Cherry-pick­ing pa­tients: It might be busi­ness as usual for many hos­pi­tals

Modern Healthcare - - NEWS - By El­iz­a­beth Whit­man

When the CEO of Mayo Clinic said the world-renowned, not-for­profit health sys­tem would pri­or­i­tize car­ing for pri­vately in­sured pa­tients over pub­licly in­sured ones, it trig­gered an in­quiry from the Min­nesota Health Depart­ment and dis­may and crit­i­cism from re­searchers and ethi­cists.

“We’re ask­ing ... if the pa­tient has com­mer­cial in­sur­ance, or they’re Med­i­caid or Medi­care pa­tients and they’re equal, that we pri­or­i­tize the com­mer­cial in­sured pa­tients enough so ... we can be fi­nan­cially strong at the end of the year to con­tinue to ad­vance, ad­vance our mis­sion,” CEO Dr. John Nose­wor­thy told staff dur­ing a speech late last year, ac­cord­ing to a tran­script ob­tained by the Min­neapo­lis Star Tri­bune.

It’s un­clear whether Nose­wor­thy’s statements rep­re­sent an ex­plicit change in pol­icy for the health sys­tem or if Mayo, in act­ing on that state­ment, would vi­o­late any laws, in­clud­ing fed­eral civil rights statutes, le­gal ex­perts said. But what­ever the out­come, the faux pas re­flects—to a sig­nif­i­cant de­gree—busi­ness as usual for not-for-profit hos­pi­tals, which make up more than three-quar­ters of the na­tion’s hos­pi­tals.

Even if Mayo is pick­ing and choos­ing its pa­tients based on in­sur­ance, it may not be sig­nif­i­cantly dif­fer­ent from the poli­cies and prac­tices of many other hos­pi­tals, said Mary Cross­ley, a law pro­fes­sor at the Univer­sity of Pitts­burgh’s School of Law whose re­search fo­cuses on in­equal­ity in health­care de­liv­ery.

“It’s part of a sys­tem where we ra­tion health­care based on who can pay. When you have a sys­tem like that, you have hos­pi­tals and other providers mak­ing th­ese kinds of choices,” Cross­ley said, sug­gest­ing that other hos­pi­tals sim­ply man­age to be more sub­tle than Mayo’s CEO re­cently was. “I cer­tainly don’t com­mend the prac­tice.”

In a sub­se­quent state­ment, Nose­wor­thy said that med­i­cal need would al­ways be the “pri­mary fac­tor” in mak­ing ap­point­ments. “In an in­ter­nal dis­cus­sion I used the word ‘pri­or­i­tized’ and I re­gret this has caused con­cerns that the Mayo Clinic will not serve pa­tients with gov­ern­ment in­sur­ance,” he said. “Noth­ing could be fur­ther from the truth.”

Not-for-profit hos­pi­tals are ex­empt from fed­eral, state and lo­cal taxes that, by one es­ti­mate, added up to $24.6 bil­lion in 2011. They re­ceive th­ese ex­emp­tions in re­turn for pro­vid­ing ben­e­fits to the com­mu­nity, at the core of which is car­ing for the pub­licly in­sured, unin­sured or in­di­gent. But the ex­tent to which hos­pi­tals ac­tu­ally of­fer com­mu­nity ben­e­fits varies sub­stan­tially, and their sta­tus as tax­ex­empt has come un­der scru­tiny in re­cent years.

The In­ter­nal Rev­enue Ser­vice does not set a min­i­mum level of com­mu­nity ben­e­fits that hos­pi­tals must pro­vide to gain tax ex­emp­tions. In 2013, a study pub­lished in the New Eng­land Jour­nal of Medicine found that not-for-profit hos­pi­tals in 2009 spent on av­er­age 7.5% of their oper­at­ing costs on com­mu­nity ben­e­fits and char­ity care.

A 2009 IRS study of not-for-profit hos­pi­tals shed light on im­bal­ances within the sec­tor, show­ing that com­mu­nity ben­e­fit spend­ing was con­cen­trated in a rel­a­tively small num­ber of hos­pi­tals. About 9% of the hos­pi­tals ac­counted for 60% of the ag­gre­gate com­mu­nity ben­e­fit ex­pen­di­tures, it found us­ing data from 2006.

