St. Mark’s: Is The Not-for-Profit Model The Right Fit for Fayette and Lee County?
This is a recurring column sharing public information and opinion on St Mark’s Medical Center, the needs for health care in Fayette County, and a path forward as researched by local businessman Sam Wilson:
Not-for-profit hospitals make up roughly two-thirds of our nation’s hospitals according to Medical Economics.
One reason hospitals organize as not-for-profit is the avoidance of taxes. They pay no federal income tax, no state franchise tax, and no sales tax. In exchange, not-for-profit hospitals are expected to reinvest what would have been paid in taxes back into the community through reduced healthcare costs for those who can’t otherwise afford it. The IRS Revenue Code for a 501(c)(3) tax exemption does not directly spell out hospitals for qualification. They fall under the provision that it is organized and operated primarily for public charitable purposes. An IRS ruling provides clarification stating a public charity must “contemplate an implied public trust constituted for some public benefit, the income or beneficial interest of which may not inure to the benefit of any private shareholder or individual.” Further, it must be organized for the purpose of caring, to the extent of its financial ability, for those not able to pay for the services rendered and not exclusively for those who are able and expected to pay. It must not restrict the use of its facilities to a particular group of physicians and surgeons; and importantly net earnings must not inure directly or indirectly to the benefit of any private shareholder or individual. This includes the payment of excessive salaries.”
Aside from the investment in community health need, perhaps the biggest benefit of a not-for profit hospital in Fayette County is the transparency and accountability that should bring. To satisfy IRS requirements for the tax-exempt status, not-for-profit hospitals are required to annually file an IRS Form 990; conduct a Community Health Needs Assessment every three years; adopt an implementation strategy to meet the community health needs identified in that assessment; and, make that assessment widely available to the public. The 990s filed for St. Mark’s Medical Center range from 70 to 87 pages long. The 990 for each year includes among other things, information on the hospital’s balance sheet which indicates the strength of the hospital; the revenues from patient services, investments, and other sources of income like grants, foundation contributions, and other federal funding sources; an expense break down, including the salaries of certain executives by name paid for by the hospital, as well as those paid by related organizations (i.e., CHC); a distribution of expenses related to patient program services versus management and general administrative expense; revenue and cost incurred addressing community health need through means-tested government programs like Medicaid; along with revenue and expense related to Medicare. There are pages of additional information pertaining to hospital operations spread across numerous schedules and notes. All of this information should be publicly available on the IRS website, and as a requirement of the IRS, also made available by the SMMC organization. One of the factors used by Charity Navigator is “We check the charity’s website to see if it has published its most recently filed IRS Form 990 (a direct link to the charity’s 990 on an external site is sufficient). As with the audited financial statement, donors need easy access to this finan-cial report to help determine if the organization is managing its financial resources well.” The transparency of management, operations, and financial disclosure is critical for the public to be able to understand the health of the hospital, and in part is what the taxpayers pay for when they exempt the organization from paying taxes. Are the citizens of Fayette County getting what they paid for? Kat Lahr, an award-winning writer and health advocate says “one of the main reasons for market failure in the U.S. Healthcare industry is because we are uninformed consumers.”
St. Mark’s Medical Center is not making it easy for taxpayers to be informed. While the IRS has posted 990 filings up through 2019 (July 2019/ June 2020), the IRS is behind and the two most recent 990 filings covering 2020/2021 and 2021/2022 are not available on the IRS website. The writer made a formal written request as directed by the SMMC website, followed by a phone call. Two weeks later one of the two 990s was provided, with a statement that the 2021(2022) 990 was under extension and would not be available until May 15, 2023. Why would a seven-month extension beyond the IRS deadline of five months from year end, be required for a no-tax-due return when an audited financial statement with a favorable CPA opinion was issued within three months on a prior audit? The taxpayers of Fayette County have effectively paid for the right through its tax-exempt status, to have widely available and easy access to these documents, and that right is at least being hindered. Sunshine is a good thing and without access to these documents, taxpayers are in the dark. Trust is difficult in the dark. This is particularly troublesome when hospital spokespersons repeatedly tell our city and county leaders, they do not have information on even their own salaries, or the Medicare and private payer mix?
