Charity Bill Raises Hospitals’ Hackles
A bill that would require California's not-for-profit acute care facilities to provide certain levels of charity care in order to preserve their tax-exempt status has pitted the hospital sector against the legislation's labor-oriented backers.
Assembly Bill 975, co-authored by Assemblymen Rob Bonta, D-Oakland, and Bob Wiecowski, D-Fremont, would mandate not-for-profit hospitals spend a minimum of 8% of their annual operating margin on charity care starting in 2015. If the hospital operates any outpatient clinics, the clinics would also have to spend 5% of their net annual revenues on charity care.
AB 975 would also tighten reporting requirements of hospitals to the Office of Statewide Health Planning and Development. Currently, hospitals have to file a community needs assessment every three years. The bill would require updating of these assessments every two years, and make input from community members mandatory. OSHPD would also be charged with creating regulations that would create uniform guidelines for conducting such assessments.
And California hospitals only need to prove their net operating revenues do not exceed operating expenses by 10% to retain their exemption from property taxes. There are no specific mandates regarding levels of charity care provided by hospitals.
The charity care issue has become a sore point in both California and elsewhere, particularly given that healthcare bills are the leading cause of personal bankruptcy in the U.S. and many hospitals tend to charge uninsured patients rates far higher than they would if they were enrolled in Medicare or a commercial health plan.
Partly in response, the Internal Revenue Service recently surveyed levels of charity care provided by non-profit hospitals nationwide, while regulators in states such as Illinois sought revocations of property tax exemptions from some providers they felt were stinting on charity care while reporting healthy margins.
In California, hospitals spent about $1.4 billion on charity care in 2011, or about one-half of 1% of gross patient revenue or 2% of operating expenses according to data they submitted to OSHPD. The ratio rises to about 1.4% if bad debt and contractual adjustments are factored in, and about 5.8% of operating expenses.
About a decade ago, the California Hospital Association promulgated a plan offering charity care on a sliding scale to patients based on income and capped to households earning about $120,000 a year. For-profit hospitals had been pressured at the time by a Los Angeles-based group, Consejo de Latino Unidos to offer financial breaks to patients with high deductible or limited coverage insurance.
Although the Consejo had some ties to the insurance industry, AB 975 is backed directly by the California Nurses Association, one of the state's most powerful labor unions and a regular adversary of hospital operators.
A statement issued by the CHA earlier this week on the bill hinted at the union ties.
“A broad coalition of healthcare providers and community-based organizations throughout the state will expose AB 975 and urge legislators and Gov. Jerry Brown to oppose it,” said Vice President of External Communications Jan Emerson-Shea.
Another union-backed measure dictating hospital finances was passed by voters last November in Santa Clara County by a narrow margin. That measure capped executive salaries at El Camino Hospital, a district facility in Mountain View, at levels far lower than what they currently earn. El Camino is fighting to overturn the initiative in state court.
The El Camino measure was backed by the Service Employees International Union-United Healthcare Workers West, another powerful labor organization in California.
Both the SEIU-UHW and the CNA have denied the measures they backed were intended to leverage bargaining power with hospitals, insisting instead that acute care providers are misdirecting funds that should be earmarked toward patient care.
“Too many non-profit hospitals have failed to meet the public expectation that they provide a level of charity care consistent with the huge tax breaks they receive,” said CNA Co-president Malinda Markowitz. “This bill assures greater accountability and increased transparency that is sorely needed.”
But CHA President C. Duane Dauner, writing earlier this week in the publication Capitol Weekly, argued that AB 975 would impose a one-size-fits-all mandate on all hospitals.
“What can be accomplished by imposing unrealistic bureaucratic mandates on not-for-profit community hospitals?” Dauner asked. “The answer is worse than nothing; mandates called for in AB 975 will force hospitals to close services and deprive patients of needed care.”
