Providing Enough Charity Care in Exchange for Tax Exemptions?

	St. Mary's received an estimated $22.2 million in annual tax exemptions 2003-2005.
	The community provides $9 million or 40% of the tax subsidy in the form of property taxes forgone.
	St. Mary's gave $4.2 million in charity care in 2006.
	SSM Health Care, St. Mary's corporate parent, ranked close to the bottom among Catholic health chains when it came to providing charity care.

Charity care is subsidized or free care to the uninsured and low income. It is the most direct way that a hospital gives back to its community. It is also the original rationale for granting hospitals not for profit status. Charity care remains the most important measure of a hospital's charitable mission.

From 2003-2005 St. Mary reported its charity care amounts to the Wisconsin Hospital Association at full charge rather than at cost to the hospital (a).  

(a) Full charge is like a “list price”--the amount that a hospital ideally wants to charge for a procedure or set of procedures. In fact, hospitals rarely receive full charge unless the patient is uninsured. Instead, they reach agreements with HMOs and other insurers to offer discounted rates for services—rates that still are above cost. By reporting charity care at full charge rather than at cost, or what the hospital actually spent on providing the care—the hospital increases the face value of its contributions. This accounting device had the approval of the WHA, which instructs hospitals to report charity care at “full established rates.” (Hospital Fiscal Survey Manual, Fiscal Year 2005.) hide this

(b) The ‘actual amount’ estimate was achieved by multiplying the charity care figure by the “cost to charge ratio” as calculated by the Center for Medicare and Medicaid Services (CMS) in 2004.  The overall RCC for St Mary’s Hospital in 2004 was .52. hide this

$22 million in Tax Exemptions to St. Mary’s Hospital

The following is an estimate of the value of St. Mary’s annual tax exemptions. Numbers are based on 2003-2005 financial data submitted by the hospital to the Wisconsin Hospital Association.

The numbers above may underestimate the value of the hospital's tax exempt status: the total does not include other local or state taxes and fees, such as sales tax. Nor does it include the value of  other benefits that are not taxes per se, but are a function of tax exempt status. These include such things as tax-exempt contributions and less expensive tax-exempt bond financing. For a more comprehensive list of the entire range of benefits that a hospital gains from being tax exempt see "Establishing the Value of Tax Exempt Status (7/06)" written for the Catholic Hospital Association.

The importance of tax exemptions to the hospital, and comparatively, how much it devoted to charity care, can be seen by showing each as a percentage of the hospital's total expenses.     

For a full report that includes sources and methodology, click here.
 

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LOSING THeir RELIGIOus mission?

SSMHC is sponsored by the Franciscan Sisters of Mary. The order established the hospitals that SSMHC now owns and runs. Corporatization has taken a toll on the original charitable mission.

Then: 60% of SSMHC Patients Received Charity Care.
Now: 1.1% of SSMHC Net Revenue Goes to Charity Care

“One of the things that we point to with significant pride is that in those early days when records were kept, 60% of the patients had the initials ODL behind their name,” Ryan continued. “ODL stands for ‘Our Dear Lord’s,’ which indicated that they couldn’t pay. It’s been an inspiring example for us, and we do everything we can to continue that legacy.”

Sister Mary Jean Ryan, CEO, SSM Health Care 

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Ranking the Catholic Systems

The following table, published in Modern Healthcare, shows that in 2004, SSM Health Care, the owner of St Mary’s Hospital, ranked close to the bottom of Catholic chains in providing charity care, measured as a percentage of 2004 revenues.

(1) Revenues are net.
(2) Assumes cost to change ratio of 50%
(3) 2003 data

The number for SSM Health Care is consistent with our calculations of St Mary’s Hospital performance of about 1.4% in 2005.

For full article and chart, see, Paul Barr, “Blessings From Above: Large Catholic healthcare systems have seen their revenue, profits rebound. How will that affect spending on charity care?” Modern Healthcare, (April 11, 2005)

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THE REAL MEASURE OF CHARITY AND CARE

Not-for-profit hospitals often receive substantial tax exemptions. In exchange, they are supposed to provide benefits to the community in keeping with their charitable mission. The standards for determining eligibility for tax exemption have changed over the years, to the detriment perhaps, of lower income people.

Prior to 1969, hospitals that were seeking tax exempt status not only had to show that they were organized and operated for a charitable purpose, but specifically, a tax exempt hospital had to “be operated to the extent of its financial ability for those not able to pay for the services rendered.” (IRS Rev. Rul. 56-185, 1956-1 C.B. 202). That is, tax-exempt hospitals had to provide charity care (medical care to those who were low income or uninsured and unable to pay).

But in 1969, in part due to the erroneous belief that Medicaid and Medicare would render charity care unnecessary, the IRS replaced the requirement of charity care with that of community benefits, a more nebulous concept. (See IRS Rev. Rul. 69-545, 1969-2 C.B. 117.) Included in this ‘community benefit’ could be everything from free clinics, to brochures about heart health and blood pressure—things which might or might not be beneficial to the lower income members of the community, but which could also serve the hospital’s attempt to attract insured patients.

As insurance rates have increased, and government programs have failed to provide affordable health care to all, the need for hospitals to fulfill the original mandate of charity care has become more pressing.

According to the Congressional Budget Office study of data from hospitals in five states, there is little difference between private not-for-profit hospitals, and private for-profit hospitals in terms of community benefits they provide. The largest source of community benefits: government-owned hospitals.

“The average “uncompensated-care share”—the cost of uncompensated care (bad debt and charity care) as a share of hospitals’ operating expenses—was much higher at government hospitals (13.0 percent) than at either nonprofit hospitals (4.7 percent) or for-profit hospitals (4.2 percent).”

(Nonprofit Hospitals and the Provision of Community Benefits, Congressional Budget Office, (December 2006), p 2.)