Saturday, October 1, 2022

"Non-profit" hospital systems behaving worse than for-profits: No end to the scams

I have often written about the greed of hospitals and “health systems”. In a competitive environment (especially in big metropolitan areas) they have combined and consolidated and become enormously powerful. This has been good for them, as they have made a lot of money. Now these large health systems and the insurance companies stand almost as warriors in the gladiatorial arena, each believing that the other is the problem; the hospitals complain that the insurers don’t pay enough and the insurance companies complain that the hospitals charge too much. Nowhere in this equation is the “consumer”, the “patient”, the “person” who is supposed to be the focus of this whole system. If the hospitals and insurers are the gladiators, people are the ants crushed under foot.

“For-profit” healthcare organizations -- incorporated tax-paying, investor-owned -- that run hospitals, nursing homes, and virtually any other kind of healthcare related operation (obviously including all pharmaceutical companies) have long been callously evil in their pursuit of profit, although they have never claimed they were not. Many university teaching hospitals, and even publicly-owned hospitals, were taken over by such companies when their former owners could not afford them (didn’t want to support with tax money, in the case of public hospitals, and were losing money from a combination of caring for people without insurance and overspending on administrators in the case of university hospitals). Predictably, this led to no improvement in the quantity or quality of care being delivered – the quantity, especially for the poor was always less. But it did bail out the former owners.

What has become more and more apparent over the years and decades is that “non-profit” hospitals (called “voluntary” in  New York) have become just as callous and evil, including those associated with religious orders that founded them on the basis of serving the ill and those in need. These hospital systems do not have owners or shareholders and are free from paying taxes, in acknowledgement of the community service that they – ostensibly -- provide. The problem is that they continue to receive the tax break, while cutting back and back on the community service, until in many cases it is not only negligible but even negative – actively hurting the community.

In recent days, the New York Times has featured an exposé on this situation, focusing on two systems, Providence (based in Washington state) and Bon Secours (in Virginia). Both have ravaged and ripped off the people who should be receiving their care, acting in at least as predatory a manner as any for-profit, while legally (so far, maybe) gaming the systems put in place by state and federal governments to regulate them and ensure that they deliver community service.

The article on the Providence system, one of the largest in the nation with 51 hospitals, originally founded by a caring order of nuns, is called 'They Were Entitled to Free Care. Hospitals Hounded Them to Pay.’ It is enough to make you throw up if you are at all a caring person, or one who might ever need healthcare. The gist of the piece is that their prior level of “community service”, the justification for paying no tax, was providing 1.29% “charity care” (well below the already-pitiful national average of 2%), and that this was slashed to below 1% by a new campaign by management to wring every nickel out of every patient, especially those with no or terrible insurance and no money. The article details the methods utilized (such as never offering people, regardless of poverty, the option of not paying, but only how they would pay). These details are sufficient to ensure that, if the perpetrators are religious, they know where they are headed after this life. Even the people who ended up not paying (essentially because they had no money) were subjected to terrible oppression and dunning not only by the hospital itself but by the collection agencies they hired, including garnishing wages from those who were lucky enough to even have jobs. The federal government does not prescribe a specific percent of charitable care that must be done to stay tax-free, but squeezing the poorest is clearly not the intention.

Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate.

They’re not doing much of that! Meanwhile,

Providence is one of the largest nonprofit health systems in the country, with 51 hospitals and more than 900 clinics. Its revenue last year exceeded $27 billion.

Providence is sitting on $10 billion that it invests, Wall Street-style, alongside top private equity firms. It even runs its own venture capital fund.

What they are doing contravenes any conception of why a hospital (or system) should be tax-free; indeed, it makes the for-profits look good, because while they act no better, at least they pay taxes!

The next day’s article, about Bon Secours Mercy Health, ‘How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits’, describes

‘Richmond Community Hospital … consists of little more than a strapped emergency room and a psychiatric ward. It does not have kidney or lung specialists, or a maternity ward,’

and how it is the most profitable hospital in Virginia, making over $100M a year profit.  The scam here is just as reprehensible as Providence’s, but is a little more difficult to understand. It involves gaming  a federal program called 340B. This program was developed to allow people who were poor but not on Medicaid to get reduced costs for their drugs. This is a good thing, but this example also shows how evil corporations can misuse even well-intended programs.

Here’s basically how it works: an eligible entity buys outpatient drugs from pharmaceutical companies and then gets a rebate from them, which can be tens of millions of dollars. The federal government likes this because, unlike money for Medicaid drugs, it doesn’t come out of their coffers but from the drug companies (and thus, of course, the drug companies hate it). What is an eligible entity? Some are categorical, like Federally-Qualified Health Centers (FQHCs). Hospitals become eligible if more than a designated percent of their inpatients are on Medicaid. This is ironic on two counts, since Medicaid patients are not eligible for 340B drugs (because their drugs are already purchased at a discounted rate, and must be separated from 340B drugs) and the drugs are not for use on inpatients. The qualification is an on/off threshold;  you either qualify with a certain % of Medicaid inpatient days or you don’t. Once you do qualify, any outpatient medications you dispense are eligible for rebates; there is no income restriction on who you can sell these drugs to.


Maybe you see where this is going. Bon Secours Mercy qualifies for 340B at Richmond Community Hospital since it is an inner-city hospital serving almost entirely poor people. And the outpatient pharmacy there would surely be entitled to use 340B drugs, and that would be the intent of the program. But…here’s the genius: Bon Secours set up a network of clinics in high-income communities that were legally tied to the “mother” hospital of Richmond, and thus received its 340B designation. So now they could sell drugs on which they got huge rebates to people with money and insurance! Cool! Great idea if you are an MBA student! You might get a good mark for coming up with such a project, provided you can demonstrate that it was not illegal and the management won’t go to jail or pay a huge fine. In this case, I hope that they do. What is wrong with it? Well, for starters they’re not investing any of that money back into Richmond Community, the source of their 340B designation, the hospital that is miserably inadequate to care for its patients…

Of course, not all hospitals and hospital systems are Bon Secours or Providence. Some, especially in small towns and rural areas, and inner cities, are barely surviving. Of course: the rich get richer, even on the backs of the poor, as in the Richmond case. But the ones that are successful (i.e., making money) are almost all doing similar things, gaming the system, and providing as little charitable care as possible, while paying no tax and, if they can, maximizing income from programs such as 340B.

There is a solution. A national health insurance system, Improved and Enhanced Medicare for All, in which everyone’s medical bills are paid by the federal government and hospital budgets are negotiated annually, and there is little or no opportunity for such scams.


Ken Rosenberg said...

Note that uninsured people are billed much more for services than insured people. I’d love to learn more about how that evolved.

In 1969, medical students in Boston researched the non-profit health insurance industry – which was dominated by Blue Cross at that time. We concluded that, other than dividends, there was little difference between for-profit and non-profit insurance companies. (What would otherwise have been called “profits” went to infrastructure and CEO salaries). Since that time many hospitals have become insurance companies and hired MBAs, making this shell game even more opaque to most observers. (Elisabeth Rosenthal analyzed the Providence system in “An American Sickness: How Healthcare Became Big Business and How You Can Take It Back.”)

Jan H. Brown said...

All the more reason to have a national single payor, Medicare for all system in this health backwards country of ours!

taxedmd said...

Very informative; wish that information like this could be applied to national health policies.

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