Friday, December 26, 2008
Thursday, December 25, 2008
No posts today on tax policy or critiques of our nonprofit/tax-exempt sector.
Instead, I thought I'd list a few stories reminding us of the vast generosity in our society. Like this story about PriceWaterhouseCoopers eliminating holiday parties and giving $1.5 million to charity instead and local Microsoft offices replacing parties with gatherings to support local charities. Or this story, about retailers giving more to charity even as they face incredibly difficult economic times themselves (and for a similar story about individuals doing the same, look here). Or this story, about Cedar Point amusement park (if you like roller-coasters, this place has to be on your must-visit list!) donating $6500 in "found" money (cash dropped by park visitors) to charity. Or this story about local realtors "adopting" families in the local Head Start program and providing them with some Christmas gifts for the children.
If you wake up this morning feeling beleaguered, wondering if there are any sane people left in this crazy world, do a web search on "charity" - I think you might find a goodly number of "hope restoratives" there. I sure did.
Wednesday, December 24, 2008
An op-ed piece by Nicholas Kristoff in the NY Times created a bit of a stir by citing evidence that conservatives give more to charity than liberals. As usual, however, there are lies, damned lies and statistics (or as my colleague Tom Ulen - an economist - once remarked, "give me the data and I'll take it to the basement and torture it until it tells the truth.") Yes, some surveys show that self-identified conservatives give more to charity than self-identified liberals (Kristoff's article cites his sources). But if you exclude giving to churches, it turns out that liberals give more.
Which prompted Ezra Klein to opine that so-called donations to churches are really nothing more than membership fees and hence should not be counted as charity. Well, maybe so - in fact, most donations to churches end up serving the church population - they largely are used to support services and capital expenditures for the congregation. But this is an argument that probably proves too much. I regularly donate to the Krannert Center for the Performing Arts at the University of Illinois. Why? Well, partly its to make sure that Krannert keeps bringing in the superb performers that I like to hear and buy tickets to. So is my donation to Krannert really "charity" or simply a self-serving, self-imposed fee to make sure that I continue to get services that I value? Is the $20 "suggested" donation to the Metropolitan Museum of Art really a donation or an admission fee?
This argument is not new, of course. One of the central questions that bedevils tax policy and nonprofit governance is what, exactly, constitutes "charity." Some would say that the only thing that should count as charity is redistribution: giving money to help the poor. But Western civilization has long recognized the arts as part of the charitable basket: museums, symphony orchestras, etc. So it seems to me that if you want to start picking on churches, you've got a lot of 'splaining to do when it comes to other kinds of charities . . . I don't think you can call donations to churches "membership fees" without recognizing that a lot of what we classify as philanthropy is self-serving in some way.
Tuesday, December 23, 2008
As if losing billions in the Madoff investment scandal wasn't enough, Forbes reports that Richard Blumenthal, attorney general for the state of Connecticut, may investigate whether trustees of the charities that invested with Madoff violated their fiduciary duty.
"If they failed recklessly to do the necessary due diligence, we would certainly investigate and take action," Blumenthal told Forbes.com. "If the claim is that a trustee or a board member or that the board itself failed in its fiduciary responsibilities, there would be legal action and they could be held personally and financially responsible."
One of the major points of friction in tax-exemption for nonprofit hospitals over the past decade has been the hospitals' use of aggressive debt collection techniques. Aggressive debt collection is what first brought Provena-Covenant hospital in Urbana, IL to the attention of the local property tax board, and ultimately played a significant role in the decision of that board to recommend revocation of Provena's state property tax exemption. Then there's the tale of Quentin White, who had paid Yale-New Haven Hospital for over 20 years for the debt from his late wife’s medical care. Despite paying almost $16,000 on a $19,000 bill over the years, the debt ballooned to nearly $39,000 after the payments because of the compound interest charges (over 10%) by the hospital. At one point, the hospital placed a lien on the White’s home and nearly cleaned out his bank account.
Now comes an in-depth examination of the debt collection practices of Maryland hospitals by the Baltimore Sun. In an article released over the weekend, the Sun found
• Hospitals filed more than 132,000 debt collection suits in the past five years, winning at least $100 million in judgments.
• Hospitals sometimes added annual interest at twice the rate allowed for other types of debts.
• Hospitals placed liens on houses 8,000 times in the past five years.
• Maryland lacks uniform standards to determine who qualifies for reduced-price or free hospital care.
• The state doesn't closely monitor hospitals' debt collection practices.
• A majority of Maryland's hospitals have received surpluses from free and unpaid care in recent years, though they are supposed to break even in the long run.
It is surely the case that hospitals have some cases that call for debt collection; some people can afford to pay their bills and choose not to. But as the Sun story found, debt collection practices by nonprofit hospitals are often poorly supervised and lack sufficient internal controls. The Provena case in Illinois and the Quentin White case in Connecticut led to state legislation regulating hospital collection practices. In 2006, California passed similar legislation, and attorney generals across the country have opened investigations into hospital billing practices. The wave of bad publicity and legislative and regulatory efforts has led some (maybe many) nonprofit hospitals to re-examine their debt collection practices - but perhaps self regulation is simply not enough. Will Maryland be next on the legislation list? Will Senator Grassley pursue federal standards on debt collection as a limit on 501(c)(3) status for nonprofit hospitals? Stay tuned . . .
