The Norman Transcript

November 3, 2013

State hospitals spend small percentages on charity care

By Ziva Branstetter, Tulsa World; Clifton Adcock, Oklahoma Watch, and Curtis Killman, Tulsa World
The Norman Transcript

NORMAN — Despite a congressman’s recent assurance that many hospitals “do the work for free,” Oklahoma’s hospitals spend less than 3 percent of their net patient revenues on charity care on average, records show.

During a town hall meeting last month, Second District Congressman Markwayne Mullin, R-Okla., assured callers worried about the uninsured.

“There are a lot of hospitals out there that do the work for free,” he said.

While records show nearly all Oklahoma hospitals report providing some free care, only a small portion of hospital revenue on average goes toward such care.

Statewide, Oklahoma hospitals spent an average of 2.7 percent of their net patient revenues on charity care in 2012, federal records show. That amounted to more than $187 million in free care for the poor by hospitals statewide, out of $6.8 billion in net patient revenues.

The federal financial reports for 117 hospitals in the state were obtained by Oklahoma Watch and analyzed and reported with the Tulsa World. The data was compiled from hospital cost reports obtained from the Centers for Medicare and Medicaid Services and cost-report data collected by the American Hospital Directory.

Nonprofit hospitals receive a federal tax exemption in exchange for providing a “community benefit” that includes “charity care.” Community benefits include programs that improve public health, the financial shortfall from treating patients insured by Medicaid, medical research and “charity care.”

Charity care is treatment, often for the uninsured, for which a hospital does not expect to get payment.

There is no federal minimum requirement for the amount of charity care that tax-exempt hospitals must provide. Nonprofit hospitals simply must list the community benefits they provide in order to maintain their federal tax-exempt status.

Those benefits can include shortfalls from treating Medicaid patients, spending on medical research and programs to improve community health.

Additionally, 23 states require hospitals to provide a community benefit, and at least five states, including Texas, require them to provide a set minimum amount of charity care in exchange for their tax exemption. Texas requires nonprofit and publicly owned hospitals to provide charity care equal to at least 4 percent of net patient revenue and an additional 1 percent in other community benefits.

Oklahoma has no community benefit requirements in exchange for exempting nonprofit hospitals from income and property taxes.

In 2009, a congressional committee estimated the total value of tax breaks given to tax-exempt hospitals at $6 billion a year. Other estimates have ranged up to $12 billion.

A bipartisan U.S. Senate proposal to require hospitals to provide a minimum level of annual charity care in 2009 was shelved after stiff opposition from the American Hospital Association.

Texas state Sen. Rodney Ellis has sponsored legislation in that state to increase transparency in reporting charity care.

“Nonprofit hospitals enjoy millions in state and local tax breaks,” Ellis said in an email. “The majority of nonprofit hospitals are good actors and provide charity care for those who need it, but a state shouldn’t continue to provide tax exemptions for hospitals that neglect the needs of their community when they have the resources to provide care for those who need it most.”

The study by Oklahoma Watch and the World show wide variation among the state’s hospitals when it comes to charity care. At least 40 nonprofit and government-owned hospitals reported spending less than 1 percent of net patient revenues on charity care.

For-profit hospitals reported spending 1.1 percent on average on charity care while hospitals owned by cities, counties and other government entities spent 1.7 percent on average. On the other end of the spectrum, the University of Oklahoma’s and Oklahoma State University’s teaching hospitals spent a combined average of 8.5 percent last year on charity care.

Ed Matthews, OSU Medical Center’s chief financial officer, said in addition to the hospital’s charity care, the university’s medical school provides care for the poor through various clinics. The hospital’s programs include a “fast track” emergency room to provide more efficient service to patients with more minor ailments and few health care options.

“We are and our partners are contributing significantly to the well being of Tulsa — I would venture to say much more than Brand X or Brand Y — and we’ve done it on a consistent basis,” Matthews said.

One hurdle hospitals have in accounting for the free care they provide is documenting that patients qualify.

Many hospitals require patients to provide proof that their income is low enough to be given free or reduced-price care. They say many patients eligible for charity care don’t go to the trouble of providing the documentation, meaning the hospital writes off some or all of the treatment as bad debt. In some cases it pursues collection.

