Prognosis Profits

April 22, 2015

Officials: Taxpayers need say on CHS

Calling Carolinas HealthCare System a public organization that often behaves like a private one, top Mecklenburg County officials say the multibillion-dollar hospital chain ought to be more accountable to taxpayers.

This story was originally published in the Observer on 6/16/12.

Calling Carolinas HealthCare System a public organization that often behaves like a private one, top Mecklenburg County officials say the multibillion-dollar hospital chain ought to be more accountable to taxpayers.

The system is run by a self-chosen board, gets substantial tax breaks, and exerts its influence through powerful lobbyists and a political action committee that contributes to candidates.

But while it’s legally a governmental agency, the Charlotte-based hospital system gives the public little say in its decisions, some county officials contend. County Manager Harry Jones – and at least five county commissioners – say it’s time for that to change.

One example, Jones said, is that Carolinas HealthCare holds its quarterly board meetings at 7 a.m. and doesn’t invite the public to speak at them.

“At 7 a.m., you’re not going to have many citizens there,” Jones told the Observer last week. “…You’re a governmental entity, so you should shine a light on the people’s business.”

Commissioners Chairman Harold Cogdell is among those who agree.

“Considering the many benefits (CHS) receives by being a governmental not-for-profit, there is a reasonable expectation that the public would have a say-so in the policy making of that organization,” said Cogdell, a former Democrat who is now unaffiliated..

County officials were responding to the Observer’s questions about its recent investigation into the region’s nonprofit hospitals, which found, among other things, that Carolinas HealthCare is not as open and transparent as other governmental agencies.

Jones said that an organization he considers comparable – the Charlotte Housing Authority, another public agency that provides a crucial service – gives citizens a time to speak at its meetings.

That doesn’t happen at the hospital system’s meetings. Few people know when the board meets. State law requires public agencies with websites to post meeting times. Carolinas HealthCare didn’t do that until April, after an Observer reporter asked about it.

County commissioners Jennifer Roberts, Bill James, Neil Cooksey and Vilma Leake also say they believe the public deserves more input.

“All the things that allowed CMC to become what it is started with government money,” said James, a Republican, noting that the Charlotte City Council issued bonds more than seven decades ago to help construct what later became Carolinas Medical Center. “…But to me, there’s no government oversight.”

Carolinas HealthCare, which runs Carolinas Medical Center and about 30 other hospitals, is the nation’s second-largest public hospital system, with nearly $7 billion in annual revenue.

System officials say the existing setup has served the community “extremely well.”

“The North Carolina General Assembly, in 1943, recognized that the hospital authority structure, which removes hospital governance from local politics, would provide the stability and structure to foster a strong hospital and quality healthcare,” the system said in a statement.

Concerns about Carolinas HealthCare’s transparency triggered a dispute between the hospital system and Mecklenburg County last year.

County officials contended that CHS failed to provide requested information about patients at a psychiatric hospital that the system has run under contract with the county – and about plans for a new psychiatric hospital in Huntersville. (The system now plans to build that hospital in Davidson.)

The dispute ultimately erupted into a lawsuit, which was settled earlier this month. Jones had deferred comment on the Observer’s hospital investigation until the dispute was resolved.

Until recently, the county paid Carolinas HealthCare about $60 million annually for running a psychiatric hospital, caring for the indigent and providing public health services. But county commissioners voted last year to end those payments and contracts.

Commissioner Dumont Clarke, a Democrat, says that leaves the county with less leverage to change how the hospital system is run.

“The argument for what the manager is saying was a lot stronger when the county was still providing them millions of dollars,” Clarke said.

Health care politics

Carolinas HealthCare’s self-perpetuating board includes top community and business leaders whose nominations get approval from the county commissioners’ chairman. Their votes on multimillion-dollar decisions are almost always unanimous. Questions are worked out in private discussions or closed-door meetings.

Jones believes that all the county commissioners – not just the chair – should vote on the nominees for the hospital board. They should also be able to nominate board members, he said. Several commissioners agreed.

But only the state legislature can change that arrangement.

