This July, 2009 article describes efforts by US Senators to pare back the tax breaks received by non-profit hospitals. It is relevant in lake County because, as we just posted earlier, Lake County taxpayers also are taxed 1 mill to provide even more taxpayer funding of the two local hospitals. As the article describes, it is getting harder and harder to identify the difference between for profit and non-profit hospitals.
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Senators Consider Curtailing Hospitals' Tax Breaks
Exemptions, Historically Tied to Charity Care, Expected to Fall in an Overhaul; Industry Says It's Already Taking Hits
By BARBARA MARTINEZ
Senators working on health-care legislation are considering provisions to pare back the billions of dollars in tax breaks enjoyed by U.S. hospitals.
More than half of the 5,482 hospitals in the U.S. are nonprofits that don't pay federal, state or local taxes, according to the American Hospital Directory. This status is rooted in the 19th century: the first U.S. hospitals almost exclusively served the poor; others paid for medical care at home. The tax exemptions were meant to help hospitals shoulder the costs of providing such free care.
But in the past decade, some nonprofit hospitals have amassed big cash surpluses, even as they engaged in aggressive bill-collection tactics. Some provide less in charity care than the value of their tax breaks.
Helping drive the debate is the idea that any federal health-care overhaul that provides for the uninsured would reduce the need for charity care.
Looking Back at Federal Plans for Health-Care Coverage
Journal articles on changes to health-care coverage from the 1940s through 1960s
- Multibillion Dollar Medical Plan Drafted By Federal Officials (March 17, 1945)
- President Suggests U.S. 'Reinsure' Private Medical Insurance Groups (Jan. 19, 1954)
- Social Security Measure Would Add 15 Million Persons, Boost Payroll Tax, Spend Large Sum on Hospitals (May 25, 1945)
- Insurance Companies, Nonprofit Plans Score Gains Among Elderly (July 16, 1962)
One change being floated by Senate Finance Committee leaders Max Baucus (D., Mont.) and Charles Grassley (R., Iowa) is that hospitals would be required to offer a minimum amount of charity care, limit charges to the uninsured and tame their collection practices -- or face an excise tax.
Sen. Grassley has been a vocal critic of nonprofit hospitals for the past few years. "It has been increasingly difficult to distinguish the activities of for-profit hospitals from the activity of charitable hospitals," he said during a May hearing on health care.
That kind of talk has nonprofit hospitals nervous and they have a lot to lose. In a report issued in December 2006, the Congressional Budget Office estimated nonprofit hospitals were spared $12.6 billion in taxes annually, on top of the $32 billion in federal, state and local subsidies the hospital industry as a whole received each year.
Hospitals are already expected to shoulder some of the costs of a health-care overhaul. This week, the hospital industry agreed to receive $155 billion less in government payments in the next decade than it would get under current rules. It said the savings would go toward covering the uninsured.
Still on the table in Congress are other measures that are potentially expensive for hospitals, such as a proposal to withhold Medicare and Medicaid payments from hospitals in the cases of patients readmitted for the same problem within a certain period of time.
Taken together, these cuts could have significant financial repercussions on an industry that accounts for nearly a third of every dollar spent on health care.
"We're no different than everybody that comes to the table, in that reform is great as long as my ox doesn't get gored," said Jim Skogsbergh, president and chief executive of Advocate Health Care, an Oak Brook, Ill., nonprofit system of 11 hospitals.
Hospitals argue they're being targeted at a time when their balance sheets are under pressure from the recession.
Hospitals also caution that, whatever its final shape, the legislation being cobbled together in Washington is unlikely to provide coverage to everyone, and there will still be people unable to pay their bills.
None of the health-care proposals circulating on Capitol Hill, for instance, provides coverage for illegal immigrants.
Aside from pinching revenues, the loss of tax exemptions also would raise the cost of borrowing for nonprofit hospitals. They now issue tax-exempt bonds, letting them borrow money for significantly lower interest rates than for-profit institutions.
"For every billion dollars a hospital borrows, it could cost $20 million to $30 million more," said Paul Mango, head of McKinsey & Co.'s health-care consulting practice. "It's a lot of money."
In addition, donations that nonprofit hospitals rely on for capital improvements, for example, could be jeopardized because they would no longer qualify as tax-deductible charitable giving.
Even if Congress doesn't take away the industry's tax breaks, hospitals are concerned lawmakers will require them to provide a minimum amount of money in free care or community-outreach projects to avoid taxes.
"That's awfully simplistic," said Bruce McPherson, president and chief executive of the Alliance for Advancing Nonprofit Health Care. "Then it just becomes a numbers game." Mr. McPherson said he would rather see a "softer" measure, where hospitals are individually judged on their outreach programs in the context of their own communities.
Among the levies nonprofit hospitals avoid, property taxes are the biggest -- drawing scrutiny as counties and municipalities struggle to fill budget gaps.
In Wisconsin, many cities are strapped and cutting back on local services, said Jack Norman, research director at the Institute for Wisconsin's Future, a nonprofit organization that advocates modernizing the state and local tax systems.
The group published a report last year concluding that the state's 124 tax-exempt hospitals and medical centers had a combined property value of $5.8 billion -- and could be paying $117 million in property taxes annually.
Mr. Norman noted that the state's nonprofit hospitals were among the biggest beneficiaries of the many services provided by local governments, such as law enforcement, fire departments and snow removal. They "should be contributing to the property-tax base," he said.
Wisconsin nonprofit hospitals provided $234 million in charity care to the poor, said Eric Borgerding, Wisconsin Hospital Association's executive vice president. "That alone exceeds any property taxes that might be paid," he said.
Write to Barbara Martinez at [email protected]
Printed in The Wall Street Journal, page A