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Hospitals up charity care
Critics not impressed with bigger numbers for treating the poor

Monday, August 06, 2007
Crain's Chicago Business
by Mike Colias


Scrutinized for their charitable practices, Chicago-area hospitals doled out more free medical care for the poor last year, but not enough to silence critics.
The area's 20 largest hospitals and health systems boosted spending on charity care by 30% to $187.4 million, annual reports filed with Illinois Attorney General Lisa Madigan show. When that care is measured as a percentage of revenue, Northwestern Memorial Healthcare is one of the most generous large hospitals, while Rush University Medical Center ranks as one of the stingiest. [Scroll down to view entire list.]
However, all fell short of the mark U.S. Sen. Charles Grassley, R-Iowa, floated last month as a threshold for federal tax exemptions: free care equal to 5% of revenue. The average among Chicago-area hospitals was 1.4%, up from 1% in 2005. (Hospitals argue charity care is just one measure of goodwill.)
Hospitals are on the defensive as the national debate intensifies over whether they do enough to earn the generous tax breaks they have long had. Non-profit status shields hospitals from billions of dollars in income and property taxes and provides tax-free financing for big capital projects. The debate is especially hot in Illinois, where three hospitals were stripped of local property tax exemptions and Ms. Madigan is pressing for tougher standards.
"Hospitals will need to fight to show the value they provide in exchange for their tax exemptions," says Michael Peregrine, a health care attorney at McDermott Will & Emery LLP in Chicago.
Financial strength had little bearing on hospitals' generosity. The biggest spenders include one of the poorest, Mount Sinai Health System on the West Side; one of the richest, Northwestern in Streeterville, and south suburban St. James Hospital & Health Centers, which serves low- and middle-income patients.
BAD DEBT
At the bottom is Rush, with $3.4 million in free-care costs — just 0.4% of its $895.8 million in revenue. Rush actually increased its charity care 36% as its revenue rose 1% in 2006.
Patient revenue rose 4% to $14.3 billion for the top 20 hospitals.
Rush attributes the low number to aggressive efforts to find public-aid coverage for patients who otherwise would have been booked as charity cases. Also, potential charity cases often are recorded as bad debt, a spokesman says.
St. James boosted free care almost 40% last year, to $9.1 million, in part by using credit reports to identify more patients who qualify for charity, Chief Financial Officer Thomas Senesac says.
BENCHMARKING
Critics want hospitals to clear a measurable hurdle to earn tax exemptions. Today, the standard at state and federal levels is fuzzy: Hospitals must show they provide a "community benefit," which can include expenses such as training medical students and sponsoring local fun runs.
Ms. Madigan wasn't impressed with the uptick in charity care among Chicago hospitals last year.
"While the very minimal increase in charity care that these numbers may reflect is better than nothing, it still shows the hospitals are failing to comply with the standard set in Illinois law," a spokeswoman says.
Looking only at the cost of free care disregards other ways in which hospitals serve the indigent, says Howard Peters, senior vice-president at the Illinois Hospital Assn. Many lose tens of millions of dollars a year on unpaid bills that are recorded as bad debt.
But many of those expenses could have been booked as charity if patients had provided the proper paperwork, Mr. Peters says.
Hospitals also lose money on treating patients covered by Medicaid and other public-aid programs, which generally don't pay enough to cover costs — a shortfall the industry vehemently argues should count. Illinois hospitals lost more than $2 billion treating public-aid patients last year, accounting for almost half of the $4.2 billion in community benefits the industry reported to Ms. Madigan's office.
Opinions differ on whether Congress will revise tax-exemption rules. Mr. Peregrine doubts there is wide support among lawmakers for Mr. Grassley's 5% proposal, though he says the Republican's dogged pursuit of the issue is forcing many hospitals to redouble their charitable efforts.
Others think tougher rules loom.
"There's going to be major changes to the federal standard for tax exemption," says James Unland, president of Health Capital Group, a Chicago-based consultancy. "Hospitals need to take this very seriously."



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