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Prognosis: Profits Second of five parts

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Most N.C. hospitals are slim on charity care

In some of poorest counties, it’s hard to get forgiveness on bills

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  • Full Slideshow
  • Day 1 stories, more about the series
  • Interactive map: Look up N.C. hospital profits
  • Thomasville's charity care rate is high
  • Proving need isn't easy for patients
  • Tax breaks save nonprofit hospitals millions
  • Carolinas Healthcare System's response to the series
  • How a hospital profits on a charity case
  • CHS charity care is high; so are profits
  • Prognosis: Profits

    A five-part series examining how N.C. hospitals profit at the expense of patients.

    Sunday: Nonprofits very profitable

    Monday: Charity care lacking

    Tuesday: Suing the needy

    Wednesday: Staying strong in Raleigh

    Thursday: Policies that could help


  • Who pays for

    the patients?

    North Carolina hospitals say they lost $425 million in 2010 treating patients on Medicaid, the government health program for the poor and disabled. Hospitals also say they lost money on uninsured patients and those with Medicare, the government program for those 65 and older or disabled. Therefore, hospitals say they have to charge more to those who have private insurance. Here’s a look at each group’s share of billed care, according to the N.C. Hospital Association:

    Medicare, 45%

    Private insurance, 27%

    Medicaid, 16%

    Uninsured, 9%

    Other groups, 3%

    How we estimated tax breaks

    Nonprofit hospitals benefit from a lucrative perk: Unlike for-profit hospitals, they generally pay no sales taxes, income taxes or real estate taxes.

    There is not enough publicly available data to precisely calculate the value of tax breaks for each nonprofit hospital. But the Charlotte Observer and The News & Observer (of Raleigh) came up with estimates by using a study by professors at the University of Pennsylvania’s Wharton School.

    That 2000 study, which examined community benefits provided by hospitals, found that three large for-profit hospital chains spent about 4.4 percent of their budgets on taxes. (The Observer arrived at the same percentage when it examined the taxes paid by one large for-profit hospital company in 2010.)

    The Observer multiplied that percentage by operating expenses to estimate the value of hospital tax breaks.

    While that method won’t yield the precise value of each hospital’s tax breaks, it’s designed to generate a conservative estimate. North Carolina’s average sales tax rate is higher than the percentage used in the Wharton study – meaning that tax breaks likely amount to more than 4.4 percent of expenses for many hospitals.


  • More information

    Look up your hospital’s policy online

    For information about charity care policies for individual N.C. hospitals, visit the N.C. Hospital Association’s community benefit page: https://www.ncha.org/issues/community-benefit

    One caveat: Many hospitals don’t provide online information about their policies.



Rachael Shehan has no health insurance and virtually no income. But when serious respiratory problems strike, her hospital has never provided financial help, she said.

Instead, the 39-year-old Lenoir resident says, Caldwell Memorial Hospital has sent bill collectors who have hounded her for payment and ruined her credit.

Now, she sometimes bursts into tears when medical problems arise. “I know the hospital isn’t going to help me with my bills,” says Shehan, who relies on food stamps and the help of friends.

Nonprofit hospitals such as Caldwell Memorial are exempt from property, sales and income taxes. In return, they are expected to give back to their communities, largely by providing care to those who can’t afford it.

Like Caldwell, most North Carolina hospitals are devoting a fraction of their expenses to help the poor and uninsured, an investigation by the Charlotte Observer and The News & Observer of Raleigh found.

In 2010, most of the state’s hospitals spent less than 3 percent of their budgets on charity care – the practice of forgiving all or part of a patient’s bill.

Mecklenburg County’s hospitals perform better than average, with all spending more than 4 percent of their budgets on charity care. They are among the state’s most profitable hospitals.

In North Carolina, no government rules dictate how much charity care a nonprofit hospital must provide. Not even the IRS takes action. The result: A nonprofit hospital can spend virtually nothing on charity care and receive the same tax breaks as a hospital that sets aside as much as 10 percent of its budget to help the poor.

The newspapers’ findings raise questions about whether some hospitals are earning their nonprofit status, experts say.

The investigation found:

• About a third of North Carolina hospitals – including Caldwell Memorial – spent less than 2 percent of their budgets on charity care in 2010. Most of these are small hospitals in rural areas, and many report they are losing money.

• Some of the hospitals with the lowest percentages serve counties where the needs are high. Vidant Duplin Hospital, for instance, caters to a high-poverty county where one in four people lack health insurance. It spent less than 1 percent of its budget on charity care.

• Hospital practices vary widely. While the least generous hospitals are giving less than 1 percent to free care, the most charitable hospital – Thomasville Medical Center – spent about 13 percent.

• Many uninsured patients are never offered financial assistance. More than a third of hospitals in the state provide no details about their charity care policies on their websites. And more than 20 uninsured patients interviewed say they were never informed about charity care policies when they sought treatment.

• Most hospitals appear to be getting more in tax exemptions than they’re giving back in the form of charity care.

No agency or group calculates the value of hospital tax exemptions, so the newspapers derived estimates from publicly available data.

