When Hospitals Are also Corporations

Ann Twomey.

Ann Twomey.

US Hospitals started as charitable institutions in the late 1800s, funded by wealthy donors and religious organizations.  The mission was focused on health care and care for the poor. It was clear where the money came from, clear where it went.

Much has changed.  More and more, our community hospitals are disappearing, and in their place large corporate systems are emerging Hospital revenues now also come not just from patient care, but from for-profit subsidiaries, investments, ambulatory surgical-centers, and income from hospital-controlled physician practices.

One Bergen County hospital that started in 1880 with 12 beds is now part of a system with 28 hospitals. A recently merged hospital system will employ nearly 50,000 people, with revenues of $8 billion dollars.

As hospital systems grow, they often begin to act more like for-profit institutions, even while maintaining not-for-profit status. The source and use of their funds becomes both more complicated and less transparent.  So does their mission, their relationship to local communities, and their relationship to their employees and physicians.

It’s now common for not-for-profit hospitals to own and provide financing to for-profit subsidiaries, to have for-profit entities operating from their tax-exempt property, to engage in profit-sharing with their physicians; and for hospital CEO compensation to reach into the millions.

In Trenton, elected officials are scrutinizing whether not-for-profit hospitals that own for-profit entities and permit for-profit physicians to  use their hospitals  with minimal control (especially over billing practices) are solely focused on a “charitable” mission of  health care service to the community, or are part of a profit-making corporate structure that is not paying their fair share of property taxes.

This debate is happening not only because of the growth of hospital systems, but because many of our towns and cities are facing fiscal problems, and having difficulty absorbing the costs of critical public services. Hospitals, like other corporations, are large employers and large users of local services such as police, fire, infrastructure, and public safety.

Both not-for-profit and for-profit hospitals have an obligation to be good corporate neighbors, reinvesting in healthcare, listening to the needs of the community, and sharing in the costs of local services, whether through community contribution fees or property taxes.

In New Jersey, the average nonprofit hospital receives a $1.6-million benefit annually as a result of exemption from property taxes. While much of this tax benefit supports charitable activities, profit-making entities and activities at not-for-profit hospitals are benefitting from loopholes in existing law.

In return for exemption, the government requires nonprofit hospitals to provide community benefits, which includes research, health professions training, and community health education programs.  It also includes charity care provided to patients who cannot pay, which all hospitals must provide, regardless of their tax status.

Hospitals are anchors in our community, providing essential services and employing large numbers of our citizens. Both  for-profit and not-for-profit hospitals have  moral, as well as legal, responsibilities to the hospital’s patients and our communities, to focus on promoting health as well as treating illness.  Hospitals should continue to be driven primarily by these obligations, rather than profit or competition.

That means doing more than charity care. It means ensuring that ‘community benefits’ are based on true community need, and will improve health outcomes for our residents.  It means using surpluses to re-invest in the hospital, in public health measures, and other activities that are the hallmark of charitable institutions.

I know that many hospitals take that mission seriously. Paying property taxes commensurate with the value of the property used by for-profit subsidiaries or by physicians engaged in for-profit activity independent from the hospital’s jurisdiction should be part of that mission.

As the NJ legislature debates new legislation and the establishment of a study commission, we urge the inclusion of community residents, municipal officials, healthcare workers and advocates in the process.  Solutions must account for and protect the services of community, urban and safety net hospitals, and include financial transparency, since the size and speed of hospital mergers and subsequent mingling of funds makes it increasingly difficult to ‘follow the money.’

We should expect all of our hospitals to be good corporate citizens and neighbors, and responsible stewards of our healthcare.

Ann Twomey is the founder and president of HPAE