As if the not-for-profit hospitals don’t have enough on their minds…

Municipalities looking to address budget concerns have shifted their focus to historically tax-exempt not-for-profit entities:

A long-running legal case in Morristown could lead to millions of dollars in additional property taxes for New Jersey hospitals, as well as more revenue and tax relief for municipalities.

The town government is seeking to remove Morristown Medical Center’s property-tax exemption, arguing that it is no longer effectively operating as a nonprofit, due to its reliance on for-profit doctors’ practices and its steep prices.

The medical center argues that its business model is the traditional approach used by all nonprofit hospitals and that it has little control over what it’s paid for its services.

While I’ve heard of instances of municipalities trying to get hospitals to pay real estates taxes, or payments in lieu of taxes, on newly constructed buildings, it’s a very bold move by the city to try to reverse the tax exemption on everything the hospital owns.  On the MMC campus, that could equate to a tax bill totaling several million dollars.  Given that most not for profits operate at very thin surpluses (single digit margins), real estate tax expenses may take a sizable bite out of that.

I think the city’s argument, that the hospital is no longer effectively operating as a nonprofit, is weak sauce considering one of the reasons that the not-for-profit hospitals receive tax benefits is the charity care and other benefits they provide to the community.  For Atlantic Health System, the system that operates MMC, that number is in excess of $100 million.  That hospitals seek revenue streams in order to maintain an operating surplus doesn’t necessarily mean that they are following a for-profit model.  If anything, it is those revenue streams that allow the hospitals to be able to fulfill their mission directives and provide uncompensated care to those that can’t afford it.

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24 thoughts on “As if the not-for-profit hospitals don’t have enough on their minds…

  1. I do think that there is an issue of some or many non-profit institutions being non-profit in name only but really having more money than they know what to do with and/or existing to mainly act as providing sinecure positions for some wealthy persons friends and relations (in terms of foundations). Our riches universities and colleges come to mind.

    The issue seems to be the same as the stuff that surrounds court fines and civil forfeiture and the failure of the anti-tax revolution. Grover Norquist has long said that he wants to make government so small that he can drown it in the bathtub (which is such a lovely image). He succeeded in bringing down a lot of taxes as did others. What they did not succeed in is making people believe that less government and fewer government services are good. People still seemingly want their public schools, roads, parks, courts, and other institutions to function well. These things cost money and government will go to other places to get it. Hence an increase in court fees and fines (this limits access to justice) and civil asset forfeiture, etc. And now going after non-profits.

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    • He succeeded in bringing down a lot of taxes as did others. What they did not succeed in is making people believe that less government and fewer government services are good. People still seemingly want their public schools, roads, parks, courts, and other institutions to function well.

      This might be true in some cases, but I think it’s a rather broad statement to make (and gives ol’ Grover far too much credit). The causes of thin municipal budgets is much more varied and includes (but is not limited to) reduced taxes, unfunded mandates, fiscal irresponsibility/overspending, and down economies.

      Unless Morristown recently had a spate of tax reductions, the problem may lie elsewhere.

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      • Yeah the Grover delusion was the starve the beast delusion which assumed that if you cut off the taxes you’d eliminate the services the taxes fund. To their shock (those few that were honest enough to admit it) they discovered that people would happily embrace lower taxes but would fight like hell for their services and thus fund them using debt. Those conservatives not honest enough to admit that problem then went down the supply side rabbit hole.

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      • Yeah, but Grover’s been much more successful at the state level, where using debt to fund ongoing operations is generally forbidden. The shift of public higher ed to tuition and fees, not state funding. Crumbling roads and other infrastructure. Many states in at least technical violation of federal Medicaid requirements (the law says state reimbursement to providers must be high enough that Medicaid clients have the same access to providers that the portion of the population with private insurance does). Length of waiting lists for access to many services for the developmentally disabled. The next recession is going to be ugly.

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      • Yeah, but Grover’s been much more successful at the state level, where using debt to fund ongoing operations is generally forbidden

        Rather than do that, states try to hide it by raising debt to cover pension shortfalls (i.e. Illinois). It’s already ugly out there.

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  2. Going after not-for-profits strikes me as penny-wise-pound-foolish. The benefits they provide to their communities far exceed what the municipality loses by not taxing them.

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    • Not only are there questions about how much benefit is provided, but executives at the non-profits are compensated in similar fashion to those in the private sector.

      I’m in the real estate business so I’d like nothing more to see hospitals lose their tax exempt status for real estate. I don’t think their credit ratings are going to be jeopardized and it’ll get them off the ball and make them realize that they aren’t real estate companies and can raise a lot of money if they decide to monetize some or all of their facilities, even their acute care hospitals.