The OU Medical Center, a for-profit hospital that treats many low-income patients, takes a different approach. It requires patients to meet certain income thresholds to qualify for charity care but does not require patients to submit tax returns or other proof of income because it can be a deterrent, said Michael Reese, the hospital’s chief financial officer.

“Generally speaking, we have moved away from any kind of means-testing in terms of ‘OK, show me your W-2, or last three pay stubs or the balance in your checkbook,’” Reese said. “It’s sort of an honor system.”

“You realize you’re going to get a certain population of patients who aren’t going to be able to pay, and to spend the time and effort to harass the patient to try and collect something … doesn’t make any sense.”

Kevin Bohlander, a 29-year-old Tulsan without insurance, said his doctor referred him to OU Medical Center for four days of expensive inpatient testing next month. Bohlander has a seizure disorder and his doctor wants to know more about what is causing it.

He said his mother called the hospital to make sure officials there understood her son did not have health insurance.

“They said it’s not a problem,” Bohlander said. “I’m looking at this like a blessing, it really is. Nobody has ever done anything like this for me.”

Hospitals’ community benefit

Hospital executives are quick to point out that charity care for patients such as Bohlander is just a part of a hospital’s larger contribution to the community.

“Percentages sometimes don’t tell the whole story,” said Barry Steichen, chief administrative officer of St. Francis Health System.

Steichen says raw numbers — like the 26,000 uninsured and non-paying patients visiting the hospital’s emergency room in the past year — are important, too.

St. Francis Hospital reported charity care slightly below the state average, about 2.3 percent in 2011 and 2.1 percent in 2012. St. Francis Hospital South reported spending 1.7 percent of patient revenues on charity care in both 2011 and 2012.

Steichen said the hospitals, including St. Francis, take a loss on Medicaid patients they treat because federal reimbursement rates do not cover the cost of services. That shortfall between what Medicaid pays and what the care costs to provide is a large part of the community benefit hospitals provide, Steichen and other executives said.

That gulf will only grow larger with cuts in Medicare reimbursement rates under the Affordable Care Act, which hospitals agreed to in exchange for an expanded Medicaid program.

Oklahoma and 24 other states rejected the expansion, leaving hospitals in those states with all of the expenses and fewer benefits from the law.

Another community benefit claimed by St. Francis and other large nonprofit hospitals is the physicians they employ. Those doctors don’t have to worry about billing patients if they can’t pay for treatment.

St. Francis employs doctors at its Children’s Hospital, where 65 percent of patients are on Medicaid, who specialize in pediatrics oncology and other areas not widely available previously, Steichen said.

The hospital includes such spending in its “community benefit” report for the health system as a whole. The health system has set a goal of providing 5 percent of its net patient revenues in the form of community benefits, he said.

“Even though Oklahoma doesn’t have that requirement, it is a standard that this organization at the board level that we will meet or exceed that threshold,” Steichen said.

St. Francis Health System reported community benefits of $54 million in 2012. The system includes three hospitals and Warren Clinic, a group of 325 physicians affiliated with the health system.

Varying levels of charity

Some hospitals with multiple locations report widely varying levels of charity care.

St. John Medical Center in Tulsa provided charity care well over the state average: 4.1 percent in 2011 and 5.1 percent in 2012.

However two hospitals affiliated with St. John — St. John Owasso and St. John Broken Arrow — reported providing charity care at less than 1 percent and just above that level in 2012.

Lex Anderson, chief financial officer for St. John Health System, said the numbers “might be a little understated.”

“To the extent that those hospitals can generate some profit, that’s profit that can be used to provide care for the poor at St. John Medical Center,” he said.

Anderson said he views charity care as part of the larger community benefit provided by the health system as a whole. That includes six hospitals as well as the health system’s 300 doctors and 100 advanced practitioners.

“We believe the amount of total community benefit we provide is probably, if not the highest, close to the highest in the state,” Anderson said.

St. John Medical Center, the system’s largest hospital, ranked No. 5 in the state in 2012 in percentage spent on charity care. The health system overall reported providing $83 million in community benefits in the last fiscal year, including support for graduate medical education and unreimbursed Medicaid costs.

Questions on how much

Some states have revoked or threatened to revoke hospitals’ tax exemptions due to a relatively low level of charity care. In 2010, the Illinois Supreme Court ruled that a hospital in Urbana did not qualify as tax exempt because it provided charity care to less than one-half of 1 percent of the patients it served.

