Indy Star Article Re: Tax-Exempt Status and Community Benefit

This recent article in the Indianapolis Star addresses many of the fundamental issues that surround the issue of the tax-exempt status of many hospitals and the disconnect between the value of the tax-exemption and the actual benefit that is provided to the community which they are supposed to serve.

Indy Star Sunday Dec 14, 2008:

Are hospitals doing enough for the poor?

Nonprofit facilities get millions in tax breaks for providing free care and other community benefits. But some say those benefits come up way short.

Each year, Central Indiana’s four major nonprofit hospitals receive tens of millions of dollars in tax breaks in return for providing outreach programs and care for the poor.

But those hospitals’ current level of “charity care” — care for which they expect no payment — raises questions about whether they deserve those tax breaks and whether measures should be taken to protect taxpayers.

A review of federal, state and hospital records by The Indianapolis Star reveals that the area’s four nonprofits — Community Health Network, St. Francis Hospital & Health Centers, St. Vincent Health and Clarian Health — devoted less than 3 percent of revenue each to charity care in 2006, the most recent year for which such information is publicly available. All told, they spent $78.8 million that year on charity care, of which Clarian’s Downtown hospitals contributed more than half.

By comparison, the area’s public taxpayer-funded hospital, Wishard Memorial Hospital, provided roughly $149.1 million in free care in 2006 — nearly twice the total of the four nonprofits combined, or the equivalent of 35 percent of its patient revenue.

This imbalance isn’t happening by accident. Across America, nonprofit hospitals are moving to the suburbs, where they can attract patients far more likely to be insured — and are far less likely to encounter patients in need of the free or subsidized care that merits their nonprofit tax breaks.

Taxpayer-funded hospitals, which, like Wishard, are more often in inner cities, are left to pick up the ever-increasing slack and cost.

The situation has drawn the attention of state and federal lawmakers, who see a need for hospitals to better justify their nonprofit status.

“My bottom line is that I think there are problems,” said Sen. Charles Grassley, R-Iowa, who is pressuring hospitals to defend their tax-exempt status. “You need to do the charitable things that charities have tax exemption for.”

Some states have minimum requirements. In Texas, for example, hospitals are required to devote at least 4 percent of revenues to charity care — a threshold that none of the four Central Indiana hospital providers met in 2006.

Neither the IRS nor the state of Indiana, however, requires any set amount of charity care to receive or maintain nonprofit status.

In 1969, the Internal Revenue Service set standards for tax-exempt status and an expectation for community benefit, including charity care.

Indiana requires nonprofit hospitals to file an annual community benefit report with the Indiana State Department of Health. The report is for information only and ostensibly shows what the hospitals have done to benefit the community. But hospitals define community benefit differently, making it difficult to compare charity care levels for different providers or over time.

Last year, state Rep. Thomas E. Saunders, R-Lewisville, introduced legislation that would have required hospitals and other nonprofits to prove their property was used for charitable purposes to remain eligible for tax exemption.

He said he soon learned from lobbyists that such rules had little support. The bill died.

“I wasn’t a very popular person last year,” he said.

Saunders said he intends to keep pressing the issue but has no plans to reintroduce legislation. “I just wanted it to be debated,” he said, “and it didn’t get debated.”

Grassley sent letters earlier this year questioning certain charity care or billing practices at two high-profile, tax-exempt hospitals: M.D. Anderson Cancer Center in Houston and the University of Chicago Medical Center in Illinois.

University of Chicago hospitals performed $10 million worth of charity care in the most recent fiscal year, yet received $59 million in tax exemptions, according to the Center for Tax and Budget Accountability, a Chicago nonprofit.

The concern has caught the attention of the IRS, as well. Starting next year, tax-exempt hospitals nationwide will have to provide more detailed financial information to the agency about the charity care and community benefit they provide. Still, there will be no quantifiable requirement.

Arguments against thresholds

Although some argue that hospitals should meet certain charity care thresholds — such as 5 percent of patient revenues — to receive tax breaks, others say such requirements would only lead to more problems.

Hospitals and doctors likely would demand higher rates if they incurred more losses from charity care, some say.

