State Treasurer Dale Folwell fired another round Wednesday in his ongoing feud with the state’s largest hospitals. Folwell, who oversees the 700,000-member State Health Plan, has for years tried to get hospitals to be more transparent in their pricing and contracts with insurers.
He argues that more transparency will help reduce health care costs for state employees. Hospitals defend their practices, pointing out that there’s one obvious reason they’re not like other businesses: They have to treat everyone who walks through the hospital doors, regardless of whether the patient can pay.
Folwell held a news conference Wednesday to rebut that argument, citing a new study from the Johns Hopkins University Bloomberg School of Public Health. Researchers looked at how much money N.C. hospitals lose through “charity care” and compared that amount with the value of tax breaks they receive as nonprofit entities.
In 2020, the report says, “our hospitals reaped more than $1.8 billion in tax breaks. Charity care spending did not surpass 60% of the tax exemption’s estimated value across the majority of our largest systems.” Professor Ge Bai, who authored the study, said that the amount of charity care provided “does not appear to justify nonprofit hospitals’ tax-exempt status.”
Folwell told reporters that “the cartelization of health care in North Carolina needs to stop because the consumers are not being protected.”
N.C. Healthcare Association spokeswoman Cynthia Charles said Wednesday that the advocacy group for the state’s hospitals is “still reviewing the report and doesn’t have a comment on the accuracy or fairness of its findings yet.”
“North Carolina’s nonprofit hospitals annually submit audits to state and federal tax regulators who determine each year that hospitals meet their tax status obligations,” Charles said in an email. “Today’s report, based on 2019 data, does not reflect the millions spent each year on investments such as disaster preparations that equip community hospitals with the resources to survive a pandemic.”
As an example of the current economic pressures facing hospitals, Charles pointed to a new American Hospital Association report that found that nationwide, “staffing shortages have cost hospitals approximately $24 billion over the course of the pandemic so far; hospitals have also spent an additional $3 billion in acquiring personal protective equipment (PPE) for the additional staff; and hospitals’ use of contract temporary labor is up 132% for full-time and 131% for part-time staff. … Hospitals and health systems are projected to lose at least $54 billion in net income in 2021, with more than a third of hospitals expected to have negative operating margins through year’s end.”
I asked Folwell if he’d propose any legislative action in response to the Johns Hopkins report. If he’s concerned that hospitals make too much money to justify avoiding taxes, should they lose that privilege?
He didn’t make any such recommendation and instead repeated his call for more transparency. “We should have accountable and auditable benchmarks for what the definition of charitable care is, so the average person can figure out if these entities are earning the right to be nonprofit entities.”
One of the most fascinating aspects of the Johns Hopkins report is the chart that lists each hospital’s 2019 profit margin and the percentage of its expenses that went toward charity care. I’ve always assumed that rural hospitals typically had more charity care and less profit than their bigger urban counterparts.
But that’s not always the case. Near the bottom of the list for charity care expenses is Vidant Health’s hospital in Chowan County, which spent just 0.27% of its budget on charity care, while posting a 12.5% profit margin. But Atrium Health’s Kings Mountain hospital is on the opposite end of the list, spending 12.4% on charity care (the highest in the state) while operating in the red with a negative margin of 3.2%.
Even cross-town rivals in urban counties had some big differences. In Charlotte, both Novant Health’s Presbyterian Medical Center and Atrium’s Carolinas Medical Center spent between 3% and 4% of their budgets on charity care. But while Presbyterian reported a 13.3% profit margin, Carolinas’ was 1.65%.
Not-for-profit hospitals such as Atrium and Novant typically aim for operating margins in the 5% to 7% range. Their investment portfolios also kick off additional income and trading gains when the stock and bond markets are moving higher. In some recent years, for example, Atrium’s investments have contributed more profit than its hospital operations.
The economics of health care defy simple explanations. Folwell will continue to face an uphill batte as he challenges hospitals’ business models.