Wednesday, February 26, 2014

One More Data Point: Ascension Health and the Big Business of Hospitals

Though I didn't plan it this way, my series of blog posts this week seem to be taking a look at the commercialization of charities.  So this story in the St. Louis Post Dispatch provides one more data point regarding my arguments from Monday: nonprofit hospitals do not have a "primary purpose" that is charitable; instead, their primary purpose is to provide high quality (and in some cases, more efficient) health services for a fee.

Ascension Health is a prototypical example of the hospital that was once a charitable organization and has now morphed into a multi-billion-dollar vertically-integrated health care business.   The article details how Ascension, once run by a religious order with a mission to create schools for orphans and hospitals for the poor morphed into the multi-layer, multi-entity health-care giant that last year reported $17 billion in revenue, including over $2 billion in non-operating revenue from investments.  To ice the cake, Ascension opened the first phase of a $2 billion "health city" complex in . . . the Cayman Islands, where they hope to better master the efficient delivery of heart surgery.

This, folks, is what passes today for "charity."  Ascension notes that it spent about 3% of revenues on a variety of charity care and "community benefit" services.  While I have long been skeptical of "community benefit" as the standard for tax exemption for nonprofit hospitals, even if I accept this test, 3% hardly seems to support the notion that Ascension has a primary purpose that is charitable.  Providing schools for orphans and hospitals a majority of whose patients are poor would seem to me to be a primary "charitable" mission.  But that isn't even close to what Ascension is anymore. 

Again, I have no quibble with Ascension or any other health care system doing what they do best: pushing the envelope of high-quality health care; innovating in health care technique and delivery (e.g., the Cayman Island venture).  That's a wonderful mission; when I get sick, I want to be treated by such a system.  But that's not a charitable mission.  It surely is a mission that is important to society; so is Apple Computer's mission to produce cutting-edge electronics devices that revolutionize communications (many of which, by the way, are now used routinely by doctors and other health care providers in providing health services), or Intel's mission to be on the cutting edge of computer processor design (also a key component in modern health care services), or BMW's mission to provide some of the safest cars on the road that also happen to be fun to drive (OK, I can't really link that one to health care; but BMW takes auto safety very seriously and also provides police cars to a lot of Europe; do they have a primary charitable mission of enhancing public safety?  Obviously not).   

So I'll end my recent troika of posts on the commercialization of charity with the same question I started with on Monday.  Why is it so hard for us to accept that the mission of nonprofit hospitals has changed dramatically over the past century or even over the past 50 years?  Why is it that when hospitals complained in the late 1960's that the newly-passed Medicare and Medicaid programs would eliminate the need for charity care (talk about hilariously-bad prediction of the future!) and thus make it impossible to meet the IRS's charity standard for exemption, the IRS responded by changing the standard, instead of saying "Well, guys, you know what?  If that turns out to be true, then I guess you won't be charities any more!"

Is it really that hard to tie charitable tax-exemption to the way organizations run today, as opposed to how they ran 100 years ago?  I guess so. 

John Colombo

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