Already, uninsured patients often are charged the highest prices for care because they do not receive discounts negotiated by large insurers. More pressure would be placed on those with any ability to pay, forcing some people into bankruptcy.

Some hospitals would never reach the charity care goal because they are in areas that would make that impossible.

“You could have a hospital in an affluent area seeing every charity care case that walks through that door and not hit that number,” said Douglas Leonard, president of the Indiana Hospital Association.

Calculating benefit

Indeed, based on 2006 figures, a 5 percent minimum would be daunting for some.

Charity care at St. Vincent’s Indianapolis and Carmel hospitals was more than $12 million in 2006, but the hospitals had more than $907 million in revenue — putting their charity care at 1.36 percent. At 5 percent, the two hospitals would have provided more than $42 million in care to the poor.

Charity care at St. Vincent’s flagship 86th Street hospital on the Far Northside was about 1.5 percent of total revenue of $765 million in 2006.

But St. Vincent Health Chief Executive Officer Vince Caponi said it’s unfair to base his hospital’s tax-exempt status on charity care alone. He says the treatment of Medicaid patients, for which the hospital is not fully reimbursed, and other community programs also must be considered.

“As a faith-based organization, charity is very important to us,” Caponi said. “It’s something that quite frankly we budget for every year.”

St. Francis’ parent organization, Mishawaka-based Sisters of St. Francis Health Services, said it would have paid $178.6 million in federal and state taxes in 2007 had its hospitals not been tax-exempt.

That year, Sisters of St. Francis said it provided $71.6 million in charity care at its Indiana and Illinois hospitals. But the hospital reported $215.9 million in community benefit, which included unpaid Medicaid costs and other expenses.

Community Health Network, which operates four nonprofit hospitals in Central Indiana, performed $9.2 million in charity care in 2006, yet received $33.75 million in tax exemptions. Community had total 2006 revenue of about $995 million.

But Community officials also stress that charity care represents just a portion of what the network does to justify its tax-exempt status. The hospital system calculates its total community benefit, including health outreach programs and its shortfall from treating Medicaid patients, at $69.48 million.

No one suggests that using Medicaid shortfalls to calculate community benefit is inappropriate. However, the rates negotiated with insurers are set, in part, to help offset that shortfall.

Also, just as nonprofit hospitals in the suburbs tend to serve far fewer patients who are uninsured, they also serve far fewer who are on Medicaid.

Location, hospital officials acknowledge, determines who their patients will be — and location has created tension.

In 2011, St. Francis plans to close its Beech Grove hospital, which has served the blue-collar community for generations.

Such a move might improve the bottom line, but St. Francis’ parent organization, in its 2006 IRS filing, states that its primary purpose for tax exemption is to continue the healing ministry of Christ, and to provide “service to the less fortunate among us.”

Greg Anderson, vice president of finance for St. Francis, said his system plans to keep some outpatient services in Beech Grove.

“We are not going to abandon this community,” Anderson said.

Yet he acknowledged that St. Francis’ withdrawal from Beech Grove could result in indigent patients ending up in emergency rooms at taxpayer-funded Wishard or other nearby hospitals, including Methodist and Community Hospital East.

The move doesn’t sit well with Daniel Evans, Clarian’s chief executive officer.

“Our facilities are where the poor people are,” Evans said. “If you close your Downtown operations and move to the extremes of the county, it’s natural that you would provide less charity care.”

For Clarian, taking on a larger share of indigent patients is a hit to the bottom line. But at Wishard, it’s a hit to taxpayers.

To help with the cost of providing care to uninsured patients, Wishard receives support from Marion County property taxes, although that funding has decreased as its load has increased.

In 2006, Wishard received $50.3 million in property tax support, or 12.6 percent of expenses, according to records provided by the Marion County Health and Hospital Corp. In 2009, Wishard said, it expects to receive $24.9 million, accounting for 5.4 percent of expenses.

But at Wishard, it’s not just an issue of gobbling up taxpayer dollars or financial strain, but also figuring out how to handle all the patients.

According to Matthew Gutwein, chief executive officer of the Health and Hospital Corp., which operates Wishard, patient admissions have climbed about 12 percent since 2004. Wishard’s inpatient units now typically run at 98 percent of capacity, Gutwein said, and a hospital is considered “full” at 80 percent of capacity because of the need to have spots available for new patients.

