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Report: NC nonprofit hospitals falling short on charity care

This photo taken Dec. 15, 2017, shows Duke University Hospital, which is part of the Duke University Medical Center in Durham, N.C. A federal anti-trust complaint filed by Dr. Danielle Seaman, a former radiology professor at the university claims that Duke and the nearby University of North Carolina at Chapel Hill conspired to avoid competition by agreeing not to hire talent away from each other’s medical enterprises. Both Duke and UNC deny the existence of the no-hire agreement. (AP Photo/Emery P. Dalesio)
Emery P. Dalesio
This photo taken Dec. 15, 2017, shows Duke University Hospital in Durham, N.C. Duke Health is one of the three nonprofit hospital systems, along with Vidant Health and Novant Health, that are falling short in treating the poor for free or reduced rates to validate their tax-exempt status, State Treasurer Dale Folwell said Wednesday while highlighting a university report on charity care.

Many North Carolina nonprofit hospitals are falling short in treating the poor for free or reduced rates to validate their tax-exempt status, State Treasurer Dale Folwell said Wednesday while highlighting a university report on charity care.

Johns Hopkins University expanded its national analysis on hospital care for low-income residents to focus on North Carolina hospitals with the help of the State Health Plan, which covers medical costs state employees, teachers, retirees and dependents. Folwell's agency oversees the plan.

The report found that the state's largest nonprofit hospital systems received more than $1.8 billion in estimated federal, state and local tax breaks for a 12-month period ending in 2019 or 2020, depending on how a system's finances are accounted. But charity care spending — expenses for which they don't expect to receive payment — for a majority of these systems failed to exceed 60% of the value of the system's tax breaks.

Those that failed to reach that 60% threshold included Duke Health, Vidant Health and Novant Health, according to the report, which examined financial records and information filed with the Centers for Medicare and Medicaid Services. WakeMed exceeded its tax-break value. Of the several dozen nonprofit hospitals in the state, fewer than 25 exceeded their tax exemption values with charity-care spending, the report said.

Nonprofits, which can retain revenues left over after expenses, are supposed to provide significant community benefits to justify their tax status to the IRS, the report said. They can avoid paying property or income taxes, or get reimbursed for state and local sales taxes.

“The question is why should the taxpayers continue to subsidize these nonprofit hospitals?” asked Ge Bai, a professor at the Johns Hopkins Carey Business School and Bloomberg School of Public Health involved in the analysis. “Why should local communities be deprived of their property tax revenues and other tax revenues that would allow them to fund local schools, parks and other public services?”

The North Carolina Healthcare Association, which represents for-profit and nonprofit hospitals and hospital system, didn’t immediately have a response Wednesday about the report's detailed finding. But it said the study didn’t reflect many other financial benefits that hospitals provide to their coverage areas, including research, health worker training, in-kind donations and preparations for local disasters.

“North Carolina’s nonprofit hospitals annually submit audits to state and federal tax regulators who determine each year that hospitals meet their tax status obligations,” the association said in a written statement.

The association said North Carolina hospitals and hospital systems provided $1.1 billion in charity care overall in 2019 and took close to $3.5 billion in combined losses to treat patients covered by Medicaid and Medicare. Bai said including such Medicaid and Medicare figures in charity totals can be misleading.

The State Health Plan spends $3 billion on health care and pharmacy services annually to cover up to 750,000 people.

Folwell, a Republican reelected in 2020, has been critical of large, ever-consolidating hospital systems for what he calls excessive and opaque pricing while he's working to control plan costs. The plan has been told often that health care expenses are higher in part because the costs are used to cover care for the uninsured and underinsured, the report said.

The report said North Carolina policymakers could require certain levels of charity care, as some other states have done, with consequences for failing to meet them, such as limiting or rescinding tax-favored treatment.

“We need solid, accountable and auditable benchmarks for what definition of charitable care is so that the average person can figure out whether these entities are actually earning the right to continue to be nonprofit entities,” Folwell told reporters.

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