By J.K. Wall, The IBJ
jwall@ibj.com
The cost of charity has never been so high.
In
the last three years, Indianapolis hospitals have seen a substantial run-up in
the amount of charity care they give to patients who can't pay.
The
biggest jump came at Clarian Health Partners, the state's largest hospital
system, which watched its charity care soar 144 percent since 2003 to nearly $45
million.
Other
Indianapolis hospitals saw smaller but still sizable surges.
Three
key factors are driving the trend: The cost of care is rising, more people are
uninsured, and government officials are scrutinizing not-for-profit hospitals to
make sure they give enough charity care to merit the taxexempt status they
receive. Some hospitals also are starting to adopt broader definitions of what
counts as charity care.
Multiple
hospitals in Illinois have had their property-tax exemption revoked when local
authorities determined they were not offering enough charity care. Attorneys
general in Kansas, Minnesota and Ohio have been pressing hospitals to justify
their tax-exempt status.
"Increasingly,
the writing is on the wall that these figures are going to become important,"
said Greg Pemberton, a health care attorney at Ice Miller in Indianapolis. "It's
a huge deal."
It's
huge because the amount of charity care Indianapolis hospitals give away is
equal to 1 percent to 3 percent of their revenue. That's also about the size of
most not-for-profit hospitals' profit margins, Pemberton said.
If
hospitals lost their tax exemptions, they could be stuck with millions of
dollars in new expenses even as their spending on unreimbursed care is
skyrocketing. Hospitals often lose money not only when patients can't afford or
fail to pay, but also because government programs such as Medicare and Medicaid
don't pay hospitals enough to cover the cost of services.
So
whether it's altruism or purely self-interest, not-for-profit hospitals
nationwide have snapped into action in the past year, as Sen. Charles Grassley,
R-Iowa, and Sen. Max Baucus, D-Montana, increasingly scrutinize the issue.
"Everybody
is now playing catch-up on reporting charity care,"
said Dan Evans, CEO of Clarian Health in Indianapolis. For example,
Indianapolis-based Community Health Network is
spending $125,000 on new software to
help it more easily determine a
patient's ability to pay before it sends a bill. And
when it sends bills, Community includes a full description of its charity care
policy on the back.
It
also has counselors quiz patients about their finances-even on their way to
having procedures done-to see if they might qualify for charity care. A
patient's ability to pay determines if a hospital's losses are truly charity
care or simply bad debt.
"The
story here is, how do we justify or how do we earn that we're a tax-exempt
organization?" said Tom Fischer, Community's chief financial officer.
Other
hospitals are doing similar things to make sure their patients know to ask about
charity care.
Indianapolis'
major hospital systems-Clarian, Community, St. Vincent Health, St. Francis
Hospital and Health Centers-provide charity care to patients with incomes up to
double the federal poverty line. (For a family of four, the poverty line is
$20,650). Some also give large discounts to patients with incomes up to three or
four times the poverty line.
Indianapolis'
Wishard Health Services makes its mission to serve patients in poverty or
without the ability to pay. Its charity care in 2006 totaled $265 million, the
most of any Indianapolis hospital.
Charity
care is becoming increasingly prevalent partly because of changes in Indiana's
economy.
The
state has lost roughly 100,000 manufacturing jobs since 2000, along with their
typically good health care benefits. In their place have come more
service-sector jobs, which tend to offer lessattractive or even no benefits.
As
a result, more people show up in hospital emergency rooms without any insurance.
In
2005, one out of every seven Hoosiers-or about 870,000-had no health insurance.
That total was up 24 percent since 2000, according to the U.S. Census Bureau.
"There
are more people who are without insurance who are impoverished. We're seeing it
across all of our facilities," said Mark Ellison, executive vice president of
finance at St. Vincent Health, which operates 17 hospitals around Indiana.
At
the same time, employers have recently shifted more of the cost and
responsibility of health insurance to their workers, using higher deductibles
and plans such as health savings accounts.
Sometimes,
the out-of-pocket costs on those plans are so high that a catastrophe still can
overwhelm a patient's finances, said Clarian's Evans.
These
trends not only mean fewer people can pay, but they actually lead to higher
costs for care, said Matt Gutwein, CEO of the Health and Hospital Corporation of
Marion County, which operates Wishard Health Services.
"When
they don't have insurance, they delay getting their care," Gutwein said.
"Therefore, when they finally come to get health care, they're sicker, and so
the bill is therefore higher."
Even
if uninsured patients seek care promptly, the cost of delivering it has
continued to climb at roughly double the rate of inflation.
Those
increases have led more employers to stop offering health insurance to their
workers, accelerating the number of uninsured and the amount of care. Hospitals
then shift those losses back to employer-sponsored health plans, which can lead
to even more employers dropping or curtailing coverage.
Indianapolis
hospitals say they always are conservative in what they report as charity care.
But Ed Abel, director of health care services at Blue & Co., an Indianapolis
accounting firm, said some hospitals around the country have stretched the
definition of charity care by adding in all they can-even counting the free
parking they offer as "charity".
"It's
up to each hospital," Abel said. Hospitals can figure charity based on how much
the free care costs them or based on what they would have
charged for it. The latter method would yield a much higher number.
All
Indianapolis hospitals said they figure their charity care numbers based on
their costs, not charges.
Industry
organizations, such as the Catholic Health Association, have come up with
guidelines for categorizing charity care. But Grassley and Baucus, the U.S.
senators, called their efforts just a start.
The
main issue is distinguishing between truly charity care-when a patient simply
cannot pay-and bad debt, when a patient could pay but doesn't. Hospitals also
debate whether they should count as charity the losses they sustain on Medicare
and Medicaid patients.
Part
of the reason for Clarian's big jump in charity care is that it recently
liberalized its charity care
policy. For years, it excused all costs for patients who make up to double the
federal poverty line. More recently, it started excusing large portions of the
bills of people earning up to four times the poverty line.
Executives
at all of Indianapolis' major hospitals said charity care is fundamental to
their organizations and philosophies. They haven't been stingy in the past, they
claim. They just haven't done a good job telling their story to the public, said
Greg Anderson, vice president of finance at St. Francis.
"The
Sisters of St. Francis have tried to do what we can to meet with the state
Legislature," he said, "to make sure that the legislators understand the
community benefit report [we file], making sure the public understands
everything we are doing."