Based on the taxes paid by large for-profit hospital systems, North Carolina’s nonprofit hospitals get tax breaks worth roughly 4.4 percent of their expenses, the newspapers estimated. About two-thirds of those hospitals spend less than that on charity care.

Adam Searing, director of the N.C. Justice Center’s Health Access Coalition, questions whether many hospitals are doing enough charitable work to earn their tax exemptions.

“I feel like the hospitals are breaking the contract they made,” he said.

Jessica Curtis, director of Community Catalyst’s Hospital Accountability Project, said the Observer’s findings echo what she sees happening elsewhere in the country. “It’s almost a blatant disregard for the needs of the poor,” said Curtis, whose Boston-based group works to improve access to care.

To be sure, charity care – medical treatment provided for free or at reduced rates to low-income patients – is just one of many ways that hospitals help their communities.

They absorb millions in losses from treating Medicare and Medicaid patients because government reimbursement doesn’t cover their costs. They also train doctors and nurses, sponsor wellness programs and support community clinics.

But experts say charity care is by far the most important way hospitals can help the needy. It’s particularly crucial in North Carolina, where the unemployment rate is among the nation’s highest – and where roughly one in five residents under 65 lacks health insurance.

Officials with the N.C. Hospital Association, the group that lobbies for the state’s hospital industry, say their members work hard to help the poor. Charity care spending in North Carolina rose to about $853 million in fiscal 2010 – almost twice the amount spent in the pre-recession days of 2006, the NCHA estimates.

But some of the hospitals that spend the least on charity care simply can’t afford to do more, says NCHA spokesman Don Dalton. That’s because they’re among the state’s most financially challenged hospitals. Many are in rural areas.

“The resources available for them to do vastly more charity care are probably not there,” Dalton says.

But experts say it generally doesn’t hurt a hospital’s finances to become more charitable.

When hospitals sue patients or turn their accounts over to collection agencies, their actions often damage patients’ credit. Hospitals are losing money on those patients anyway and would likely experience little financial harm if they forgave more of the bills, experts say.

A 2005 study by the Center for Studying Health System Change found that bad debt at hospitals declined as charity care policies became more generous. Such changes, the study found, had “little impact on hospital bottom lines.”

Large needs, little help

Some of the least generous hospitals serve counties where numerous residents are poor and uninsured.

North of Wilmington, many families in Duplin County work demanding, low-wage jobs in poultry plants or farm fields. But advocates for Duplin County’s poor say it has been difficult to get financial help for uninsured people with large hospital bills.

Sonia Royes, a social worker for Catholic Charities, said she has tried about six times to get financial assistance for uninsured clients who had bills from Vidant Duplin – and has never succeeded.

She called the hospital in January 2011, asking if there was help available for one uninsured client. The official told her the hospital had no charity care policy, she said.

Duplin spent about $245,000 on charity care in 2010 – less than 1 percent of its budget.

Curtis, of Community Catalyst, said it’s “unacceptable” that any nonprofit hospital spend less than 1 percent of its budget on charity care. “A hospital spending that little on charity care in a community with high needs raises questions about that hospital’s commitment to the community,” she said.

According to Vidant Duplin’s policy, uninsured patients who can’t pay their bills can qualify for free care if their income is less than 200 percent of the poverty level and their household net worth is less than $25,000. For an individual, 200 percent is equivalent to making about $22,000 a year.

Officials for Vidant Duplin say many patients simply don’t provide the documentation that the hospital requires to prove that they’re eligible for charity care.

“I do believe our charity care could be a lot higher,” said Lucinda Crawford, the hospital’s vice president of financial services. “It’s sometimes a challenge for folks to bring in financial information and to follow up on a charity care application.”

Hospital CEO Jay Briley said that his hospital outstrips most others when judged by a different measure – the amount of “unreimbursed” care it provides. In 2010, the hospital reported losing about $1.1 million on Medicaid patients and about $4.3 million on patients who never paid their bills.

Duplin, like many other hospitals, routinely sends collection agencies to recover some of that money – a practice that can damage a patient’s credit.

Duplin’s officials say they’ve beefed up efforts to make uninsured patients aware of their charity care policy.

Until recently, Crawford said, patients who came through the emergency department didn’t routinely interact with a counselor who explained the policy. But the hospital changed that last year, so those patients now have a chance to talk with a counselor before they’re discharged.

With so many of its patients poor and uninsured, Duplin has struggled financially in recent years, losing more than $400,000 in 2010.

No rules

In North Carolina, as in most other states, hospitals aren’t required to spend even a single dollar on charity care. Federal rules require nonprofit hospitals to provide some “community benefit,” but they don’t specify what those benefits should be.

In 2007, the U.S. Senate Finance Committee proposed requiring nonprofit hospitals to spend at least 5 percent of their budgets on charity care – a standard that only about a fifth of North Carolina hospitals met in 2010.

That proposal never became law.

