"The entire hospital industry renders its highest bills to the customers who are least able or likely to pay."
That's quite a remarkable statement, especially coming from Trevor Fetter, chief executive officer of Tenet Healthcare Corp. He made the comment during his testimony in June 2004 before the House Energy and Commerce Committee's oversight and investigations subcommittee during hearings to investigate hospital billing practices. As a result of the investigation, Tenet -- a for-profit institution -- agreed to stop charging uninsured patients more than the highest managed-care rate.
Since then, HCA, the nation's largest chain of for-profit hospitals, has made a similar commitment to discount charges to the uninsured. If for-profit hospital corporations can do this, then shouldn't not-for-profit hospitals that enjoy tens of billions of dollars in tax exemptions do more or at least be held to the same standards?
The reality is that not-for-profit hospitals, which receive a substantial gift from the public treasuries in the form of a multibillion-dollar tax exemption nationwide, have doggedly refused to offer reasonable pricing to uninsured patients. Instead, they have gone to great lengths and spent a large amount of resources to try to convince the public that they should not be required to provide discounts to the most vulnerable patients they serve.
So why did some for-profit hospitals agree to stop overcharging the uninsured, whereas many not-for-profit hospitals have not? Because for-profit hospitals are responsible to their shareholders, who will hold them accountable, and not-for-profits have no shareholders. Tax-exempt hospital boards have no oversight; they answer to no one. Although there is much written about the fiduciary responsibility of not-for-profit hospital boards, there is no regulatory body or agency holding them accountable.
Not-for-profit hospitals would like us to believe that they are in a financially precarious position, but a well-run not-for-profit should be close to a zero profit margin, hence the designation not-for-profit. However, the vast majority of not-for-profit hospitals are well in the black. To take the state of Georgia as an example, the top 25% of "not-for-profit" hospitals in Georgia have accumulated more than $4.4 billion in net assets, and Georgia not-for-profit hospitals as a whole posted more than $517 million in profit in 2002. Georgia tax-exempt hospitals consistently claim to lose money on Medicare and Medicaid and argue that they collect pennies on the dollar from uninsured patients.
Because there is no other revenue source available to them, Georgia not-for-profit hospitals must have obtained this enormous wealth through the revenue produced from negotiated rates with insurance companies. Logically then, these discounted rates are the source of the hospitals' significant profit margins.
Consequently, by their own admissions and public statements, these "charitable" hospitals have no financial need to impose inflated rates upon the neediest category of patients -- the uninsured. So why do the not-for-profits insist on the need to charge the uninsured grossly inflated rates? Could it be to discourage uninsured patients from coming to their facilities?
The hundreds of billions of dollars in not-for-profit cash reserves indicate that these so-called not-for-profits are anything but, and are, in fact, price-gouging all of us. The insured suffer negative consequences of not-for-profit hospital billing practices as well through higher insurance premiums. And we know that higher insurance premiums cause an increase in the number of uninsured. Not-for-profit hospitals complain about the healthcare crisis while doing almost nothing to lower costs and have taken steps to maximize profit and exploit the situation with the uninsured to justify their tax exemption. It's a vicious cycle.
Apologists for the not-for-profits are quick to point out the $22 billion of uncompensated care that the AHA has estimated that community hospitals provide. But that figure is insignificant compared with the value of the tax exemptions, conservatively estimated to be more than $30 billion nationwide. Recent studies have shown that more than 50% of all bankruptcies were triggered by medical debt. Clearly, the only way there could be a link between medical debt and bankruptcy is if our tax-exempt community hospitals are bankrupting former patients.
That same study found that in 68% of medical bankruptcies, the debtor actually had health insurance. That is to say, one-third of all debtors driven into personal bankruptcy could not afford their copayments.
What makes this not-for-profit hospital-billing scheme even more egregious is that tax-exempt hospitals nationwide get reimbursed through federal disproportionate-share funds to cover uninsured patients' bills. On top of the multibillion-dollar tax exemption, the U.S. taxpayer is doling out another $16 billion from the federal coffers to cover indigent care.
The issue of the uninsured came to light for me when, in the course of a certificate-of-need fight with the Georgia not-for-profit hospitals, I examined the tax returns of 34 members of the Georgia Alliance of Community Hospitals. Their gigantic financial holdings and shabby treatment of the uninsured inspired me to contact Richard Scruggs' law firm as a way to hold hospitals to the same standards for their charges and collection tactics as other U.S. industries.
Whether or not Scruggs is successful in those suits, it's clear that not-for-profit hospitals and their boards have failed to fulfill their obligation to provide charitable care for uninsured patients and to serve their communities instead of their own financial interests.
John Bagnato, former chief of surgery at Phoebe Putney Memorial Hospital, Albany, Ga., is now in private practice in Albany.