Stopping Profiteering in "Not-for-Profit" Hospitals

It's counter-intuitive, but many US not-for-profit hospitals have bigger profits than their for-profit counterparts.  Last week, a Wall Street Journal article discussed the growth of profits in the not-for-profit hospital sector and the welcome attention this is garnering from federal policymakers.  As reported, the combined net income of the 50 largest not-for-profit hospitals across the US increased nearly eight-fold from 2001 to 2006 to a staggering $4.27 billion. 77% of the 2,033 not-for-profit hospitals in the US routinely make money, compared with 61% of for-profit hospitals.

In return for their not-for-profit status and $12.6 billion in tax exemptions, these hospitals must provide a "community benefit".  Many people assume this means charity care, or free care for the uninsured and indigent, but the term is so loosely defined that some hospitals have been reporting the wages they pay to employees as a community benefit.  Another problem is that ostensibly non-profit hospitals have entanglements with for-profit subsidiaries that line the pockets of staff and affiliated professionals affiliated with these supposedly non-profit hospitals.

To shed light on not-for-profit hospitals and the community benefits provided, the IRS will require hospitals to break-down their community benefit contributions starting in 2009.  The new reporting standards are welcome, but minimum standards for providing charity care are a must next step.

What Can States Do? All of Maine's community hospitals are non-profit.  However, as highlighted by a report from Consumers for Affordable Health Care, concerns that the hospitals were generating consistent profits even while hospital costs were increasing in Maine at rates far above regional and national rates, helped lead to enactment of Chapter 249.  This 2005 law requires Maine hospitals to disclose financial information about each tax exempt entity as well as for-profit entities in which a hospital has a controlling interest.  

To ensure communities are getting value for the tax exempt status of not-for-profit hospitals, Community Catalyst's Hospital Accountability Project offers research, fact sheets, and model legislation for state policy .  Resources include:

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