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Report: 87% of WA Hospitals are Falling Behind on Community Investment Requirements

Non-profit hospitals are supposed to invest in communities – but many aren’t.

Washington non-profit hospital community investment requirements

Hospitals are a critical piece of our communities. Within those walls, babies are born. The sick receive treatment. And sometimes, we say goodbye. But unlike in the past – when they were small, community-run entities – many of today’s hospitals are massive, complex structures, operated within equally massive, complex systems.

Health care is no longer just about caring for the sick; it has become big business. And according to a new report, Washington state’s non-profits hospitals are enjoying big tax breaks – without meeting their obligations to the communities they’re supposed to serve.

Hospitals make up about a trillion dollars of our nation’s health care spending. The largest non-profit hospitals take in tens of billions of revenue each year. They also receive substantial tax breaks – breaks that are meant to be repaid through community investment requirements.

Unfortunately, it looks like that’s not happening.

What Are Community Investment Requirements?

A recent report put out by the Lown Institute reveals some shocking findings about non-profit hospital practices that have implications for those tracking hospitals here in our state.

But first, a primer.

As noted, non-profit hospitals receive generous tax benefits. They’re also exempt from paying most local, state, and federal taxes. Additionally, they’re allowed to receive bond financing and charitable donations that are tax-deductible for the donors. As you might imagine, these exemptions really add up. In 2020, the estimated value of tax exemption for non-profit hospitals in the U.S. was $28 billion.

In return for these benefits, non-profit hospitals are required to invest in communities by providing community benefits. These benefits can include providing charity care to low income people, conducting medical research, and offering community health improvement services.

But as the report found, hospitals in Washington (and across the nation) are failing to provide sufficient community investments in return for their ample tax breaks.

Most Hospitals Fail to Uphold Their End of the Bargain

To get an idea of how big this problem really is, we can turn to the Lown Institute and their “Fair Share Spending” report.

The report, which evaluated 2,400 non-profit hospitals across the country, looks at hospital fair share ratings. These ratings refer to the ratio of community investments provided to tax breaks received.  A hospital is considered to have a “fair share deficit” if they spend less on community investments than they receive in tax breaks.

Their finding? 87% of hospitals in Washington spent less on community benefits than they received in tax breaks.

That’s higher than the national average of 80% – and it comes with a big price-tag. Washington’s total fair share deficit totaled $970 million.

And just as a reminder, that’s money that was supposed to be spent on community investments like charity care and medical research.

Also in the report? A list of the three health systems with the largest fair share deficits that operate in here in Washington. They are: Kaiser Permanente ($1.2 billion deficit), Providence ($1 billion deficit), and CommonSpirit Health ($923 million deficit).

We know that “non-profit” doesn’t necessarily mean no profit or revenue. Some major health systems maintain enormous surpluses and pay their CEOs large compensation packages. For example, Providence famously sat on $12 billion in untaxed reserves during the pandemic and paid CEO Rod Hochman $10 million in 2020.

But non-profits are still required to meet their community investment requirements.

It’s Time to Pay the Community Back

Some health systems in Washington have already been under increasing scrutiny. Their failure to adequately provide charity care drew the attention of Attorney General Bob Ferguson. Ferguson sued Providence Hospital in 2022 for unfair medical billing practices.

The settlement, reached last month, requires Providence to repay $158 million to nearly 100,000 low-income Washingtonians.

Providence was found to violate charity care laws by “creating barriers for tens of thousands of patients who were legally entitled to financial aid with their medical bills… and sending many of their most vulnerable patients to collections.”

The Attorney General wasn’t done yet, though. In November, Ferguson ordered another Washington non-profit health system, PeaceHealth, to repay $13.4 million to low-income patients who qualified for charity care but were not informed of financial assistance. PeaceHealth uses special software to identify eligible people – but instead, billed the patients directly for their care.

When multi-billion-dollar health systems charge low-income Washingtonians for health care that should have been free under charity care, it not only affects those left holding the bill, but it creates a ripple effect though communities. By failing to inform patients of their options , these hospital systems discourage others from seeking care in the first place.

This is especially detrimental in Washington’s rural areas, where hospital consolidation has left consumers with even less choice and, often, higher prices.

Accountability and Oversight

We rely on our hospitals to take care of us and our loved ones when we need it most, but it’s difficult to establish trust when these same systems aren’t holding up their end of the deal.

In 2022, EOI started the Fair Health Prices campaign with the express goal of targeting big business in health care in Washington. We’ve already seen success.

This year, we advocated for more transparency in hospital and health system finances with HB 1508. The bill, which passed with bipartisan support, will strengthen our state’s Health Care Cost Transparency Board in a number of ways. It enables watchdogs to track consumer affordability challenges, evaluates how industry profits contribute to health care spending, and adds public hearings to expose high-priced outliers.

We also won funding in the state budget for a new study on tax preferences for non-profit health care providers and insurers.

But there’s still more work to do – and collecting data like the Lown Institute’s is a paramount piece of that work. Without this kind of data – data which show exactly how much hospitals are shirking their community duties – it’s much harder to hold these systems accountable.

Which is precisely what we must do. We know that hospital systems won’t comply or meet their community investment requirements without proper incentives. That means we need  sound policy solutions and bold leadership from our legislature. We need lawmakers who are willing to stand up for patients and make affordable, quality healthcare a priority.

We are ready to help inspire both.

Want to get involved? Check out  the Fair Health Prices campaign to get involved and raise your voice. 

 

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