Does Nonprofit Hospital Care Makes A Difference?

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The October 30 roundtable held by the minority (Republican) staff of the Senate Finance Committee (SFC) on nonprofit hospitals sparked some troubling memories.

When I was the director of a city government agency in Jersey City during the 1980s, I inherited a dynamic initiated by the preceding administration to do away with the Jersey City Medical Center (JCMC), the public hospital resource serving New Jersey’s second largest city and most populous county.

Once the largest hospital in the state, the campus of JCMC included buildings created during the Depression by boss mayor Frank “I am the law” Hague are historic art deco marvels with terra-cotta Greek and Egyptian motif carvings, eagerly eyed as high-income apartments and condominiums. (Robert Redford chose JCMC’s Murdoch Hall to stand in for Rockefeller Center for the 1993 film Quiz Show about Twenty One, the 1950s-era game show scandal). No matter what, the conversion of these architectural marvels from health to housing was going to happen. To replace JCMC, a previous administration had planned a streamlined, smaller, relocated hospital, but we had some misgivings about whether those plans were made by people who cared about the differences between nonprofit hospitals and their private-sector analogs or whether they actually knew anything at all about those issues.

My staff at the city’s Department of Housing and Economic Development was made up of tenant activists, affordable housing finance people, and community organizers. Hospitals were hardly our area of expertise, so we studied the arcane world of health care and hospital finances. I’ll never forget the shock of discovering how the city’s nonprofit hospitals, run by religious orders, treated some of the city’s poor.

I learned that the emergency room at the nonprofit hospital nearest to my Jersey City home would physically tag poor people—with a paper and safety pin—and have them sit and wait until they were picked up and transported to the public medical center. And I learned about the state’s standards for charity care or community benefit, where bad debt was community benefit. I thought of one thuggish developer in the city whose ultra-luxury development had gone bankrupt (though not before he pocketed his share) and imagined him skipping out on his hospital bills and having his savings counted as a community benefit.

The luxury real estate juggernaut won out and a shrunken, private nonprofit Jersey City Medical Center replaced Boss Hague’s complex. I vaguely remembered a recent news report about an audit of the new hospital in 2006 and the CEO bolting the day after the findings were presented to the board (though not released publicly).

One local Hudson County scandal sheet noted that the salary of the CEO at the nonprofit hospital, which served Jersey City’s low-income constituency, was $850,000—relatively low by some nonprofit hospital standards. This figure wasn’t clear from the multiple 990s that listed him in some sort of senior capacity or another, but then the 990 is hardly an edifying document, especially when organizations have multiple ways of hiding information from the public (such as paying a CEO’s salary through an external, privately held for-profit management company).

Echoes of Jersey City at the SFC

Back at the Senate Finance Committee roundtable, one university-based panelist noted that some nonprofit hospital CEOs manage to hide their salaries from their own boards. Not one of the hospital representatives spoke up to contradict the guy! What’s going on here?

The hospital industry spokespeople followed the anti-regulatory script, touting what nonprofit hospitals do in charity care and community benefit, portraying themselves as kindly, though large, institutional versions of Marcus Welby, M.D. Like the exception-minded foundations that argued against higher foundation payout in 2003, the hospital industry spokespersons read from the same catechism, each one repeating “one size doesn’t fit all” as the all-purpose response to the minority staff’s working paper on nonprofit hospital regulatory issues. Hospital execs also pitched various kinds of community benefit activities as the charitable equivalent of providing health-care treatment services to underinsured and uninsured poor people.

There’s an obvious conundrum on both sides of the Senate Finance Committee debate. For the nonprofit hospitals, all too often there is little in their charity care and community benefit activities that is sharply distinguishable from their so-called for-profit competitors. The minority staff’s questions about what can and should characterize a nonprofit hospital nonprofit are legitimate.

For the minority staff promoting substantive charity care and community benefits from nonprofit hospitals, they should not permit themselves to drift into thinking that nonprofit hospital charity care can take the place of necessary government expansion of subsidized health insurance and health care. The coincidental timing of the SFC hospital roundtable on the heels of a veto by President George W. Bush of legislation to expand State Children’s Health Insurance Program (SCHIP) coverage underscores the challenge. Nonprofit hospitals merit having their questionably charitable feet held to the fire, but carving out expanded nonprofit hospitals for the poor does not take the place of a comprehensive national health insurance program.

Like my staff in Jersey City two decades ago, we all have much to learn about nonprofit hospitals. We shouldn’t be blinded by the 501(c )(3) plaques on their walls such that we fail to challenge exactly how nonprofit they really are and how they deliver for society. Remember, while only 5.6 percent of registered nonprofits and just less than 9 percent of nonprofits file 990s with the IRS (5,211 out of 581,568 organizations, according to data from the Urban Institute’s National Center for Charitable Statistics), hospitals account for 17.29 percent of nonprofit filers’ assets and 24.4 percent of nonprofit revenues. Expect upcoming installments of the Cohen Report to devote increasing attention to the challenge of reminding nonprofit hospitals of their necessary “nonprofitness.”