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Carolinas HealthCare chief worried about state tax plan

Carolinas HealthCare System CEO Michael Tarwater warned Tuesday that state legislative proposals to tax hospitals and decrease reimbursement could “disrupt the delicate balance that exists between mission and margin.”

“It’s still pretty gloomy,” Tarwater told board members at their quarterly meeting.

Tarwater, who leads the region’s largest hospital system with $7 billion in revenues and about 40 hospitals across the Carolinas, said he and his staff are monitoring state and federal legislative proposals. Some of them “would have a very negative impact on what we are able to do for our patients,” he said.

For example, under a bill co-sponsored by N.C. State Sen. Bob Rucho (R-Matthews), nonprofit hospitals would be required to pay sales taxes.

State and local governments now pay more than $400 million in annual sales tax refunds to nonprofits, and most of the money goes to hospitals. Under Rucho’s bill, sales tax refunds would be capped at $100,000 per year starting in 2016.

Bills have also been introduced to preserve the sales tax refund, Tarwater said. But “we’re still vulnerable ... When the guys are in session in Raleigh, things can change minute by minute.”

In addition, Tarwater said, budget proposals in both the Senate and the House have “potentially devastating cuts” for hospitals. He added that the General Assembly should not “correct their budget on the back of hospitals.”

Tarwater’s comments reflect the marketing campaign launched recently by the North Carolina Hospital Association through a website, www.healthyhospitalsnc.org, and TV commercials.

For years, the state hospital industry had been accustomed to getting its way in Raleigh. With a squad of lobbyists and generous donations to elected officials, it has long been one of the most powerful interest groups in state politics.

Now it’s facing an array of financial threats, including the rejection of expanded Medicaid funding by the state legislature.

Leaders in both North Carolina and South Carolina chose not to accept Medicaid expansion, which was intended to provide health insurance to more low-income people as part of the Affordable Care Act.

By rejecting the money, North Carolina will deprive state hospitals of $440 million a year, the hospital association estimated.

Tarwater added that cutbacks to hospitals will make it harder for Carolinas HealthCare to give free care to needy patients and to provide other “community benefits.”

The nonprofit system said it provided $284 million in financial assistance and discounts to uninsured patients last year.

“It’s critical that we help the public understand more about healthcare delivery and healthcare economics,” Tarwater said. “It’s complicated, and it’s not well understood.”

Profits decrease

In other business at Tuesday’s quarterly board meeting, Carolinas HealthCare reported first-quarter profits of $160 million, a decrease from $229 million during the same period in 2012. Most of the profit resulted from investment income of $130 million, which was down from $169 million in last year’s first quarter.

The system also reported operating income of $18 million from net operating revenue of $1.9 billion, compared to the first quarter of 2012 when it had $37 million in operating income from $1.6 billion net operating revenue.

Chief Operating Officer Joe Piemont blamed the decrease on “impacts of changes in funding,” such as Medicaid cuts and the loss of county reimbursement for indigent care. “And our costs are not going down.”

Still, Piemont called it “a solid quarter.”

Capital expenditures for the system totaled $185 million in the first quarter. That included the start of construction on a behavioral health center in Davidson and a new rehabilitation center at Carolinas Medical Center-NorthEast in Concord.

Garloch: 704-358-5078
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