If transparency leading to accountability is not met with integrity by SMMC leadership, then how about the other taxpayer benefit - a hospital organized for the purpose of caring, to the extent of its financial ability, for those not able to pay for the services.
A New York Times article states “from 2005 to 2015, average chief executive compensation in nonprofit hospitals increased by 93 percent … Nurses got 3 percent.” Areview of St. Mark’s Medical Center 2018(2019) pre-COVID 990, compared to the latest available 2020(2021) 990 shows that Management & General Expense salaries and wages along with their associated pensions, benefits and payroll taxes (excluding the salaries for the CEO, CFO and CNO employed by CHC as stated by the CFO8 Jared Brown) increased from $720,480 to $3,531,184 – almost five times the 2019 amount in just two years. While for the same period, salaries and wages including pensions, employee benefits and payroll taxes for health care Program Services declined from $11,207,390 to $8,923,055, a 20.4 percent reduction when full-time equivalent staff count reduced by two positions. On the surface, an almost fivefold increase in management and general expense salaries, compared with a 20 percent decrease in program service salaries does not appear to be coincident with a hospital in financial decline.
Researchers at Yale, University of Pennsylvania, Carnegie Mellon and the London School of Economics looked at how not-for-profits charge, and found they don’t price any less aggressively than for-profits, a finding that prompted study coauthor Zack Cooper, of Yale, to write “We subsidize notfor- profits to the tune of $30 billion annually, in the form of tax exemptions, and we have to ask what that money is getting us?” For-profit hospitals tend to serve lower-income populations, while nonprofit hospitals are generally found in communities with higher average incomes and fewer under- and uninsured patients. A 2018 Health Affairs report found that nonprofit hospitals actually provided nearly 40 percent less charity care than for-profit hospitals. For every $100 of care delivered, nonprofit hospitals contributed $2.30 of charity care, while for-profit hospitals provided $3.80 for every $100 of care. Government hospitals provided $4.10 for every $100.
According to Marni Jameson Carey at Medical Economics, “One way nonprofits[sic] hospitals get away with this is by using Chargemaster prices when filling out the charitable contribution section on their 990-tax forms. These are made up prices that nobody actually pays that are many times higher than what commercial insurance or Medicare would pay for the same service or procedure. Because nonprofits can make this number up, they can inflate how much they “give back” to the community as much as they want.” How does St. Marks Medical Center Report?
The SMMC 2020-2021 IRS filed 990 states that combined expenses for financial assistance, and Medicaid was $2,298,101, against revenues of $1,223,374 for a net cost of $1,074,727. This figure represents 4.2 percent ($4.20 for every $100 of care) of the $27.8 million total expenses as reported, up from the prior year of 2.51 percent. Given that the average annual Net Community Benefit Expense has been consistently averaging 2.1 percent for five years, one has to wonder if there is a timing or reimbursement issue that has artificially increased the amount contributed to community need? Medicare Spending for 2019 cannot be reviewed as the 990 appears to have an error, where Medicaid expenses are shown in the Medicare line item (Schedule H, Part III, Section B. Medicare Line 5 – currently being amended.) Looking at five years of 990s excluding 2019, Medicare reimbursement revenues over Medicare costs resulted in an average 7.9 percent profit for Medicare services. A review of the 990 for 2020-2021 does reflect a loss of $184,475 (-1.9% of Medicare revenues).
Does this suggest the hospital should be a for-profit hospital? In the writer’s opinion no. While not-for-profit hospitals in general may spend less on community health need, as a for-profit entity there would be less transparency and as a result, less accountability. The taxpayers deserve a hospital that is established to meet community health needs, with leadership that has strategic vision, guided by qualified professionals in the medical, financial, and business sphere, that operate in an open and transparent way, with a vested interest in Fayette and Lee County. Transparency will breed trust and support.
The next article will provide an in-depth review of St. Mark’s Medical Center’s public 990 filings.
emergency designation
April 21: Health Needs Assessment
April 28: The For-Profit comparison
Coming May 5: St. Mark’s Tax Filings