Rick Snyder, vice president of financial and information services for the Oklahoma Hospital Association, said a hospital’s level of charity care often depends on the makeup of its surrounding community, including the number of uninsured people. Another factor is the scope of a hospital’s services, which affects how many low-income people are treated.

Snyder said nonprofit and publicly owned hospitals should provide at least some level of charity care to patients.

The association has not taken a position on whether nonprofit and publicly run hospitals should be required to offer certain levels of charity care. In Texas, nonprofit hospitals must provide at least 4 percent of their patient revenue toward charity care.

If the issue were to arise in Oklahoma, the association’s board would determine a position, he said.

“We think that it’s obviously an important role for the community hospital to provide care to people who need it,” Snyder said. He added that the association favors Oklahoma expanding its Medicaid program to access federal funds and reduce the amount of charity care needed by patients.

About 650,000 Oklahomans lack health insurance and the state ranks No. 5 in the nation for the number of uninsured.

Anderson said by rejecting the Medicaid expansion, Oklahoma is “donating to the health and welfare of other states.”

“It’s like a hidden tax,” he said.

Congressman Mullin said while he continues to oppose “Obamacare” and its mandates, he believes hospital executives and other medical providers should be part of the conversation about how to improve health care.

In the meantime, hospitals in the state will continue to provide care to those who need it, Mullin said.

“No one gets turned away and not even just the Catholic hospitals but any ER across the state. You go in there and they are going to provide you with care regardless of who you are and if you can pay.”

Reach the reporters at ziva.branstetter@tulsaworld.com, cadcock@oklahomawatch.org and curtis.killman@tulsaworld.com.

Oklahoma Watch is a nonprofit, nonpartisan journalism organization that produces in-depth and investigate content on important public-policy issues facing the state. For more Oklahoma Watch content, go to www. oklahomawatch.org.

SIDEBAR

At least 40 hospitals spend less than 1 percent on charity care

By Ziva Branstetter of the Tulsa World and Clifton Adcock of Oklahoma Watch

At least 40 nonprofit or government-owned hospitals in Oklahoma spent less than 1 percent of their net patient revenues caring for those who couldn’t afford to pay their medical bills, records show.

The data, obtained by Oklahoma Watch and analyzed and reported with the Tulsa World, covers 2011 and 2012. Some hospitals reported spending below 1 percent during both years while only one year of data was available for others.

Most of the hospitals with charity care below 1 percent had negative operating margins but a few did not.

Wagoner Community Hospital spent less than half of 1 percent of patient revenues on charity care in 2011 and 2012. Meanwhile, the hospital reported a 22 percent operating margin in 2012.

Rod Shook, CFO of Wagoner Community Hospital, said the hospital has difficulty getting patients to take advantage of charity care available to them.

“We offer the applications and the patients take them. However, it’s very difficult to get it back from them. We would prefer that they be charity care rather than bad debt.”

St. Anthony Hospital and Integris Baptist Medical Center in Oklahoma City and Integris Blackwell Regional Hospital also made the list of hospitals that spent less than 1 percent of patient revenue on charity care in 2011 or 2012.

Non-profit hospitals receive a tax exemption from the federal government in exchange for providing benefits to the communities they serve. Several years ago, the Internal Revenue Service expressed concern about the wide variety of ways non-profit hospitals were counting the community benefits they provided.

An IRS study of nearly 500 hospitals found that a small group of them accounted for about 80 percent of the funds spent to benefit the community.

In 2009, the IRS began requiring non-profit hospitals to file a report that states how much they spend on each type of community benefit provided.

Fairview Regional Medical Center, a 25-bed, city-controlled hospital, provided charity care of less than half of 1 percent of its patient revenue in 2012 and 2011, according to cost report data.

Roger Knak, the hospital’s CEO, however, said it wasn’t for lack of trying.

The hospital’s charity-care policy offers graduated discounts tied to income, with people at or below 100 percent of the federal poverty level having their whole bill written off, Knak said.

“Part of the problem we really struggle with is some of the people that really should qualify for charity care don’t take the time to fill out, or refuse to fill out, the paperwork or provide the documentation we need to prove charity care,” Knak said.

The hospital has made an effort since 2012 to get more self-pay patients to sign up for charity care to avoid classifying the account as bad debt, which it will try to collect, Knak said.

“I would much rather recognize it on the front as charity care than wind up going through the process of bad debt,” Knak said.