Mean­while, not-for-profit hos­pi­tals with an­nual rev­enue in ex­cess of $500 mil­lion—36 hos­pi­tals, or 7% of those sur­veyed—saw much higher pro­por­tions of pri­vately in­sured pa­tients than did hos­pi­tals with rev­enue of less than $25 mil­lion—85 hos­pi­tals, or 17% of those sur­veyed—the IRS found.

Nose­wor­thy’s re­marks, made be­fore staff at the end of last year but bro­ken to the pub­lic in mid-March, of­fer more am­mu­ni­tion to those who ques­tion whether not-for-profit hos­pi­tals de­serve the tax breaks they’ve long re­ceived, es­pe­cially when their com­mu­nity con­tri­bu­tions ap­pear pal­try by com­par­i­son.

“Tax-ex­empt hos­pi­tals, tax-ex­empt or­ga­ni­za­tions, are per­ceived by the pub­lic to have this higher so­cial stan­dard. They’re ex­pected to be­have in ways that are not profit-driven,” said Gary Young, di­rec­tor of the Cen­ter for Health Pol­icy and Health­care Re­search

“I have never seen in mod­ern times any­thing like this. Where a hospital of the sta­tus and wealth of Mayo sim­ply comes out and says that it’s go­ing to start ra­tioning care to poor peo­ple on Med­i­caid—it re­ally made me sit up and take no­tice.”

SARA ROSEN­BAUM Pro­fes­sor of health pol­icy, Ge­orge Wash­ing­ton Univer­sity

at North­east­ern Univer­sity in Bos­ton, and who was the lead au­thor of the 2013 NEJM study.

Those ex­pec­ta­tions of­ten con­flict with re­al­ity. “We look at not-for-profit hos­pi­tals and say, ‘Wow, th­ese are ma­jor cor­po­ra­tions.’ They have rev­enues that are in the bil­lions, in some cases, and they have highly paid ex­ec­u­tives,” Young said.

Mayo Clinic’s net oper­at­ing in­come in 2016 was $475 mil­lion on rev­enue of $11 bil­lion, giv­ing it an oper­at­ing mar­gin of 4.3%, the sys­tem re­ported. It pro­vided care worth $629.7 mil­lion to “peo­ple in need,” in­clud­ing $83.3 mil­lion in char­ity care and $546.4 mil­lion in Med­i­caid short­falls or un­paid por­tions of other in­di­gent-care pro­grams.

In 2015, Nose­wor­thy took home a base salary of $1.96 mil­lion plus $481,459 in other com­pen­sa­tion, $59,031 in re­tire­ment and other de­ferred com­pen­sa­tion, and $20,103 in non­tax­able ben­e­fits, for a total of more than $2.5 mil­lion, tax records show.

In 2014, the es­ti­mated mar­ket value of the Mayo’s prop­er­ties in Min­nesota’s Olm­sted County was ap­prox­i­mately $820 mil­lion. The $16.6 mil­lion it paid in prop­erty taxes that year cov­ered about half of the value of its prop­er­ties.

Mayo Clinic’s mis­sion, ac­cord­ing to its web­site, is “to in­spire hope and con­trib­ute to health and well-be­ing by pro­vid­ing the best care to every pa­tient through in­te­grated clin­i­cal prac­tice, ed­u­ca­tion and re­search.” It adds, “The needs of the pa­tient come first.”

But Nose­wor­thy’s com­ments strike some as a stark con­trast to that mis­sion.

“I have never seen in mod­ern times any­thing like this,” said Sara Rosen­baum, a pro­fes­sor health pol­icy at the Ge­orge Wash­ing­ton Univer­sity in Wash­ing­ton, D.C. “Where a hospital of the sta­tus and wealth of Mayo sim­ply comes out and says that it’s go­ing to start ra­tioning care to poor peo­ple on Med­i­caid—it re­ally made me sit up and take no­tice.”

If Mayo were to pri­or­i­tize com­mer­cially in­sured over pub­licly in­sured pa­tients, it could po­ten­tially vi­o­late sev­eral state and fed­eral laws. Pos­si­ble reper­cus­sions re­main un­clear, but rarely have hos­pi­tals had their fed­eral tax-ex­empt sta­tus re­voked for fail­ing to pro­vide suf­fi­cient com­mu­nity ben­e­fits, al­though that has hap­pened oc­ca­sion­ally at the mu­nic­i­pal level, ex­perts said.

In 2011, Illi­nois stripped three hos­pi­tals of their prop­erty tax ex­emp­tions for fail­ing to pro­vide ad­e­quate char­ity care. And in 2013, the city of Pitts­burgh de­manded that UPMC com­pen­sate it for six years of prop­erty taxes for spend­ing less than 2% of its rev­enue on char­ity care.

