“There's all these unfair social problems that the health system is grappling with,” said Nancy Kane, a professor of management at the Harvard School of Public Health, who has testified before Congress on the value of hospitals' tax exemption.
She said the Schedule H will help lawmakers write better policies “to make sure that those that have a high social burden aren't getting competitively disadvantaged by it.”
While meeting the social burden didn't appear to distress the hospitals in the Modern Healthcare sample that reported above-average levels of charity care, a majority of profitable hospitals did provide less free care than the average.
The most common type of hospital in the profit-charity analysis were those that posted a net profit and gave out lower-than-average levels of charity care. And of the 61 hospitals that gave out above-average levels of charity care, 75% of them turned a profit.
Take Mercy Hospital Clermont. The 111-bed acute-care hospital lies on the outskirts of Cincinnati, in Batavia, Ohio, where a Ford Motor Co. factory, Batavia Transmission, closed in 2008 and contributed to high levels of unemployment and lack of insurance coverage in the region.
The system offers free care to residents who earn less than two times the federal poverty level, and discounted care for those up to 400% of poverty—including patients with insurance. That cost the hospital more than $4.1 million, or 5.7% of its total expenditures, in 2009.
“What we like to say is, the mission of caring for the poor and underserved is as vibrant today as it was 150 years ago, when the Sisters of Mercy and the Franciscan Sisters came over from Ireland and Germany in wooden boats,” James May, president and CEO of Mercy Health Partners of Southwest Ohio, said in reference to the regional system's original religious sponsors.
Yet Mercy Hospital Clermont, which is part of Catholic Health Partners, still posted a 6.5% profit margin in 2009.
The Schedule H required expanded disclosure of hospitals' billing and collection efforts. The IRS asked hospitals to estimate for the first time how much they billed to patients who were unable to pay under guidelines for free and discounted care.
Among those reviewed by Modern Healthcare, 83 reported no unpaid bills attributable to patients eligible for subsidized care.
At Sacramento, Calif.-based Sutter Health, which owns or operates 22 hospitals in Northern California and one in Hawaii, hospitals did not credit any of $73.7 million in reported bad debt to patients who qualified for charity care. “If we know it's eligible, it wouldn't be bad debt,” Bill Gleeson, a spokesman for the system, said in an e-mail.
Other hospitals and systems, however, estimated needy patients accounted for a significant share of unpaid bills—including a dozen that said bills sent to those considered eligible for subsidized care made up at least half of bad debt costs.
St. Peter's Hospital, a 487-bed Albany, N.Y., hospital owned by Catholic Health East, estimated needy patients accounted for $2.6 million, or 82%, of its $3.2 million in bad debt. Elmer Streeter, a St. Peter's spokesman, said the hospital is dedicated to finding patients coverage and has an active program to promote its financial aid.
BJC HealthCare reported that 81% of its unpaid bills in 2009—amounting to $63 million—were sent to households without the income to pay for some or all of the debt.
Comparing these numbers across systems is complicated by the fact the IRS did not specify how to come up with the number. Modern Healthcare's analysis found that the methods, which also are reported on the Schedule H, varied widely.
The BJC estimate was calculated using commercial databases to analyze income by ZIP code and address for the system's unpaid bills, said Tracy Mahler, BJC's director of tax services. The unpaid bills stem primarily from its St. Louis hospitals that serve poorer neighborhoods, she said, and other hospitals or systems may not serve similarly low-income communities.
Dave Aplington, deputy general counsel for BJC, said the system has sought to more aggressively identify those who qualify for financial assistance and has an interest in conserving resources that would be wasted trying to collect money that cannot be collected.