Additional Comments on Public Info Session

Other Comments

No Economic Impact Study:  The hospital, in response to a question at Tuesday’s meeting, stated explicitly that they do intend to undertake any type of economic impact study to identify the true costs of this project on the local economy.  I suspect that may be because the answer it would provide would identify the real costs in jobs, the likely increase in the uninsured locally, and a decline in the affordability of healthcare to our community.

Manipulation of the Planning Assumptions:  It was also interesting to note some of the subtle assumptions and conclusions that were reached by the architecture firm and their impact on the comparative cost and benefits of the various options.  For example, their review of the estimated cost of reworking the downtown campus assumes that the existing parking structure is demolished and a new parking structure built in the MOB parking lot.  Take a look at a map and you can see that the existing surface lot at the corner of Presbyterian and Broadway is a larger space, would not require demolition and reconstruction of a parking structure, and could serve as the site of an addition to the existing building.   I am sure there are more instances of the information presented being steered in such a fashion to make the desired conclusion seem to be the best choice.    It only takes a few assumptions here and there to significantly alter the apparent cost-benefit analysis provided to the community.

The Real Costs of a New KDDHS Hospital

The real costs of a new KDDHS hospital are not limited to the impact on the downtown economy.  Every person in the community will bear the cost of a project like this.  Based on an estimated cost of $100 MILLION DOLLARS for a new KDHHS facility (see below), the annual increase in KDHHS operating expenses to pay the debt service for such a project would be at least $7 million per year.  This estimate is based upon the annual debt service costs for a $100 million tax-exempt bond issue (the method by which KDHHS would raise the funds for construction). Current interest rates for these bonds would be in the range of 5.75%-6.0% with a 30 year term.   This translates into annual debt service (loan) payments of $7.1 million for the next thirty years (total payments would be in excess of $212 MILLION over the next 30 years including $112 MILLION of interest on the debt).

Where does the money come from to make these loan payments? Largely from the pockets of local businesses and families, either paid directly by those who are uninsured/self-pay, or indirectly through higher health insurance premiums.  As the hospital passes on their higher operating costs through their contracts with health insurance providers (Humana, Anthem, Aetna, etc.), the insurance providers will pass them along to those companies and individuals who obtain their health insurance from these providers.  Combined with the general rise in healthcare costs related to prescription drugs and other non-hospital expenses,  we will surely see double digit increases in annual health insurance premiums.  Do local businesses — which are alreay struggling to compete with companies around the world while also dealing with rising energy prices and commodity costs — really need the financial burden of additional increases in their health insurance premiums?  The impact of these additional costs will also be felt by taxpayers generally who foot the a substantial portion of the bill for healthcare benefits for employees (and their families) of the local school districts, city and county governments — these premiums will rise even faster as the costs are passed along through higher health insurance premiums.

For those who might question my cost estimates of a new facility for KDHHS (my estimate is at least ONE HUNDRED (100) MILLION DOLLARS for a hospital with 75-80 beds versus the current 116 licensed bed capacity), I would point you to a couple of recent and local examples.  (Note that both of these projects are either in progress or recently completed and there have been significant increases in construction costs in the interim due to higher steel prices and higher energy prices generally):

• Norton Brownsboro Hospital in eastern Jefferson County (KY) which is spending $146 million for a 127 bed hospital ($1.15 MILLION PER BED)

“Officials with Norton Healthcare Inc. expect to begin construction next month on the company’s planned $146 million Norton Brownsboro Hospital, the first full-service, acute-care hospital to be built in Louisville in 25 years…..The 285,000-square-foot facility, which will be located in the Old Brownsboro Crossing development in northeast Jefferson County, is expected to open in late 2009..It has been more than a year since Norton announced that it would build the hospital, using 127 licensed inpatient beds the company relocated from its former Norton Southwest Hospital.” (from Business First of Louisville, June 2007)

• Harrison County (IN) Hospital in Corydon completed construction of a 41 bed hospital in late 2007 which cost $47 MILLION DOLLARS ( or $1.14 MILLION PER BED) including furnishings, equipment, etc.  This is a county owned hospital and they diverted $17 million from the County’s casino tax earnings to help pay for the new hospital.  (Various reports from the Louisville Courier Journal)

SIDENOTE: By the way, I am not simply pulling these numbers out of thin air.  I have been involved in hospital financing and analyzing healthcare organizations and capital projects for 20 years as an investment banker at several of the world’s largest investment banking firms including Lehman Brothers, Alex. Brown and Sons, and the late great Bear Stearns.  I also worked with the nation’s largest healthcare focused investment banking firm (Cain Brothers) for several years in Chicago.

