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Hospital rivals agree on this much: Don’t kill sales tax break

By Edward J. Brown III and Michael B. Baughan
Special to the Observer

Carolinas HealthCare System and Novant Health are united in our deep commitment and unwavering passion to provide all citizens of the communities we serve with best-in-class patient care. We lead our nonprofit organizations under the expectation that we will accept substantially less than what it costs us to provide care for Medicare, Medicaid, underinsured and uninsured patients, a population that accounts for more than 60 percent of the care we provide.

Last year alone Carolinas HealthCare System and Novant Health provided $407 million in charity care and uninsured discounts, not counting the nearly $1 billion of unreimbursed essential care for Medicaid and Medicare patients. The small tax refund of less than seven percent of that $407 million did not come close to helping us offset those costs. Now a proposal to cap or eliminate the sales and use tax refund for all nonprofits threatens even this small bit of help we do receive.

The financial intricacies surrounding the health care industry are gravely misunderstood, and more transparency and dialogue are needed as we move forward in partnership with our communities, providers and payers. But we can all agree that a payment model in which 60 percent of services are provided below cost is a broken model. Nonprofit health systems will forever require a small margin to fulfill our mission.

Health care is the fifth most capital-intensive of all U.S. industries. The technology, research and expertise that drive healthy communities – and healthy economies – require financial strength and viability. But not without financial discipline. The operating margins, which historically run at industry averages and well below margins of other industries, are shared publicly by both health systems and are an indication of careful discipline and a belief that we are stewards of our communities’ health resources. And unlike any time in history, hospitals and health systems are preparing to weather unprecedented change and turbulence. As any responsible household or business would, we are managing resources so we will never have to deny essential medical care to anyone.

At this very moment area hospitals and providers are adjusting to substantial Medicare payment reductions that started in 2010 – and have continued – as part of the federal government’s Accountable Care Act. These cuts were meant to pay for expanded coverage for the uninsured, which is now on hold in the Carolinas. Sequestration cuts added a 2 percent reduction to Medicare payments for hospitals already losing 10 percent on Medicare patients.

If legislators continue to believe that we are not financially challenged in our ability to execute our mission, we put one of the strongest economic engines in the Carolinas at risk. We also risk the long-term viability of the nonprofit model that is currently blind to the patient’s ability to pay. Eliminating or capping nonprofit sales and use tax refunds will force hospitals to eventually curtail the services they provide.

As health systems face such uncertainty, this is not the time to use them as the mechanism to pay for a reduction of the corporate tax. We applaud the General Assembly’s desire to improve our state’s ability to recruit business, and we urge elected officials to preserve our ability to maintain our mission and continue to provide essential services to the patients we serve.

Brown is board chair at Carolinas HealthCare System. Baughan chairs the board at Novant Health.
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