amounts generally billed to individuals who have insurance covering such care." It also prohibits using "gross charges" (i.e., the full, undiscounted charge for the services). However, the vague wording of the regulation is not enough to fix the pricing issue.
Rich Umbdenstock, president of the American Hospital Association, said the pricing structure is part of a "broken system" that hospitals can't change on their own. "If we could have fixed this, we would've," he told Bloomberg Business. "Why would we want to perpetuate this?" Umberstock also said stories about people who have amassed huge medical bills they can't afford to pay are one of the industry's toughest PR issues.