Jordan Shaw, a spokesman for N.C. House Speaker Thom Tillis, said he understands the issue is important to the region’s citizens.

“We will carefully consider the opinions of all stakeholders –including local officials – as we look at this issue moving forward,” Shaw said.

System officials say the 1943 state law that established the hospital authority was designed to minimize political influence on the board.

The architect of that law, a Union County lawyer named Fred Helms, said he considered it his mission to “get the Hospital out of and keep it out of politics,” according to a book about Carolinas Medical Center written by Jerry Shinn, a former Observer journalist.

While the law was designed to keep politics out of Carolinas HealthCare, it hasn’t kept the hospital system out of politics.

CHS has a federal political action committee that had more than $230,000 on hand at the end of 2011. That was more than any other PAC representing a company without stock, federal records show.

Jones questioned why the system needs its own PAC. Most governmental agencies don’t have one, he said.

“I point this out as yet another example of a governmental entity behaving like a private entity,” he said.

CHS said, in a written statement, that it created the PAC in 2006 to give its employees “the opportunity to make coordinated and transparent contributions to candidates who understand healthcare, the mission of Carolinas Healthcare System, and the healthcare needs of our patients and the communities we serve.”

Giving as much as they get?

Nonprofit hospitals 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.

The Observer’s investigation found that most N.C. hospitals appear to be getting more in tax breaks than they are returning to the community in the form of charity care. 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.

Public officials in Forsyth County, concerned about slumping tax revenue, have been studying whether nonprofit medical facilities there are providing enough community benefits to earn their tax exemptions, Jones noted.

Mecklenburg County’s hospitals are more charitable than most, with all spending more than 4 percent of their budgets on charity care. All the county’s hospitals are owned by Carolinas HealthCare and by Novant Health, another large nonprofit hospital chain.

“We’re very, very fortunate to have two great hospital systems,” said Jones, who in recent months has been receiving treatment for pancreatic cancer at Carolinas HealthCare’s Levine Cancer Institute. “They’ve shown themselves to be very charitable.”

Jones said that while local hospitals provide considerable benefits to the community, he doesn’t have enough data to determine whether they are earning their tax exemptions.

Carolinas HealthCare’s hospitals in Mecklenburg, Cabarrus and Lincoln counties, which form the heart of its operation, spent about $150 million on charity care last year.

But critics contend the system could afford to do more. In recent years, the system’s core operation has turned an average annual profit of more than $250 million – even after its charitable expenses.

Carolinas HealthCare hospitals in its three core counties get tax exemptions worth more than $100 million a year, the Observer estimated. The system owns more than $1 billion in tax-exempt property, pays no corporate income taxes and got about $40 million in sales-tax rebates last year.

CHS says charity care is just one of many ways it helps the community. The system said it spent more than $700 million last year to cover losses from treating Medicare and Medicaid patients, as well as patients who don’t pay their bills.

Jones said he’ll ask his staff how much tax revenue the county would receive if property and buildings owned by nonprofit hospitals were taxed at half the usual rate.

But county officials aren’t in a position to change much. Only state and federal lawmakers can alter the tax breaks that hospitals receive.

Last year, Republican state Rep. Dale Folwell proposed capping refunds to some of the largest and most profitable hospitals, a move that would have provided state and local governments millions in additional tax revenue.

The hospital industry used its clout to kill the proposal, Folwell said.

The Observer’s investigation also found that hospitals owned by Carolinas HealthCare are among those that regularly sue patients who don’t pay their bills. Novant, which owns the three Presbyterian hospitals in Mecklenburg, does not file such lawsuits.

Carolinas HealthCare officials say they offer financial help to those who show need, and file suit only after patients refuse to answer multiple requests for payment. The system puts liens on the houses of many of those patients, but officials say they do not force people from their homes.

Prohibiting hospital lawsuits might drive up the costs for other patients, commissioner James said.

But Democratic commissioner Vilma Leake said the hospitals appeared to be suing people “who don’t even have enough money to meet their weekly responsibilities.”

“That bothers me,” she said.

Staff writer Karen Garloch contributed.

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