An in-depth examination of Mayo's various tax forms indicates that the system posts above-average profits and below-average levels of free and subsidized care for indigent residents and Medicaid recipients.
One hospital, Mayo Clinic Methodist in Rochester, Minn., earned a 22% profit margin while putting 0.9% of its total expenses toward charity care—less than half the average 2.5% Modern Healthcare found in a sample of 156 respondents. Even after adding in unreimbursed Medicaid costs, the hospital still spent about half the average, with Methodist's 2.7% of expenses compared to the list's overall average of 5.3%.
But if the documents create a perception that the organization is greedy, Mayo officials said that's a flaw in the forms. “Does it make sense as a tax-compliance document? Yes. As a public document? No,” said Christie Lohkamp, tax director for the Mayo Foundation system. “Research and education really is a big part of what we do … The average person thinks of patient care, but we have three pieces to our mission. The Schedule H is very much skewed toward one of them.”
All U.S. tax-exempt hospitals are required to file IRS Form 990, a public document that goes into voluminous detail about hospital finances and operations. For tax year 2009, the IRS overhauled the forms to improve disclosure of subsidized medical care and other services as policymakers debate what not-for-profits should do in exchange for significant tax breaks.
Modern Healthcare spent several months gathering and analyzing the detailed Schedule H forms of 156 hospitals and regional systems. The Schedule H reveals more than ever about hospital community-benefit activities, but it also conceals seemingly important information because of choices the IRS made about how hospitals ought to report their data.
Rules for reporting mean some systems must consolidate multibillion-dollar operations on one disclosure. Others must file each hospital separately, which may not capture ways in which systems may offset greater demand for subsidies at one hospital with more profitable operations elsewhere. It depends on each system's corporate structure.
Anyone wanting to know exactly how much community-benefit activity Mayo performs annually as a health system must first locate and then scrutinize 22 separate Form 990s. In response to a request for all of its Form 990s that included a Schedule H, Mayo sent a total of 1,571 pages of tax forms encompassing $7 billion in hospital revenue. By comparison, the Cleveland Clinic, with 11 hospitals, consolidates its $5.7 billion in revenue on a single form of just 145 pages.
IRS officials declined repeated requests for interviews for this project over the period of three weeks in February and March.
By tabulating data from all 22 of Mayo Clinic's hospital tax forms, Modern Healthcare found that the system actually devotes more of its resources to activities considered community benefit than its peers. It just didn't come in the category of subsidized healthcare. The tax forms show that the system spent just over $1 billion on research and education, but only $180 million on charity care and unreimbursed costs for Medicaid beneficiaries.
All told, Mayo devoted 11% of its expenditures to activities the IRS considers legitimate community benefits, compared with the 8.3% average for total expenditures dedicated to all forms of community-benefit spending found in the magazine's survey.