News Posted: 4/6/2009
Hospitals Write Off About 2 Percent of Revenue on Charity Care
Local nonprofit hospitals say they write off about 2 percent of revenues on charity care
By Sarah Jane Tribble / Cleveland Plain Dealer reporter April 06, 2009
CLEVELAND -- A clear picture of how much the region's big, tax-exempt hospitals give back to the community is taking shape after years of political pressure.
The Cleveland Clinic, University Hospitals and the Sisters of Charity Health System together spent just over 2 percent -- or $157.9 million on $7.2 billion in operating revenues -- providing free patient care in 2007, according to their most recent federal filings and data requested by The Plain Dealer.
For the first time, all of the hospitals have provided their charity care numbers based on how much it actually cost to provide that care, not how much they would charge on a bill.
In addition to their charity care expenses, the hospitals also say they lost millions more because people did not pay their bills, and Medicaid and Medicare do not fully reimburse.
"Every hospital in this town has made a significant effort to step up in terms of their ability to provide charity care and financial assistance to people who have medical needs," said Bill Ryan, president and chief executive of the Center for Health Affairs, a member organization of the hospitals.
There is no standard for the amount of charity care nonprofit hospitals should provide. But for more than a decade, politicians and community activists have questioned whether nonprofit hospitals -- which don't pay property taxes in return for providing services to the community -- give enough back.
The topic is particularly sensitive for Greater Cleveland, where MetroHealth Medical Center, the county-owned hospital, has said an increase in the number of non-paying patients has caused financial problems. Last year, the safety-net hospital eked out $691,000 profit on $685.9 million in revenues, according to its unaudited report.
Republican Sen. Chuck Grassley of Iowa made national headlines several years ago when he asked the Cleveland Clinic and nine other hospitals to justify the tax breaks they received. Grassley's efforts dovetailed with a wide-ranging review of the nonprofit hospital sector by the Internal Revenue Service, which released results in February from its two-year study of more than 500 hospitals nationwide.
While the report did not break out hospitals' average outlay for charity care, it stated that hospitals reported spending an average of 9 percent of their total revenues on community benefits.
Cleveland's nonprofits spent an average of 8.4 percent of their total revenues on the broader category of community benefits, which includes not only charity care, but also a host of other programs and services, such as research, staff training and community outreach.
"It's all of the things that we kind of take for granted," Ryan said, adding that "those are the things that do suffer when budgets get cut."
Here are a few highlights from the hospitals' 2007 community benefits reports:
The Cleveland Clinic spent $421.6 million on community benefits, including subsidized health services such as psychiatric services at Huron and South Pointe hospitals and obstetrics at Hillcrest, Huron, Lakewood and Marymount hospitals.
University Hospitals spent $168 million on community benefits, including seminars for seniors, a women's health exposition and the "Dare to C.A.R.E." program that screens people for certain cardiovascular problems.
Sisters of Charity spent $8.2 million on community benefits, including community gardens, neighborhood improvement projects, tree planting, graffiti removal, child care for needy community residents, mentoring programs and watch groups.
In 2009, all nonprofit hospitals will be required to disclose information on what benefits they provide to the community on their revised annual financial filings, called 990s. The Cleveland Clinic and University Hospitals included that information in their 2007 forms.
Ron Schultz, senior technical adviser with the IRS for tax-exempt government entities, said that eventually the IRS plans to use the information to determine whether there should be a standard national requirement for charity care or community benefit.
"It's not that we're sitting back and not doing anything," Schultz said.
Grassley isn't sitting back either. Staff members say that the senator is "weighing his options" about whether to introduce legislation to set a standard for charity care and bring more scrutiny to executive salaries.
In the short term, Grassley expects the nonprofit hospitals to continue to provide maximum care to the needy "regardless of the economy."
All of Greater Cleveland's hospitals report an increase in patients who can't pay. Executives at each have said they expect a 10 percent increase in spending on charity care this year, largely because of the rising number of unemployed.
That increase comes when the hospitals are seeing their income shrink. Hospitals make money off paying patients, or those with insurance. But patients usually get health insurance from their jobs and Cuyahoga County's unemployment rate climbed to 9.3 percent last month -- the highest it has been since May 1987. In addition, Ohio hospitals are fighting a proposed state fee that they say could cost them millions.
"Each individual hospital is going to have to deal with the way this assessment will affect finances," said Rick Frank, director of state policy and advocacy for the Ohio Hospital Association. The association expects to release a statewide survey today in which more than a third of the state's hospitals say they will have layoffs or reduce services if the fee is passed.
"Some may have to reduce charity care," Frank said.
Debra A. Draper, associate director with the nonprofit, Washington D.C.-based Center for Studying Health System Change, said the recession may give the hospitals a "perceived license to do things that they've wanted to do for a long time, like cut charity care.
"Don't get me wrong, the [economic] pressures have increased tremendously but this could give them the opportunity," Draper said. "That's what we've seen across the country."
The Cleveland Clinic, University Hospitals and the Sisters have said they will not cut charity care. They will find other ways, they said, to trim their budgets.
"We are resolute in our unwavering commitment to providing significant levels of charity care based on the needs of the communities we serve," University Hospitals Chief Executive Officer Tom Zenty said in an e-mail to The Plain Dealer Friday. The hospital system judges its managers' performance on community benefit efforts, along with a host of other performance measures such as quality outcomes, he wrote.
After a recent meeting with other hospital executives to express their opposition to the proposed state fee, Sisters of Charity's Chief Financial Officer Pat McMahon described charity care -- particularly at its downtown location St. Vincent -- as a primary responsibility.
"The Sisters will continue to follow their mission of giving care to anyone who walks in the door," he said, adding "as long as we can keep our doors open."
Hospitals Write Off About 2 Percent of Revenue on Charity Care