Nonprofit Hospitals — Wall Street Journal Article

The following is an article from the Wall Street Journal in April that addresses the national debate over the issues regarding the very profitable nature of nonprofit hospitals such as Kings Daughters.  While the numbers are much bigger for the large multi-state hospital systems discussed in the article, the issues remain the same here in our little corner of the world — is the community benefit received a fair exchange for the large tax breaks given to non-profit hospitals.

Nonprofit Hospitals, Once For the Poor, Strike It Rich

With Tax Breaks, They Outperform For-Profit Rivals

By JOHN CARREYROU and BARBARA MARTINEZ
April 4, 2008

Nonprofit hospitals, originally set up to serve the poor, have transformed themselves into profit machines. And as the money rolls in, the large tax breaks they receive are drawing fire.

Riding gains from investment portfolios and enjoying the pricing power that came from a decade of mergers, many nonprofit hospitals have seen earnings soar in recent years. The combined net income of the 50 largest nonprofit hospitals jumped nearly eight-fold to $4.27 billion between 2001 and 2006, according to a Wall Street Journal analysis of data from the American Hospital Directory. AHD, an information-service company, compiles data that hospitals report to the federal government.

The Cleveland Clinic swung from a loss to net income of $229 million during that period. No fewer than 25 nonprofit hospitals or hospital systems now earn more than $250 million a year. One nonprofit hospital system, Ascension Health, has a treasure chest of $7.4 billion — more than many large, publicly traded companies.

Nonprofits, which account for a majority of U.S. hospitals, are faring even better than their for-profit counterparts: 77% of the 2,033 U.S. nonprofit hospitals are in the black, while just 61% of for-profit hospitals are profitable, according to the AHD data.

At some nonprofits, the good times are reflected in new facilities and rich executive pay. Flush with cash, Northwestern Memorial Hospital in Chicago has rebuilt its entire campus since 1999 at a cost of more than $1 billion. In October, it opened a new women’s hospital that features marble in the lobby, birthing rooms with flat-screen televisions, 1,000 works of art and a roof topped with 10,000 square feet of gardens. In 2006, Northwestern Memorial’s former chief executive officer, Gary Mecklenburg, received a $16.4 million payout.

But Northwestern Memorial has been frugal in its spending on charity care, the free treatment for poor patients that nonprofit hospitals are expected to provide in return for the federal and state tax breaks they receive. In 2006, Northwestern Memorial spent $20.8 million on charity care — less than 2% of its revenues and a fraction of what it received in tax breaks. By comparison, the hospitals run by Cook County, where Northwestern Memorial is located, spent 14% of revenues on charity care.

Northwestern Memorial says that in addition to charity care, it provides other benefits to its community, such as pioneering research in obstetrics and other areas that improve standards of care nationally.

To be sure, some nonprofit hospitals, particularly ones in inner cities that handle large numbers of uninsured patients, remain under financial strain and are struggling to keep their doors open.

But the growing gap between many nonprofit hospitals’ wealth and what they give back to their communities is raising questions about the billions of dollars in tax exemptions they receive.

BACKSTORY

• Read more about how nonprofit hospitals went from charity and tax breaks to healthy profits.

“Some nonprofit hospitals seem to forget that their operations are subsidized with generous tax breaks. They allow their priorities to get out of whack,” says Sen. Charles Grassley. The senior Republican on the Senate Finance Committee threatened last year to introduce legislation forcing nonprofit hospitals to provide a minimum amount of charity care.

Nonprofit hospitals account for about 60% of the more than 3,400 hospitals in the U.S. The rest are either for-profit or government-owned.

