WE­B­CASTS:

Ex­perts of­fer strate­gies for cop­ing with new ben­e­fit-re­port­ing re­quire­ments

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Ex­perts of­fer strate­gies for cop­ing with ben­e­fit-re­port­ing re­quire­ments

Ed­i­tor’s note: The fol­low­ing is an edited ex­cerpt of a full tran­script of a Feb. 7 ed­i­to­rial we­b­cast, “Tax­ing Times,” con­ducted by Mod­ern Health­care. The pan­elists were Thomas Glynn, lec­turer in public pol­icy at the Har­vard Kennedy School and for­mer chief op­er­at­ing of­fi­cer, Part­ners Health­care Sys­tem, Bos­ton; Jane Haderlein, se­nior vice pres­i­dent of ex­ter­nal af­fairs, Hunt­ing­ton Me­mo­rial Hospi­tal, Pasadena, Calif.; and Ni­cholas Mirkay, vis­it­ing as­so­ci­ate pro­fes­sor of law at Creighton Univer­sity, Omaha, Neb. In an ex­change mod­er­ated by re­porter Joe Carl­son, the pan­elists dis­cussed the lat­est de­vel­op­ments re­gard­ing tax ex­emp­tions for not-for-profit hos­pi­tals.

Joe Carl­son: You talked about the IRS Sec­tion 501(r). Do you sup­pose this is go­ing to re­sult in more com­mu­nity ben­e­fit and char­ity care be­ing given out, or is this just go­ing to re­sult in bet­ter ac­count­ing than is al­ready hap­pen­ing? Ni­cholas Mirkay:

The cyn­i­cal part of me would prob­a­bly say it’s go­ing to re­sult in a bet­ter kind of doc­u­men­ta­tion ac­count­ing of the com­mu­nity-ben­e­fit stan­dard. I think that if you go back—the dis­cus­sions in Congress about this tax-ex­emp­tion is­sue for hos­pi­tals over the last 10 years eas­ily, if you go back awhile, the IRS, when it was called to the Hill, re­ally at times was not able to pro­vide the doc­u­men­ta­tion for, OK what are hos­pi­tals pro­vid­ing in free care? For those con­gressper­sons who were look­ing at a quid pro quo, OK we’re giv­ing them an ex­emp­tion, what are we get­ting in re­turn? I think the IRS found them­selves not able to pro­vide doc­u­men­ta­tion. The (Form) 990 an­nual re­ports at that time did not re­ally pro­vide a lot of specifics, and the IRS wasn’t good about fol­low­ing up on 990s that were ei­ther in­com­plete or not filed. So, some of this I think is to make sure the in­for­ma­tion is there, specif­i­cally for Congress. Part of the act is also that the IRS has to make cer­tain ac­count­ings to Congress on a reg­u­lar ba­sis. So I would say most likely in a lot of in­stances, it’s just go­ing to mean more pa­per­work for hos­pi­tals and give the IRS prob­a­bly the in­for­ma­tion they need to re­port to Congress. Carl­son:

How do you see the com­mu­nity per­cep­tion of the $91 mil­lion in com­mu­nity ben­e­fit you men­tioned? I mean, are peo­ple in the com­mu­nity ex­pect­ing $91 mil­lion in free care go­ing out of your ER or go­ing to pop­u­la­tions that don’t have in­sur­ance? Or do you think peo­ple un­der­stand sort of a wider com­mu­nity ben­e­fit def­i­ni­tion that is used in pol­icy cir­cles? Jane Haderlein:

That’s an ex­cel­lent ques­tion. I think, lo­cally, we have made a very strong ef­fort to de­fine what com­mu­nity ben­e­fit means. We are a teach­ing hospi­tal with two res­i­den­cies—one in in­ter­nal medicine and one in sur­gi­cal medicine. We reg­u­larly speak to the com­mu­nity and to our pa­tients about how im­por­tant that is—not only for peo­ple who hap­pen to not have in­sur­ance but also for the fact that we are set­ting up our own suc­ces­sion plan­ning of very good physi­cians in our own com­mu­nity. So we reach out and we talk about that reg­u­larly as part of our cul­ture. We talk to our em­ploy­ees, and we do talk to our stake­hold­ers, our com­mu­nity lead­er­ship, about that. We also, two years ago as a re­sult of our com­mu­nity needs as­sess­ment—and re­ally many years of work prior to that—we worked in col­lab­o­ra­tion with a med­i­cal foun­da­tion group—not to be con­fused with a phil­an­thropic foun­da­tion, but a physi­cian foun­da­tion—as well as the city of Pasadena to set up an ur­gent-care clinic to try to, again, de­liver the right care at the right cost at the right time. With that we also pri­vate-part­nered with the fed­er­ally qual­i­fied health­care cen­ters so that we could en­sure that peo­ple with­out in­sur­ance or with less in­sur­ance than would be op­ti­mal have a pri­mary-care home. So those are a cou­ple of ex­am­ples of ways we try to in­form the com­mu­nity and try to share in a very proac­tive way what the hospi­tal is do­ing based on the re­sponse we have from peo­ple who live in our re­gion—that what we are do­ing is ac­tu­ally rein­vest­ing back so that peo­ple have ac­cess to ex­cep­tion­ally good care, that it’s priced ap­pro­pri­ately and it does not leave com­mu­nity mem­bers out re­gard­less of whether they’re in­sured, unin­sured or have a PPO plan vs. an HMO plan. So we are very proac­tive about show­ing that that in­vest­ment is a good in­vest­ment for our com­mu­nity. And we very much want to keep our tax ex­emp­tion so that we can con­tinue to do those things. Carl­son:

It seems like a pi­lot, a pay­ment in lieu of tax, could be sort of a dou­ble-edged sword for a hospi­tal CEO. On one hand, you’re open­ing up dis­cus­sions about tax­a­tion, which might have some risk, but then you’re also on the other hand sort of ex­tin­guish­ing some in­ter­est in in­creas­ing. Do you have any thoughts on: How does a hospi­tal CEO de­cide whether to sort of open that as an op­tion, to put the pi­lot on the ta­ble as a way to avoid a tax that might oth­er­wise be com­ing? Thomas Glynn:

I think that his­tor­i­cally these pay­ment-in-lieu-of-taxes agree­ments were only made when an in­sti­tu­tion was plan­ning to ex­pand. And so there­fore the city had some lever­age be­cause they had to ap­prove ex­pan­sion, zon­ing, etc. I think what

we’ve moved to is the no­tion that, you know, kind of fair share, and we all have an in­ter­est in hav­ing a suc­cess­ful city, and you know I think there are some le­gal is­sues that I would de­fer to Nick on, that some non­prof­its have been con­cerned by mak­ing this kind of pay­ment, but it is vol­un­tary. So, in a sense, as a layper­son, I’m not sure it raises a le­gal ques­tion about the tax-ex­empt sta­tus, but you are cor­rect in say­ing it’s some­thing that has come up. In gen­eral I think most in­sti­tu­tions have tried to co­op­er­ate with the city rec­og­niz­ing that this five-year phase-in has a fair for­mula, and, you know, ev­ery­body’s try­ing to co­op­er­ate, but it gets down to kind of civic par­tic­i­pa­tion and to what ex­tent that kind of a frame­work has been es­tab­lished. Carl­son:

I think one thing we want to do right now is ask if any­one—if any of the pan­elists—had any ques­tions for any of the other pan­elists? Haderlein:

I have a ques­tion for Tom. He said that pi­lot evolved. I’d like to ask whether or not that pay­ment would be in lieu of sort of the sense of col­lab­o­ra­tion, if you do have peo­ple like fire, like po­lice, like zon­ing of­fi­cials at the ta­ble. That’s what we have in Pasadena, so we don’t make a pay­ment, but we do bring peo­ple into the con­ver­sa­tion. And an ex­am­ple of that would be our fire and res­cue has just sug­gested that the hospi­tal should pro­vide train­ing to some of the EMTS in the field re­lated to early iden­ti­fi­ca­tion of stroke symp­toms, and we are do­ing that at our cost, but, again, re­spond­ing very lo­cally to that civic or­ga­ni­za­tion within our own com­mu­nity. And I would ar­gue that rather than a pay­ment to de­flect tax­a­tion, it serves us to have the con­ver­sa­tion and then to cre­ate to­gether a rea­son­able so­lu­tion. I’m won­der­ing about your thoughts on that, Tom. Glynn:

I think that is a very de­sir­able model and a good way to do it. But I think that some of those con­ver­sa­tions do take place, have taken place, and the way in which that think­ing was ac­com­mo­dated was peo­ple were told that if, af­ter you fig­ure out what the tax should be, the city would give us credit for var­i­ous pro­gram­matic com­mit­ments or in-kind com­mit­ments that we were mak­ing, con­sis­tent with the city’s agenda, so that this would be off­set to the tax, which would come out of the same kind of con­ver­sa­tion you’re sug­gest­ing with po­lice, fire, etc. But it’s a lit­tle bit more of a for­mula, and it sounds like your model is a lit­tle bit more of a dis­cus­sion and kind of a com­mu­nity con­sen­sus where this one has a lit­tle bit more of a for­mu­laic frame­work. Carl­son:

What would hap­pen if tax ex­emp­tion for hos­pi­tals van­ished to­mor­row? What’s the im­pact on a hospi­tal? Do hos­pi­tals start go­ing belly up? Or can they rapidly respond? Is there for- profit health­care— what would ac­tu­ally hap­pen if the tax ex­emp­tion just went away? Haderlein:

It’s an in­ter­est­ing ques­tion. I’ll just men­tion that sev­eral sys­tems in Cal­i­for­nia, Uni­health be­ing one, did in fact con­vert to a for-profit, and now they are a sig­nif­i­cant fun­der for com­mu­nity hos­pi­tals. So I guess a short an­swer to your ques­tion is: We would be in a lot of trou­ble. We would need to re­duce pro­grams. We would need to start look­ing at what kinds of pa­tients are triaged where. We would need to start look­ing like more of our for-profit friends, and that would cre­ate a lot of hard­ships on the kinds of pro­grams, in our case be­hav­ioral health, be­ing a full trauma cen­ter, hav­ing a pe­di­atric in­ten­sive-care unit—those kinds of things that are ex­tra-mea­sure but we be­lieve re­flect our com­mu­nity need and re­flect the reach that we want to have in terms of our mis­sion. So it would ratchet down sig­nif­i­cantly, and you would see more of a—to use an old model in health—more of the ten­ant kind of a model, cherry-pick­ing re­lated to sur­gi­cal choices and, again, lim­it­ing ER and trauma units, so we’d be a very dif­fer­ent hospi­tal and I be­lieve many non­prof­its would also be very dif­fer­ent. Glynn:

I think that a lot of hos­pi­tals are happy if they can run a 3% mar­gin of rev­enue over ex­penses. I think in the for-profit world, that would be con­sid­ered ex­tremely mod­est, and so you get the ques­tion that you’re try­ing to run a 6% mar­gin, where is that delta go­ing to come from? And I think Jane did an ex­cel­lent job kind of lay­ing out a lot of those things that hos­pi­tals take on will­ingly as com­mu­nity ser­vices. Pe­di­atric care loses money. Psy­chi­atric care loses money. You might have to re-ex­am­ine health cen­ters be­cause peo­ple don’t have a way to sub­si­dize those things, and at the same time they’re try­ing to in­crease their mar­gin to sat­isfy stock­hold­ers. Mirkay: I was just go­ing to add that there have been sev­eral aca­demic ar­ti­cles, one pub­lished in UCLA, that looked at dif­fer­ences be­fore for-profit and non­profit health providers, and there is def­i­nite ev­i­dence of the fact that non­profit health­care providers do of­fer ac­cess to ser­vices that are less prof­itable and hang on to those ser­vices much longer than a for-profit hospi­tal would. And they men­tioned things like psy­chi­atric emer­gency care, AIDS treat­ment, trauma ser­vices. There are def­i­nite stud­ies that show that non­profit hos­pi­tals pro­vide ser­vices on a con­tin­uum that for-prof­its do not be­cause of its prof­itabil­ity is­sues. Carl­son:

How do ex­ec­u­tive salaries fit into this de­bate? And should salaries of CEOS at not-for­prof­its be capped? Mirkay:

I guess I would say that there are at least rules in place deal­ing with ex­ec­u­tive com­pen­sa­tion. And the rea­son hospi­tal stud­ies show that nearly all the hos­pi­tals that they sur­veyed did re­port us­ing what we call the “re­but­table pre­sump­tion pro­ce­dures” that are avail­able un­der an­other term, the in­ter­me­di­ate sanc­tions, that are in place to make sure that there’s not too much ben­e­fit go­ing to in­di­vid­u­als—that’s for all char­ity, not just hos­pi­tals. And so the stud­ies show that a ma­jor­ity of the hos­pi­tals—al­most all of them that were sur­veyed did use this re­but­table pre­sump­tion pro­ce­dure, which is they’re sup­posed to get com­pa­ra­bles based on sim­i­larly sized, sim­i­larly op­er­at­ing hos­pi­tals or other char­i­ties. The boards got a look through those, they got to dis­cuss it, they need to prove it, they need to doc­u­ment all of that, and at least the IRS looked at that as the fact that that is in place, then we’re at least en­sur­ing that the com­pen­sa­tion ex­ec­u­tives are re­ceiv­ing is rea­son­able. And the study also found that there was a di­rect cor­re­la­tion be­tween the to­tal rev­enue and com­pen­sa­tion that was paid to top ex­ec­u­tives. So I think there is a per­cep­tion that all hospi­tal ex­ec­u­tives are mak­ing a lot of money, but the study seems to show that for smaller hos­pi­tals, it is go­ing to be more com­men­su­rate with the size of the hospi­tal.

Mirkay

Carl­son

Glynn

Haderlein

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