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Hospitals fall short on charity: study

Tuesday, May 30, 2006
Chicago Sun-Times
by LORI RACKL Health Reporter

Chicago area not-for-profit hospitals get three times as much money in tax breaks compared with what they dole out in free health care to poor and uninsured people, an analysis to be unveiled today shows.

As a nationwide debate rages over whether nonprofit hospitals do enough to justify their tax-exempt status, the study by the Center for Tax and Budget Accountability quantifies for the first time what most Cook County hospitals would pay if they were on the tax rolls.

Their finding -- an estimated $326 million in tax breaks -- is too out of whack with the $105 million in free or deeply discounted "charity care" provided by the 21 hospital networks studied, Illinois Attorney General Lisa Madigan said.

"It's a huge discrepancy," said Madigan, who wants to force most Illinois hospitals to fork over more free care to low-income, uninsured patients if they want to stay tax-exempt. Her proposed legislation stalled this year in Springfield. But she plans to resume her push next year, using the new report as ammunition.

"When you look at the amount of charity care nonprofit hospitals are providing," she said, "it clearly doesn't measure up to the benefit they're receiving."

Hospitals say study flawed

Hospital trade groups staunchly disagree, arguing that charity care is one of many valuable benefits the facilities provide to communities in return for not paying taxes. They criticized the new study on several fronts, saying it inflates the value of the tax breaks and, by focusing too much on charity care, paints an incomplete picture of what hospitals do to merit the tax benefits they get.

They also noted that the research was paid for by a grant from the Service Employees International Union, which has been a thorn in hospitals' sides because of their efforts to unionize workers.

"The Service Employees have simply been trying to do everything they can to undermine the good work hospitals are doing and trying to use state and local government as leverage to get the labor-management playing field imbalanced in their favor," said Howard Peters, senior vice president of the Illinois Hospital Association.

Vasyl Markus, a policy director for SEIU, balked at the notion that the bipartisan think tank that did the report is a hired gun. He said SEIU, the nation's largest health care labor union, paid for the analysis to help further the debate about whether nonprofit hospitals are pulling their weight in caring for the uninsured, whose ranks in Illinois total 1.7 million.

"A good starting point is figuring out what these hospitals cost us in terms of tax breaks," Markus said.

To get that answer, the Chicago-based Center for Tax and Budget Accountability relied on financial statements and other public documents filed by Cook County's nonprofit hospitals. Using a nationally recognized model, researchers computed estimates for what these hospitals would owe in federal, state and local taxes.

More strings attached

The study found that state and local taxing bodies granted about 96 percent of the hospitals' estimated $326 million worth of tax exemptions. Unlike the federal government's broad standard for tax breaks, exemptions from Illinois sales taxes and local property taxes have more strings attached, not least of which is a requirement to provide charity care "to all who need and apply for it."

While the law doesn't specify how much hospitals must spend on charity care, the study's authors said their findings indicate that, on the whole, hospitals aren't doing enough to meet that requirement. Five hospitals actually dispensed more in charity care than they reaped in tax benefits. But overall, the gap "should be closer than $3 in tax breaks for every $1 in charity care," said study co-author Heather O'Donnell. "Charity care was the underlying rationale for making hospitals nonprofit institutions in the first place."

The hospital association says state courts historically have looked at more than charity care when determining if nonprofits should get a pass on taxes. Officials say hospitals also should get credit for money-losing services such as trauma centers and burn units, as well as the cost of medical research and unpaid patient bills, among other things.

'Community benefits' cited

After including these so-called community benefits in the mix, "it's clear that hospitals are doing a great job benefiting their communities," IHA's Peters said.

But O'Donnell said that for-profit hospitals provide many of the same community benefits as nonprofits -- while still contributing to tax coffers. She added that probably half of the unpaid patient bills that nonprofit hospitals write off as "bad debt" could be considered charity care if hospitals did a better job identifying those who can't afford health care up front.

'Not a charitable act'

"Sending out collection agencies, filing lawsuits and forcing people into bankruptcy -- that's not a charitable act," O'Donnell said, adding that even if 50 percent of hospitals' bad debt was reclassified as charity care in the study, most of the facilities still received significantly more in tax breaks than they gave in free care.

O'Donnell agreed with the hospitals that the definition of charity care could be expanded to count the substantial amount of money medical centers lose when caring for low-income patients covered by Medicaid -- an idea Madigan supports in her charity care legislation.

Hospitals don't publicly report their specific Medicaid shortfall figures, so they weren't included in the analysis.

"This report wasn't meant to be a slam on the hospitals," O'Donnell said.

"It was meant to provide information to a debate that's going on without enough data. The next step is to put together sound public policy to hold the hospitals accountable and figure out what standards they ought to be required to meet."



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