Health care is the 800 pound gorilla in the charity sector. In the book, The Nonprofit Almanac 2008, we are informed that out of the roughly $1.14 trillion of revenues that all 9 categories of reporting public charities received in the most recent year of available data (2005), health care organizations received 59% ($672 billion) of the money. Number 2 out of the 9 categories of charities, is education at a paltry 16% of the revenues. Not surprisingly, the vast majority of the money that flows into the health care charities goes to nonprofit hospitals and primary treatment facilities - 73% or $492 billion out of the $672 billion. According to the IRS, of the over 5,700 hospitals in this country, over half (2,900) are nonprofit hospitals.
As I have stated before, when big money is involved, bad things invariably happen. However, the level of stench coming out of some of the nonprofit hospitals is really raising eyebrows. In a series of reports in the Wall Street Journal in 2008 (click here for one of the more recent entries, midway through the article it has a list of many other articles), it has been noted how a number of nonprofit hospitals have grown into profit machines in recent years. Basically, some of these places are barely providing any charity care at all. In some areas, if you provide as little as 2.5% on charity care you are considered the best in your class! What a low class group that is! At the same time they are garnering billions in tax exemptions and have massive surpluses.
Thankfully, there are also some very high class nonprofit hospitals out there that really do have their heart and soul in service to those in need. In fact, IRS Commissioner Miller noted in a speech on 1-12-09 that the average "profit" margin for the nonprofit hospitals, based on an IRS survey, was 5% and 20% of the hospitals were running a deficit. So we should not throw out the baby with the bathwater here and need to laser in on those piggish outliers that are abusing their tax exempt status.
One of our blog readers, who suggested I write this piece, made this observation:
...why this whole issue is so important: we all need health care and literally can't live without health care providers. So even if a nonprofit hospital isn't a charity to which the average person would make a donation/contribution, the average person will, at some point, use such a hospital's services. (After all, everyone had to be born in a hospital! At least, most everyone.) And such hospitals are supported to a large extent by payments from Medicaid and Medicare -- in which respect they are supported by public donations/contributions. So it's my money and your money that's driving their profits, and that just ain't right.
Commissioner Miller also noted that, under federal law, the requirement for a nonprofit hospital to be tax exempt is unlike that of other charitable organizations. He stated that, "We ordinarily expect a charity to provide for a charitable class of people - a prime example is providing food, clothing and shelter to the poor or distressed." For nonprofit hospitals, the expectations is that they provide a "benefit to the community" which can include, according to Miller, "services provided to persons commonly thought of as being outside the traditional definition of a charitable class - the poor or distressed". Commissioner Miller wonders if the community benefit standard may be "outdated" and in need of a "tune-up". My opinion is, yes it is, big time!
It appears that Senator Grassley, who is on the U.S. Senate Finance Committee, is considering legislation that would require more accountability by the nonprofit hospitals for the billions they get each year in annual tax exemptions. The legislation would require these hospitals to spend a certain minimum amount on charity care. It would also set caps on executive compensation, among other things. Hurray for the Senator!
For about ten years of my career, I had the honor and privilege of working for a community health center. These organizations dedicate themselves entirely to the cause of the providing quality health care services to the poor. Their outstanding work often goes unnoticed as they are largely out-financed and out-marketed by nonprofit hospitals. I hope that Senator Grassley and his colleagues also consider dedicating more resources to these worthy organizations, if and when (I hope) some of the shady nonprofit hospitals lose their tax exempt status.