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Nonprofits, tax breaks and getting hospitals to keep people out of the hospital Date: 03/05/18

Jay Hancock

By Jay Hancock

Kaiser Health News and Capital News Service recently published a project on Baltimore asthma hotspots – showing that amidst the wildly misaligned incentives of U.S. health care the two well-known hospital systems that dominate the area, Johns Hopkins and the University of Maryland Medical Center, have scant motivation to keep asthma patients out of their hospitals.

In other words, nonprofit hospitals profit when people stay sick.

We began our months-long project by analyzing data unique to Maryland (thanks to the state’s regulation of hospital rates) to identify the worst asthma neighborhood in the city, based on asthma-related ER visits and admissions. (Email if you want to know more about how we got the data.)

Then we sent reporters. We found a bad combination:

  1. old, often decrepit housing that harbors asthma triggers

  2. lack of primary care in the community to stop asthma; and

  3. nonprofit hospitals used to making millions on asthma-related hospital visits — and therefore with little motivation to prevent them.

Our stories were about one chronic disease, in one city, with one set of hospitals. But they raise broader issues about nonprofit hospitals’ role in serving their communities in return for enormous tax breaks. To consider:

  • Nonprofit hospitals don’t necessarily have a community’s best interests at heart. Don’t let the “nonprofit” label fool you. All that means is nobody owns them and they don’t pay a portion of profits to shareholders. There are no shareholders. They also don’t pay taxes.

    Nonprofit hospitals are businesses, often just as obsessed with revenue and profits as anybody on Wall Street to cover payroll, bond payments and seven-figure executive salaries.

  • Because they don’t pay taxes, by law nonprofits are supposed to help communities in ways beyond what a for-profit business would do. But the rules for providing this vague “community benefit” have been mushy. Nonprofit hospitals traditionally claimed that bad-debt writeoffs (based on “sticker” prices that few pay” and marketing materials disguised as “patient education” fulfilled their community benefit duties.

  • Many say that’s no longer enough, and the Affordable Care Act strengthened the rules, requiring hospitals to assess community health needs and report how they’re responding. But even those standards are wimpy. There is still no precise definition for community benefits, no minimum threshold and no penalties for failing.

  • The highest and best benefit a hospital might deliver could be improving the health of nearby residents and keeping them out of the hospital. But because there’s usually no revenue in this, hospitals don’t do it. Under fee-for-service reimbursement, they get paid for procedures and only for procedures. (They’re businesses, right?)

In Baltimore we found hospitals still focus on admissions and emergency visits related to asthma — not prevention. We found big shortages of primary care, community health workers and home remediation for frequent asthma patients in low-income Baltimore.

We found lots of research showing that the right thing for hospitals to do would be to spend, say, $4,000 on primary care or home remediation for frequent asthma patients. If that prevents one asthma admission costing an average of $8,698, it pays for itself. But they’re not doing it. Our stories suggest that under their community benefits obligations, they should.

  • It’s not just asthma. Hospitals have endless opportunities to improve community health, reduce admissions and lower society’s overall health costs by working with patients affected by diabetes, mental illness, heart failure, hypertension and drug addiction.

  • For more than a decade policy leaders have talked about changing hospital financial incentives to change hospital behavior — regardless of what their community service obligations are. Pay health organizations for keeping people healthy, the thinking goes, instead of for every MRI scan, operation and asthma rescue. This is the idea behind accountable care organizations and other value-based payments.

    Maryland’s global budget system, in which hospitals’ annual revenue is guaranteed and they can keep the difference if they cut costs, ER visits and admissions, is the most ambitious of these attempts. But in Maryland and elsewhere, hospitals still focus on procedures, not prevention.

  • These are subversive, counterintuitive ideas. Really? You want hospitals to be responsible for keeping people out of the hospital? “That’s like blaming firemen for fires,” said one commenter. But society subsidizes nonprofit hospitals to the tune of $25 billion a year. (The tax breaks.) It should expect something in return other than cancer screenings and healthy-diet classes.

There is nothing in their charters or state or federal law that says hospitals have to be only in the hospital business. Until they start doing something about their patients’ health before they are admitted and after they are discharged, hospitals won’t be doing their utmost to deserve their privileged status.

Jay Hancock has been a senior correspondent at Kaiser Health News since 2012.