In a report issued in December 2006, the Congressional Budget Office estimated nonprofit hospitals receive $12.6 billion in annual tax exemptions, on top of the $32 billion in federal, state and local subsidies the hospital industry as a whole receives each year.

Community Benefit

In return for not paying taxes, nonprofit hospitals are supposed to provide a “community benefit,” a loosely defined requirement whose most important component is charity care. But many hospitals include other expenses in their community-benefit accounting to the Internal Revenue Service, including unpaid patient bills. Often, hospitals also include the difference between the list prices of treatment they provide and what they are paid by Medicaid and Medicare, the government programs for the poor, disabled and elderly. Excluding those other expenses, many hospitals spend less on charity care than they get in tax breaks, studies by various counties and states show.

One nonprofit hospital system, St. Louis-based BJC HealthCare, counts the salaries of its employees as a community benefit. BJC, which runs 14 hospitals in Missouri and Illinois, says on its Web site that it provided more than $1.8 billion in benefits to various communities in 2004. Its payroll, including its CEO’s $1.8 million compensation, accounted for $937 million of that figure, while charity care represented $35 million, according to BJC.

“The impact that any organization that’s job-producing and buying goods has on a community is of benefit to that community,” says BJC HealthCare spokeswoman June Fowler. However, she says BJC won’t count its payroll as a community benefit in the future because of new standards adopted by the IRS.

The new standards, due to take full effect in 2009, will require nonprofit hospitals to break out specifics of their community-benefit contributions. But they won’t require the hospitals to provide any minimum amount of charity care.

The size of nonprofit hospitals’ tax exemptions is coming under scrutiny in part because their incomes have risen so sharply in recent years, and because they represent such a big chunk of America’s health-care spending. Thirty-one cents of every dollar spent on medical care is spent on hospitals.

One reason for hospitals’ soaring profits is a gradual increase in Medicare reimbursements after federal budget cutbacks during the 1990s. By merging and gaining scale, many hospitals also gained leverage in price negotiations with health insurers.

However, much of the industry’s profit growth comes from strategies it honed to increase profits. Among them: demanding upfront payments from patients; hiking list prices for procedures and services to several times their actual cost; selling patients’ debts to collection companies; focusing on expensive procedures; and issuing tax-exempt bonds and investing the proceeds in higher-yielding securities.

Untaxed investment gains have greatly increased some hospitals’ cash piles. Ascension Health, a Catholic nonprofit system that runs 65 hospitals, mostly in the Midwest and Northeast, reported net income of $1.2 billion in its fiscal year ended June 30, 2007, and cash and investments of $7.4 billion. That’s more cash than Walt Disney Co. has.

Ascension says it needs to maintain a sufficient amount of cash to pay for charity care, to keep the interest rates it pays on its debt low, to provide retirement benefits to its 106,000 employees, and to make capital and technology investments at its hospitals.

At the University of Pittsburgh Medical Center, which runs 20 facilities, cash and investments totaled $3.35 billion at the end of last year. UPMC says the money goes toward producing “world-class health care, education and research,” citing the $1 billion it spent over five years to create electronic medical records for patients and an additional $500 million to build a children’s hospital and a network of cancer centers.

But some of UPMC’s expenses are only tenuously related to medicine. In its 2006 fiscal year, UPMC also spent $10 million on advertising, including $1 million on ads in the New York Times. Wendy Zellner, a spokeswoman for the hospital, says the ads enable UPMC “to better compete with other leading hospitals.”

UPMC paid its CEO, Jeffrey Romoff, $3.3 million in fiscal 2006. Mr. Romoff also received $36,995 from the hospital to cover a car allowance, spousal travel and legal and financial counseling. Ms. Zellner says what UPMC pays Mr. Romoff is in line with “nonprofit and for-profit organizations of comparable scope and complexity.”

Some nonprofit hospital executives enjoy other perks. Royal Oak, Mich.-based Beaumont Hospitals says it paid $10,795 for the country-club membership of the president of its foundation last year. A spokeswoman for Beaumont says it pays for the membership to provide the executive “a venue with access to potential donors.”

The Cleveland Clinic continued to pay its former CEO, Floyd Loop, more than $1 million a year for two years after he retired in April 2005. The Cleveland Clinic says part of that was deferred compensation and vacation pay and the rest was for consulting services.