Af­ter read­ing about Nose­wor­thy’s com­ments in the Star Tri­bune, Emily Piper, com­mis­sioner of the Min­nesota Depart­ment of Hu­man Ser­vices, sent a let­ter, dated March 16, to Nose­wor­thy. She said the depart­ment was re­view­ing its man­aged care, fee-for-ser­vice and ACO con­tracts with Mayo.

In a fol­low-up let­ter, as­sis­tant com­mis­sioner Nathan Mo­racco asked spe­cific ques­tions about how Mayo would meet the obli­ga­tions of those agree­ments and those of state and fed­eral law, and asked the clinic to re­spond within two weeks.

He pointed out that in 2015, Mayo had signed an agree­ment with Min­nesota Health Care Pro­grams, pub­licly sub­si­dized pro­grams that in­clude Med­i­caid as well as cov­er­age for im­mi­grants and refugees. Per that agree­ment, Mayo promised to “ren­der to re­cip­i­ents ser­vices of the same scope and qual­ity as would be pro­vided to the gen­eral pub­lic.” The agree­ment also re­quired providers to com­ply with Ti­tle VI of the 1964 Civil Rights Act, which bars dis­crim­i­na­tion.

Min­nesota’s pop­u­la­tion is 82% white, 6% black, 5% His­panic, 3% Asian and 2% Amer­i­can In­dian/Alaska Na­tive, ac­cord­ing to the U.S. Cen­sus Bureau. Non­whites are dis­pro­por­tion­ately on pub­lic in­sur­ance or are unin­sured. Of those on Med­i­caid in 2015, 67% were white and 18% were black. Of the nonelderly unin­sured, 44% were white, 17% His­panic, and 25% “other,” de­fined as Asian, Na­tive Hawai­ian and Pa­cific Is­lan­der, Amer­i­can In­dian, Aleutian, Eskimo or mul­tira­cial.

Over­all, 7% of Min­nesotans do not have in­sur­ance, ac­cord­ing to an anal­y­sis by the Kaiser Fam­ily Foun­da­tion. But only 4% of whites were unin­sured, while 20% of His­pan­ics and 24% of peo­ple cat­e­go­rized as “other” lacked cov­er­age.

Min­nesota does not ex­plic­itly re­quire not-for-profit hos­pi­tals to of­fer a min­i­mum of com­mu­nity ben­e­fits, al­though state law does re­quire them to re­port every year the ben­e­fits they do pro­vide.

If Mayo did cut back on care to Med­i­caid or Medi­care pa­tients or oth­ers who are not com­mer­cially in­sured, “mi­nori­ties would be dis­pro­por­tion­ately af­fected,” Rosen­baum said.

Be­cause it re­ceives fed­eral fund­ing by par­tic­i­pat­ing in Medi­care and Med­i­caid, Mayo is pro­hib­ited from dis­crim­i­nat­ing by race. Ti­tle VI bans not just overt dis­crim­i­na­tion but also the adop­tion of poli­cies that might ap­pear neu­tral but in re­al­ity dis­pro­por­tion­ately af­fect cer­tain racial groups. How this could play out for Mayo Clinic re­mains to be seen.

Ul­ti­mately, even at not-for-profit hos­pi­tals, rev­enue has to ex­ceed oper­at­ing ex­penses, said Cross­ley, the Univer­sity of Pitts­burgh law pro­fes­sor.

“It’s not un­usual to hear about hospital man­age­ment try­ing to ad­just pa­tient mix by ad­just­ing the ser­vices they of­fer, to max­i­mize rev­enue,” Cross­ley added. They might try to fig­ure out which ser­vices have the best profit margins, for in­stance, and lure pa­tients to those more lu­cra­tive units while clos­ing down ser­vices that at­tract Med­i­caid pa­tients and cause the hospital to lose money.

Young, who saw Nose­wor­thy’s com­ments as mar­ket-level and not pa­tientspe­cific, said that al­though the re­marks were in poor taste, the sen­ti­ments be­hind them were “com­mon­place.”

“We’ve asked them to com­pete,” Young said of not-for-profit hos­pi­tals. “They do think about how they have to mar­ket their ser­vices, and how they want to focus on the com­mer­cial pop­u­la­tion ver­sus gov­ern­ment.”

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