ADDING FUEL TO THE FIRE: UPFRONT PAYMENTS AND CHARITY CARE
DATELINE: April 28, 2008, Chicago
Barbara Martinez of the Wall Street Journal reports today on a new trend in nonprofit hospital finance that surely will catch the attention of Senator Grassley. Cash Before Chemo: Hospitals Get Tough. As is often true of many health care exposes, this one focuses on the story of one particular patient. In this case, Lisa Kelly's dramatic story serves as the anecdotal evidence. She was advised by her doctor in 2006 that she had leukemia. When she sought treatment at M.D. Anderson Cancer Center in Houston, Texas, she was told that the nonprofit hospital would not treat her unless she prepaid the estimated...
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$105,000 cost of treatment. According to Martinez's reporting, Kelly wondered whether she was going to be sent home to die.
The demand for prepayment is not limited to the M.D. Anderson Cancer Center. Martinez reports that other hospitals are adopting prepayment requirements in the face of mounting debt collection problems and requests by underinsured individuals for treatment. Typically hospitals have billed for services after the fact.
We can only imagine what Senators Obama and Clinton will have to say about this story on the campaign trail. It is perfect for their populist message. We, however, are sympathetic to the hospitals. It is easy to use Kelly and other people facing similar circumstances as a battering ram to attack the level of charity care provided by nonprofit hospitals. What those who are quick to attack nonprofits forget is that these hospitals must finance their activities. They do not operate in isolation, but are part of a health care system that is broken. Unfortunately, if they alone are shouldered with the burden of fixing our health care system, as some politicians advocate, they will go out of business. Just as Lisa Kelly serves as the poster child for patients in need of help, M.D. Anderson Cancer Center serves as the poster child for nonprofit hospitals. According to Martinez's article, its unpaid patient bills increased from $18 million to $52 million in one year.
What is particularly interesting about Martinez's story is the how the M.D. Anderson Cancer Center apparently described its mission to Martinez. Rather than stating that it was a nonprofit hospital with the mission of caring for the poor—clearly a charitable activity—it chose to describe its mission as being the cure for cancer. That also strikes us as a basis for qualification as a Section 501(c)(3) organization, but one that is not tied to providing health care for free.
Unfortunately for the M.D. Anderson Cancer Center, its change in semantics may not carry the day with Senators Grassley, Obama, or Clinton. A chart accompanying Martinez's article shows patient revenue increasing from just over $1 billion in 2003 to just under $2 billion in 2007. During that same period, the center's net income ballooned from just under $100 million to just over $300 million. But over the three-year period from 2005 to 2007, the center's free care declined from somewhere around $150 million to about $100 million per year.
Martinez points out that it is unclear the extent to which nonprofit hospitals have adopted prepayment practices. In 2006, the IRS surveyed 481 nonprofit hospitals. The survey reported that 14% had adopted some sort of prepayment policy. These policies required that patients either prepay or make some sort of other arrangement for payment before being treated.
As usual, the hospital set itself up as the ogre. According to Martinez:
One day, Mrs. Kelly says, nurses wouldn't change the chemotherapy bag in her pump until her husband made a new payment. She says she sat for an hour hooked up to a pump that beeped that it was out of medicine, until he returned with proof of payment.
In another incident recounted in the story, a doctor walked into an examining room with Mrs. Kelly on the table. He was accompanied by someone from the business side of the hospital charged with obtaining payment.
All too often, nonprofit hospitals simply are tone deaf. But Kelly's case doesn't make us entirely sympathetic to her. It turns out she did have an insurance policy that covered over $30,000 of the treatment. Moreover, she and her husband own an apartment building and a rental house that generate $11,000 per month in income before taxes and maintenance. They also earn about $35,000 per annum in interest income from retirement accounts, according to Martinez. There apparently were assets available to pay for Kelly's care. Most likely, there were assets available to pay for higher-coverage insurance.
Obviously, we'd like to see everyone receive adequate medical care, but we don't believe requiring prepayment is inappropriate. This is simply good business practice. Although nonprofits don't have shareholders, nonprofit status should not be synonymous with poor business practices. We continue to be troubled with the unrealistic view of the public and politicians when it comes to health care. The simple fact of life is that if nonprofit hospitals don't charge for their services, there will be no nonprofit hospitals. Although the hospitals are not individuals, they face the same financial difficulties as do their patients. The solution is not to shove charity care down the throats of hospitals until they file for bankruptcy. The solution is a system-wide reform of our health care system.
As an aside, we can't help but note that this is the second expose in recent weeks on nonprofit hospitals. Neither has been sympathetic to the nonprofit hospitals and both used dramatic ancedotal evidence as a central part of the article. We can only wonder whether Rupert Murdock is showing his hand.
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