The University of California San Francisco Medical Center provided its CEO and chief operating officer low-interest mortgage loans of more than $1 million each, according to the University of California’s executive compensation reports. A UCSF spokeswoman says such loans help recruit and retain executives, given the area’s high cost of housing.

Catholic Healthcare West, a hospital system based in San Francisco, forgave a $782,541 housing loan it made to its CEO, Lloyd Dean. Counting the forgiven loan, Mr. Dean’s total accrued compensation in 2005 was $5.8 million. Catholic Healthcare West says his compensation reflects his skill in turning the hospital system around financially.

One nonprofit hospital executive who has benefited from the industry’s good fortunes is Mr. Mecklenburg, the former CEO of Chicago’s Northwestern Memorial. The hospital says it paid him $5.45 million in salary, bonus and deferred compensation in its fiscal year ended Aug. 31, 2006, and an additional $10.95 million when he retired the next day. The hospital also awarded five other executives a combined $13.3 million in total compensation in fiscal 2006, according to its filings to the IRS.

Mr. Mecklenburg, now a partner at Chicago private-equity firm Waud Capital Partners LLC, declined to comment, referring questions to the hospital and to the former chairman of its compensation committee, James Denny.

Stellar Results

Northwestern Memorial says a big part of Mr. Mecklenburg’s $16.4 million payout represents retirement benefits and deferred compensation accrued over his 21-year tenure. Mr. Denny, who chaired the hospital’s compensation committee from 1995 to January 2008, says Mr. Mecklenburg delivered stellar results, nearly quintupling the hospital’s patient revenues. “Our view of it is: This is the best deal we’ve ever made,” he says.

Critics argue that Mr. Mecklenburg’s compensation is excessive for a charity organization that gets tens of millions of dollars a year in tax breaks. Northwestern Memorial sits on property on the Gold Coast, Chicago’s most affluent neighborhood, abutting Lake Michigan. The Center for Tax and Budget Accountability, a Chicago nonprofit organization, estimates the value of the hospital’s annual property-tax exemption at $37.5 million. Northwestern Memorial is also exempt from $12.5 million in sales tax for a total of $50 million in annual tax exemptions, not counting the taxes it doesn’t pay on its investment gains, the center estimates.

“The hospital’s tax benefit is more than two times greater than the charity care provided,” says Heather O’Donnell, the center’s health-care policy director.

Northwestern Memorial says it hasn’t calculated the value of its tax exemptions. Robert Christie, the hospital’s vice president for government relations, notes that the Center for Tax and Budget Accountability receives funding from the Service Employees International Union, which represents numerous hospital employees and frequently clashes with hospitals in labor disputes. Ms. O’Donnell says her organization receives funding from many foundations besides SEIU.

Peter McCanna, Northwestern Memorial’s chief financial officer, says the hospital’s contribution to its community should be judged more broadly. “We fundamentally disagree with narrowing [the definition of] our community-benefit contribution to charity care,” he says. He says Northwestern Memorial’s research and education expenses should also be counted. The hospital is the primary teaching hospital for Northwestern University’s Feinberg School of Medicine.

Taking into account educational and other expenses, such as bad debt and unreimbursed Medicaid costs, Northwestern Memorial values its total community-benefit contribution at $230 million for fiscal 2006.

Room Service

Around Chicago, Northwestern Memorial is known as a hospital that attracts the well-heeled. It’s a short walk from the Magnificent Mile, the famous thoroughfare lined with expensive shops and restaurants. At Northwestern Memorial’s new Prentice Women’s Hospital, expectant mothers can watch TV or browse the Internet on 42-inch flat-screen televisions, order room service 24 hours a day and page nurses and doctors via a wireless system. Some birthing rooms have views of Lake Michigan. Only 6% of Northwestern Memorial’s patient revenues come from Medicaid.

By comparison, Sacred Heart Hospital, a small for-profit hospital in a poor neighborhood on the west side of the city, gets 62% of its revenues from Medicaid and pays several million dollars a year in taxes, according to its president, Edward Novak. Parts of Sacred Heart date back to 1928, when the hospital was founded. Another wing was built in 1950. Mr. Novak says he would like to replace the aging hospital with a new facility, but is struggling to figure out how to pay for it. He says his compensation is less than $220,000 a year.