      Before anyone says “Ack! Privatization!!!!”, know that hospital monetizations are very complicated transactions and are HIGHLY negotiated in order to give the hospital all of the control provisions they need to operate their facilities per their respective missions.

      There are for-profit hospital operators that don’t own the underlying real estate just as there are senior housing operators that operate yet don’t actually own the facilities.

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  3. “but we’ve always done it this way” is not a reason to keep doing it that way, particularly when there’s increased focus on how much Americans actually spend on doctoring and whether we ought to be spending so much.

    *****

    The hospital isn’t doing anybody any favors by spreading the cost of providing services between its own charges and the doctors’ own charges. That obscures the true cost of providing services.

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    • So I read about a fun tactic: You’re at an in-network hospital, for surgery or because of severe illness or accident, and get a sudden bill from a doctor AFTER your insurance has paid.

      Why? Because for some unknown reason, an out-of-network doctor stopped by for something. Maybe during your surgery, maybe in recovery, maybe he just said hi. He’s not your surgeon, he’s not your PCP doing rounds, he’s a random specialist — and he showed up at YOUR bed despite there being in-network specialists there at the hospital. (Which is where the fun of sub-contracted doctors who are or aren’t in network comes in).

      Upshot? Your insurance pays for your care, and doctor’s or service providers get to charge you 5k or 10k separately. A nice hefty profit if even 1 in 10 pay up.

      Since it’s often done when you’re drugged or even unconscious, and even if you’re not they certainly don’t tell you that THIS specific doctor is out-of-network even though every other one you see IS in network, I think ‘scam’ is the only thing to call it.

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      • There’s also the times when you’re in the ED and a doctor is called for a consultation, and since that doctor isn’t in-network you get billed for the full cash cost, and since that doctor doesn’t do emergency services he won’t bill it as an ER visit, and since it isn’t billed as an ER visit then your insurance won’t apply their “emergency services” network exception, and gosh everyone involved is just so, so sorry but you still owe this asshole three times as much as you paid for the entire rest of the visit even though his whole contribution to your care was to listen to the case history and reply with a text message saying “yeah, sounds good”.

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      • My guess is that practice is gaining notice (rather than use) by doctors because of the increase in balance billing laws which effectively prevent either insurance companies or doctors from requiring the covered client from paying more than the sum of deductibles, copays, coinsurance, etc. from in-network providers. One very glaring exception to that general rule is when an out of network provider cares for a covered patient at an in network facility. (Pacific Life v. Colorado Division of Insurance). In that case the judge determined that in the event that a covered patient receives care from an out of network provider at an in network facility the protections accorded by balance bill legislation actually apply to the insurance company, capping benefits – technically defined as everything the insurance company is on the hook for after deductibles, copays, coinsurance – at the negotiated rate.

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      • There was an article or two I saw a few months ago that suggested that the AMA and the Doctor’s are a bigger barrier to single-payer than the insurance companies because specialist doctors make a very lucrative living now. Doctors in single payer countries do well but not as well as American doctors do.

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      • Michael caine,

        Does the medical care industry want single payer?

        I’m not as deep into the whole health insurance clusterfuck as others, of course, (my wife has worked in healthcare for over twenty years in part on the billing side) but from a functional pov, when you step back only a very short distance, I’d say the answer is “yes”. In CO., the Balance Bill bill was introduced specifically to prevent covered individuals from paying more than their deductible plus copays, coinsurance, etc, a practice which was so rampant that a very strictly and narrowly defined bill was constructed and passed thru the legislature. Lots of other states have balance bill laws in place as well. On the face of it, it seems like the bill really shouldn’t be necessary since the entire HC nexus is predicated on contracts between providers and insurers (the network) which govern the final cost incurred by the covered person. In fact, the network contracts – those in Colorado, anyway, I’ve read em – specifically say that the provider CANNOT charge more for a covered service than the negoiated rate. I mean, that seems trivial, right? That’s what it means to be in network!!!

        The current institutional arrangements are so loose and sloppy, without any checks on abuse, and the contracts are so opaquely written that consumers simply cannot understand what they’re obligated for wrt payment, and insurance companies are so inclined to either deny coverage or arbitrarily restrict reimbursement rates, that you’d get the feeling they actually want Big Gummint to come in and clear the whole mess up.

        I did a bunchof research a year or so ago into a whole slew of this stuff, and the deeper you dig into it, the more you’d think the whole system was designed – if it were designed! – to collapse.

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