DATELINE: April 4, 2008, Chicago
As this is written, the American Hospital Association is in the back of an ambulance, rushing to the nearest hospital emergency room with severe chest pains. This assumes the AHA found today's Wall Street Journal outside its door. Splashed across the paper's front page is a major expose by John Carreyrou and Barbara Martinez entitled, "Nonprofit Hospitals, Once For the Poor, Strike it Rich." While the AHA is being transported by ambulance, Senator...
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Charles Grassley finds himself walking to his Senate office with some extra bounce in his step. Long a watchdog who demands more charity care, Grassley got a gift from the Journal. One can only wonder whether influential former staffer Dean Zerbe really resigned several months ago as an aide to Senator Grassley.
As is usually the case, there are two sides to the charity care debate, but the Journal provides considerable new ammunition to those government officials who want more in exchange for their subsidies. Specifically,
--77% of U.S. nonprofit hospitals show a profit while only 61% of for-profit hospitals show a profit.
--Ascension Health, a Catholic nonprofit health care system, reported $7.4 billion of cash and marketable securities on hand at the end of its 2007 fiscal year. The Journal reports that this is more cash than Walt Disney Co. has.
--Lloyd Dean, the CEO of Catholic Healthcare West, received $5.8 million in 2005 compensation, including the forgiveness of a $782,541 home loan. We strongly suspect that Mr. Dean isn't a monk operating under a vow of poverty.
--While many patients leave hospitals facing large bills, Gary Mechlenburg, the former CEO of Chicago's Northwestern Memorial Hospital, received $10.95 million when he walked out the hospital's door for the last time. The hospital claims that much of that payment was accrued retirement benefits earned over 21 years. We suspect Illinois Attorney General Lisa Madigan won't draw such a fine distinction. She has been a staunch critic of the amount of charity care provided by many Illinois nonprofit hospitals. We have to wonder how other Illinois elected officials will view that number as they struggle with structural deficits, collapsing infrastructure, failed inner city schools, and an antiquated mass transit system. After all, much of the property east of Chicago's famed Magnificent Mile is off the property tax rolls because of the blocks and blocks of buildings occupied by Northwestern Memorial Hospital and other segments of Northwestern University. The Jounral cites one study's findings that Northwestern Memorial's investment income is twice the amount of charity care it provides. Steam came out of Senator Grassley's ears when he read that finding. Who says endowment accounting doesn't matter?
Of course, the Journal article contains a number of quotes disputing the lack of charity care. Northwestern Memorial's CFO cites all sorts of community benefits that the hospital provides that aren't normally included in what he characterizes as too narrow of a definition. Another hospital goes so far as to include the salaries it pays to all its employees as community benefit. We have generally been sympathetic to nonprofit hospitals as they have battled their critics, but even we think that argument pushes the limits.
Well, we know three things for sure. First, this article will re-open the debate over whether nonprofit hospitals should be tax-exempt, and if so, how much charity care should be provided as a condition of tax-exemption. Expect to see this article cited in the presidential debates this fall.
Second, the president of the American Hospital Association will write a rebuttal which will appear on the Journal's op-ed piece early next week.
Third, Senator Grassley will issue a press release today mentioning the article.
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