At John H. Stroger Jr. Hospital — formerly known as Cook County Hospital — 56% of patients don’t have any insurance when they are admitted, says John Cookinham, the hospital’s chief financial officer. At Northwestern Memorial, the percentage of uninsured patients is less than 5%. Stroger’s chief operating officer earned $204,485 in 2007, according to Cook County budget records.

In recent years, some nonprofit hospitals have decided to stop using the courts to collect from patients who owe them money. But Northwestern Memorial pursues patients such as Iris Ayala who haven’t paid their bills. While running an errand for her employer, the 50-year-old Ms. Ayala fainted and collapsed in the street one day in 2006. A friend rushed her to Northwestern Memorial’s emergency room.

Ms. Ayala says her insurer paid for the bulk of her 24-hour hospital stay, but she was responsible for a $1,035.39 co-pay. Working only part-time because of health issues and with a daughter in college, she says she couldn’t afford her portion of the bill.

After representatives for Northwestern Memorial repeatedly called her to ask for payment, Ms. Ayala says she promised she would settle the bill once she got her annual tax refund. But Northwestern Memorial sued her in Cook County Circuit Court in July 2007. To make the lawsuit go away, Ms. Ayala says she borrowed the money and paid the hospital. “They didn’t want to hear my sob story,” she says.

Northwestern Memorial declined to discuss Ms. Ayala’s case, citing patient privacy laws. Mr. McCanna says the hospital sued only 82 patients in 2006 and 2007, a number he says is small compared with the more than one million accounts it billed over that period. He says the hospital tries to determine whether patients who are behind on bills qualify for assistance, but some can’t be reached or refuse to volunteer information about their finances. “Absent of information, a lawsuit is sometimes the only recourse,” he says. Mr. McCanna adds that, in some cases, the hospital has waived patients’ bills after later learning that they did qualify for aid.

Northwestern Memorial says its strong balance sheet allows it to provide outstanding care and conduct innovative research. As of Aug. 31, 2007, its cash and investments totaled $1.82 billion, making it one of richest individual nonprofit hospitals in the country. With such a treasure chest, it could operate for a year and two months without any revenue — a gauge of financial strength Mr. McCanna highlights in presentations to bond investors and analysts.

“Nonprofit is a misnomer — it’s nontaxable,” says Sacred Heart Hospital’s Mr. Novak. “When you’re making hundreds of millions of dollars a year, how can you call yourself a not-for-profit?”

KDHHS

When a business for all intents and purposes operates a monopoly, it creates the opportunity for the insiders to enjoy above market pay and spend money unwisely at the expense of the consumer. KDH has no incentive to reign in physician salaries when there is little alternative for the local population to receive health care services. As a tax-exempt charitable organization, KDH has a special responsibility to benefit the community and keep its rates and expenses (pay) at reasonable levels. If the employed physicians were receiving market compensation, the profitability and cash reserves at KDH would be even greater. No one is against having a quality local healthcare provider that is stable and able to make the investments necessary to provide quality services. It seems that the pendulum has swung much too far in one direction. This is certainly a complex issue and there are no easy answers. My question is whether KDH is fulfilling it charitable mission when families without any or inadequate insurance are losing their homes and filing bankruptcy as a result of medical bills. One of the real ironies of our healthcare system is that those who are least able to pay are charged the greatest amount for services. If you have insurance and receive service you receive a steeply discounted rate. If you don’t have insurance and receive the same service, you are charged the sticker price. The sticker price for services have absolutely no relation to the real cost of providing the service. The second concern is the idea of building a new hospital on the hilltop which will cost at least $100 MILLION dollars (see the cost of the new Harrison County hospital in Corydon). Those costs will be passed on to the local community. If you wonder why health insurance premiums continue to skyrocket, it is proposals like this that continue to drive up the costs which many individuals, families and businesses in this community can ill afford.

The following are some of the relevant documents related to this issue for your review:

KDHHS 2004 Indiana Dept of Health Fiscal Summary Report

KDHHS Financial Results for 12/31/2007 and 4/30/2008