In Illinois, the state Department of Revenue last year denied property tax exemptions to three hospitals that were found to be spending less than 2 percent of their patient revenue on charity care. That followed a 2010 ruling by the Illinois Supreme Court, which concluded that Provena Medical Center wasn’t providing enough charity care to qualify for a tax exemption.

No group or agency keeps national statistics on what hospitals spend on charity care. But in some states where charity care reporting is required, the data give some sense of how hospitals stack up.

North Carolina hospitals appear to be providing less charity care than those in Texas, one of the few states that requires hospitals to give a minimum level of financial assistance.

In Texas, most hospitals spend more than 4 percent of their budgets on charity care; in North Carolina, most spend less than 3 percent.

North Carolina hospitals provide more charity care, on average, than those in California, where hospitals operate on significantly smaller profit margins.

Restrictive charity policies

In the Blue Ridge foothills that surround Caldwell Memorial, many patients could use financial help.

The closings of textile plants and furniture factories have left Caldwell County with an unemployment rate of 13 percent, among the state’s highest. Nearly one in five residents lives in poverty.

About 3,500 of the hospital’s patients got free care last year, said Don Gardner, the hospital’s vice president of finance. But many more – about 7,000 to 8,000 – got something else: calls or letters from collection agencies.

Rachael Shehan was among them.

She estimates her hospital bills now total more than $15,000. The 110-bed hospital put her on monthly payment plans that she says she can’t afford.

Now, she says, her credit is so bad she has been turned down for a small loan and has no hope of getting a car.

“I think (the hospital) should offer help,” Shehan said. “There’s an awful lot of people who need it.”

At Caldwell Memorial, only patients who live in Caldwell County, have less than $3,000 in assets and earn less than 125 percent of the poverty level are entitled to free care, according to the hospital’s website.

In 2010, the hospital reported spending about $1.5 million of its $99 million budget on charity care. But Gardner said that represents just a part of its good works.

Caldwell Memorial, for instance, provides about $1.3 million worth of free tests and medical procedures each year to a clinic that provides medical help to needy residents. It also reported losing about $2.3 million treating Medicaid patients in 2010.

“I have no doubts that we’ve done a yeoman’s job of providing service, regardless of ability to pay,” Gardner said.

The foundation that raises money for Caldwell Memorial recently claimed on its website that the hospital gave $18 million to charity care in 2010. In fact, the hospital spent about a tenth that much. The foundation removed that claim last year, soon after an Observer reporter asked a hospital executive about it. Gardner said he believes the error was unintentional.

The hospital operates on a slim profit margin – less than 2 percent in 2010.

Gardner declined to discuss any patients’ accounts with the Observer. But in general, he said, some patients don’t complete charity care applications or don’t cooperate in providing documents the hospital needs to verify eligibility. Others, he said, are “too proud to take charity care.”

Policies hard to find

At some North Carolina hospitals, it’s not easy for patients to learn what financial help is available.

Many patients told the newspaper that hospital officials never mentioned the availability of charity care.

More than 40 hospitals – including Gaston Memorial Hospital in Gastonia and Lake Norman Regional Medical Center in Mooresville – didn’t put key details about their charity care policies on the Web in late 2011, the newspapers’ review found.

Two-thirds of North Carolina hospitals didn’t list their full financial assistance policies on the Web.

Sampson Regional Medical Center was among them.

The hospital spends less than $250,000 a year on charity care – less than 1 percent of its budget. But many of its patients need all the financial help they can get. The hospital serves Sampson County, a rural community east of Fayetteville where more than one in five residents lives in poverty.

Hospital officials say those earning less than 125 percent of the poverty level can qualify for free care. They say they’ve been working to get more patients qualified.

But many patients have not cooperated by applying, says chief financial officer Jerry Heinzman. Some simply don’t care because they don’t intend to pay and already have poor credit ratings, he said.

Mary Jo Warren has been swamped by hospital bills.

Since suffering a stroke in 2010, Warren lost her nursing job and her employer-sponsored health insurance. She’s since been to Sampson Regional several times for high blood pressure, congestive heart disease and broken bones from frequent falls.

Until her health worsened, Warren said she was frugal, hardworking and self-reliant. Now she frets about not being able to pay her hospital bills. She gets groceries from a food pantry and two local churches.

She applied for charity care, and Sampson Regional cut 45 percent off the balance that she owed.

Two months later, a lawyer for the hospital wrote Warren two letters demanding payment of more than $1,000 and threatening a lawsuit.

After being contacted by a reporter, Heinzman said he has asked Warren to apply again for financial assistance. He previously knew nothing about her inability to work, he said.

Still, calls from hospitals and collection agencies come almost daily, rattling her nerves.

“They say, ‘Ms. Warren, we expect you to pay us money,’ ” she said. “I say, ‘I ain’t got any.’ And they say, ‘Well, that’s no excuse.’ ”

Fearing more bills, she has been reluctant to seek additional medical treatment. So she now waits until she is “really desperate to get some help.”

And that, she knows, can’t be good for her health.

Washington correspondent Franco Ordoñez and News & Observer database editor David Raynor contributed.

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