Monday, December 22, 2008
The Wall Street Journal has two interesting pieces (one here and one here) on the efforts to rate the effectiveness of charities. Charity Navigator is probably the best known of these efforts, but as the first of the WSJ articles points out, charity ratings can vary widely by the methodology used. And like the U.S. News rankings of law schools, the mere existence of the rankings cause some charities to behave in ways that are targeted solely at improving their ranking under the criteria used, rather than targeted at their mission. The story also reports that just like law schools and U.S. News, some charities apparently engage in
"accounting chicanery aimed at achieving a higher ranking. For example, groups report lower fund-raising costs, and lower costs per dollar raised, by reassigning fund-raising costs to program expenses. This can be accomplished by including some sort of advocacy message in fund-raising materials: A veterans group sending out fund-raising letters might encourage the flying of American flags in the same missive."
Frankly, I don't know what to think of rating systems. My own view is that the U.S. News ranking of law schools has done far more harm than good; aside from the wacky incentives created by the rankings, they often make consumers (potential law students) lazy: instead of researching and thinking through the law school application and selection process, too many of the students I meet today base their selection on a single number in U.S. News. The WSJ articles on charity rankings indicate that we're not close to that situation -- yet -- with donors and charities, and certainly some of the information is extremely useful (the overall ratio of administrative overhead to program expenditures, for example). But I wonder . . .
Another day, another story about how the credit crisis is affecting nonprofit hospitals. This time, the WSJ (subscription required) focuses on Loyola University Health System in Chicago, which was "recently put on notice by a leading bond ratings firm that it faces a downgrade of its already below-average Baa1 credit ranking." Loyola "is being squeezed by unpaid Medicaid bills, significant operating losses, and the cost of financial derivatives that are draining it of much needed cash."
Sunday, December 21, 2008
Darryl's post last week on Grassley's efforts to move legislation to require minimum charity care standards for tax-exempt hospitals reiterated a warning from an even earlier post about "one size fits all" solutions to tax-exemption for health care providers.
I agree. And so I present "A Tale of Two Hospitals" - or maybe that should be a tale of one giant health care conglomerate and a stand-alone community hospital to highlight the point. Today's Boston Globe has a very in-depth story on Partners Health Care, formed in 1993 by a consolidation of Massachusetts General Hospital and Brigham and Women's Hospital. This article details how Partners (a nonprofit) is aggressively expanding with new high-profile outpatient facilities, new hospitals in potential profit centers, and an ever-increasing war chest of earnings. And arguably pushing out less well-funded community hospitals in the process.
The second story is the tale of Mt. Sinai Hospital in Chicago, which serves a population made up largely of the poor and uninsured. Darryl blogged about Mt. Sinai, too, but it is a particularly poignant comparison to Partners and hence worth repeating. The story notes
Seventy-two percent of its patients are either uninsured or covered by Medicaid. Only 10% have commercial health insurance -- the only type that gives the hospital a profit margin.
The incidence of heart disease, infant mortality, asthma and HIV in the area surrounding the hospital far outpaces the rates in greater Chicago and the rest of the country. The life expectancy of local residents is a full decade less than the U.S. average. Poverty is rampant.
And as a result, Mt. Sinai's finances are precarious: over the past five years, it has moved between an annual a small net income and losses as high as $15 million. All this while Advocate Health, one of the most profitable health conglomerates in the country, closed a nearby hospital (actually, it turned it into a long-term care facility) in favor of pumping $500 million into facilities in Chicago's suburbs.
Now let's get this straight. I'm not against free-market success. In fact, I'm generally a supporter of market-based solutions, and my theories regarding the proper application of tax-exemption are market based. I have no ill-will toward Partners' success in its market, which obviously reflects excellent management and a focused business plan. But Partners doesn't deserve tax exemption. Whatever the history of its constituent hospitals, today Partners is simply a big business pursuing its market opportunities. Mt. Sinai, on the other hand, is what we should be focused on in developing a sensible policy for tax exemption for health care providers: an organization that serves a population that every other provider is running away from like another sequel in the Friday the 13th series.
Unlike Senator Grassley, I wouldn't tie tax-exemption strictly to charity care, though that certainly would be part of the equation. What I would do is require a hospital or health-care provider seeking exemption to detail what populations it serves, or services it provides, that for-profit health care systems do not provide, and how much it spends on these services. In other words, to get exemption, a health care provider will have to provide explicit detail regarding what it does that is not provided by the market. Let the market do its work and give Partners a pat on the back for its market success - just like we give Microsoft or Intel or Apple a similar pat. And give Mt. Sinai tax-exemption and government funding to help it continue its mission to serve a population no one else cares about.