"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.

Rich hospitals get the bulk of government bailouts: It's the American way!

The world isn’t fair. The US isn’t fair. It isn’t equitable. It would be much better if things were more equitable, if everyone had the same starting line (or, to use a metaphor that might be more resonant with politicians and businessmen, started from the same tee), or if those who were starting from farther back got extra help to get them closer to being on a par. Par is another golf term, and actually in golf this is actually done. The “handicap” is an amount subtracted from the scores of weaker golfers (in golf, lower scores are better) to make the competition more fair. Unfortunately, it never occurs to the presidents and CEOs who play on the golf course to apply this same strategy to the actual world, to regular people and businesses.

In fact, it is those least in need benefit most from government policies. It has been clearly demonstrated that the 2018 tax cuts had little benefit for the middle class or working class, less yet for the poor whose incomes are so low they scarcely pay taxes, but was a bonanza for billionaires and mega-multi-national corporations. This is no less the case with the next multi-trillion-dollar coronavirus relief bills, where the richer you are the more you get. Nicholas Kristof points out that ‘a single mom juggling two jobs gets a maximum $1,200 stimulus check — and then pays taxes so that a real estate mogul can receive $1.6 million. This is dog-eat-dog capitalism for struggling workers, and socialism for the rich.' He is correct, and it is unconscionable. Franklin Roosevelt would certainly be appalled; I use a quotation from him that is inscribed in the FDR memorial in DC as the epigram for this blog.  By this measure we not only fall flat, we invert; you’d have to go back even before the “Roaring ‘20s”, at least to the “Gilded Age” of the 1890s to see such inequity enshrined. For a good, concrete, example of how MUCH a billion dollars is and how those who have multiples of it are so far from the rest of us, and how incomprehensible it is to expect working people to bear the brunt of need, Tom Lutz of the Los Angeles Review of Books writes:

In other culture news, The Atlantic laid off 68 people, and the LA Times made everyone take a 20% pay cut, which will save the paper $2 million in a year.

Patrick Soon-Shiong, who owns the LA Times, has a net worth of $7 billion, so one year's 5% return on his wealth would cover that $2 million savings for 175 years. Or he could just cover for this year and have a net worth of $7,348,000,000, instead of $7,350,000,000. Laurene Jobs owns The Atlantic. Her net worth is $23 billion; 5% return on that in one year would pay those 68 fired staffers $100,000 a year each for 169 years. Or she could just pay for this year, and not kick 68 human beings to the curb to face the worst unemployment in 70 years. If she did that, at the end of the year, instead of $24,150,000,000, she would only have $24,143,200,000. That difference is surely worth ruining the lives of 68 people for. Her Apple stock alone went from $7 billion to $12 billion over the last 12 months. That appreciation could pay the fired 68 staffers $100,000 a year each for 735 years. and she still would be one of the 40 richest people in the world.

FDR was famous for the “New Deal”, a mixture of programs to put Americans back to work and to bring us out of the Great Depression. Congress and the executive branch have, in response to the coronavirus pandemic, trotted out literally trillions of dollars, but unlike Roosevelt have done their best to ensure that the most goes to the least needy. It is not just regular people who are affected; bailout money intended to offer relief to small businesses (already generously defined as fewer than 500 workers) went largely to much larger businesses. Some of this was blamed on administrative mistakes in a rush to get the money out, but huge corporations did in fact get lots of money, and didn’t give it back. And, in case you were wondering when I was going to get to health care, the same dynamic is playing out for hospitals.

The pandemic has hit hospitals hard, particularly those in high-prevalence places (like New York City) and particularly public hospitals and others that care for the poor in the best of times. Although most rural areas have not had as high an incidence of coronavirus infections, rural hospitals were teetering on the brink before the pandemic, because a hospital is an expensive operation to run and rural areas have, well, less dense populations. And populations, also that are more likely to be old and poor. Which are two risk factors for getting and dying from COVID-19, but are also risk factors for a lot of other health issue. This is why such hospitals – small rural hospitals, overwhelmed inner city hospitals, hospitals with true need, should be getting the bailout money to help them in this crisis. But – and I doubt this will come as a surprise – they are not getting most of the help, and most of the help is going to big, money-rich, hospital chains, the hospital equivalents of billionaires and multi-national corporations.

A recent article in the New York Times, ‘Wealthiest Hospitals Got Billions in Bailout for Struggling Health Providers’, with the subhead ‘Twenty large chains received more than $5 billion in federal grants even while sitting on more than $100 billion in cash’, begins

A multibillion-dollar institution in the Seattle area invests in hedge funds, runs a pair of venture capital funds and works with elite private equity firms like the Carlyle Group.

But it is not just another deep-pocketed investor hunting for high returns. It is the Providence Health System, one of the country’s largest and richest hospital chains. It is sitting on nearly $12 billion in cash, which it invests, Wall Street-style, in a good year generating more than $1 billion in profits.

And this spring, Providence received at least $509 million in government funds….

While all hospitals have taken a financial hit from the cancellation of high-profit elective procedures, some, like Providence (and there are many others) have big-to-huge cash reserves, while others can barely make payroll month-to-month. In the typical rich-get-richer scenario that characterizes the US all too often, those hospitals that have high profiles (read: take care of well-to-do people) not only do not have to make it on low-reimbursement uninsured and Medicaid (and even Medicare) patients, the get big donations, as detailed in “One rich NY hospital got Warren Buffett’s help. This one got duct tape”, NY Times April 26, 2020 (updated May 20). As all too often with “philanthropy”, the rich give to organizations that benefit the rich, and take a tax break for it. And so do the hospitals, most of which are organized as “non-profits” but act like for-profit businesses, but don’t pay taxes. Much of the data in the May 25 article comes from this Kaiser Family Foundation report. It documents that the biggest recipients of aid were for-profit and wealthy “non-profit” hospital systems. 

How does this happen? By intent or sloppiness? I don’t know.

While Health and Human Services also created separate pots of funding for rural hospitals and those hit especially hard by the coronavirus, the department did not take into account each hospital’s existing financial resources.

“This simple formula used the data we had on hand at that time to get relief funds to the largest number of health care facilities and providers as quickly as possible,” said Caitlin B. Oakley, a spokeswoman for the department. “While other approaches were considered, these would have taken much longer to implement.”

Most people are decent people; if a package is mistakenly delivered to your house but is addressed to someone down the street, you don’t keep it. If the person who was supposed to get it is aged, disabled, poor, or otherwise in need, and this package provides some relief – perhaps food, clothing, medicine, you are especially concerned to make sure they get it. This kind of morality does not apply to billionaires or to wealthy corporations, whose absolute greed to grab anything that they can get their hands on, no matter who else suffers, would make the highwaymen of yore, or Mafia dons, blush.

“If you ever hear a hospital complaining they don’t have enough money, see if they have a venture fund,” said Niall Brennan, president of the nonprofit Health Care Cost Institute and a former senior Medicare official. “If you’ve got play money, you’re fine.”’ Well, they’re fine. And I guess you’re fine if you can afford to go to one of them, not the hospitals that serve the people with the greatest need. And if you don’t think about it too much, you can probably sleep at night.

I don’t see how the CEOs and Boards of these hospitals do.