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New Jersey may be the first state to impose per-bed fees on nonprofit hospitals for municipal services
New Jersey lawmakers approved an unusual measure last week that requires many nonprofit hospitals to pay per-bed fees to their local governments, while preserving their increasingly contested property-tax exemptions.
The legislation, which requires hospitals to pay a fee of $3 a day for each licensed bed, is in response to a landmark 2015 New Jersey Tax Court ruling involving Morristown Medical Center that “the operation and function of nonprofit hospitals do not meet the criteria for property tax exemption” under state law. A 300-bed hospital subject to the fee would pay $328,500 a year.
The New Jersey Legislature passed a similar per-bed payment system four years ago, soon after the Morris County tax-court decision, but Gov. Chris Christie vetoed it. In the meantime, at least 40 of New Jersey’s 60 or so nonprofit hospitals have been taken to tax court. Some have reached settlements and agreed to help pay for municipal services.
Murphy’s office has not responded to emails this week requesting comment on whether he intends to sign the legislation.
Cathy Bennett, chief executive of the New Jersey Hospital Association, described the legislation as the result of cooperation by the legislature, municipalities, and the hospital industry.
“I think people realized, we can’t allow this property tax issue to spiral out of control and result in policy that would drain hospital finances, particularly now, where we’ve seen the impact to the bottom line,” Bennett said, referring to the financial hit hospitals have taken from the coronavirus pandemic. “Hospitals are operating with [negative] margins that we haven’t seen since the late ’90s,” she said.
Bennett estimated that per-bed payments, plus an additional $300 per day payments for satellite emergency departments, would total $22 million a year, including $6.9 million in southern New Jersey. Other states have assessments on hospitals, typically to help pay for care for the poor, but Bennett said she didn’t know of any other states with assessments that support municipal services.
The New Jersey League of Municipalities has urged its members to ask Murphy to veto the legislation because the “community service contribution” called for in the legislation amounts in aggregate to far less than it would be if the hospitals were taxed fairly.
The association favors a legislative fix for the problem of modern hospitals not qualifying for property tax exemption, but would prefer a complete reexamination of New Jersey’s tax-exemption law, said Frank Marshall, associate general counsel at the league.
“It hasn’t been modernized in a long time. It needs to be updated to reflect the current business practices of every industry, not just hospitals, but any other nonprofits or not-for-profits that are exempt from property taxes,” he said.
The question of whether nonprofits deserve property-tax exemptions is an increasingly contested area of the law, especially in towns that are hard-pressed to pay for services.
Qualifying as a charity under section 501(c)(3) of the federal tax code — as a religious, educational, or charitable organization, for example — is not enough to automatically receive a local property-tax exemption. A key aspect to federal nonprofit income-tax exemptions is that profits must be put back into the charitable enterprise instead of benefiting private shareholders.
All states allow nonprofits to be eligible for property-tax exemptions, but each sets its own rules for how to qualify.
In New Jersey, a 1984 Supreme Court decision established a three-part test for whether a property should be tax exempt. The owner must be organized exclusively for a tax-exempt purpose, the property must be used for that purpose, and the activities there must not be conducted for profit.
The last prong of that test tripped up Morristown Medical Center, owned by Atlantic Health System, which is based in Morristown. The hospital’s operations were too entangled with for-profit physicians groups and other for-profit subsidiaries of the hospital’s owner to meet the third requirement for property-tax exemption, Tax Court Judge Vito Bianco ruled.
“This commingling of effort and activities with for-profit entities was significant, and a substantial benefit was conferred upon for-profit entities as a result,” he wrote.
That decision, which resulted in a $15 million settlement between Morristown and the medical center to be paid over 10 years through 2025, spurred cases throughout the state.
Among the most significant cases still pending are those between Vineland and Inspira and between Plainsboro Township and Princeton Healthcare System, which the University of Pennsylvania Healthcare System acquired in 2016.
Those cases will be moot if Murphy signs the legislation, which also calls for the formation of a Nonprofit Hospital Community Service Contribution Study Commission.
Hospitals, such as AtlantiCare Regional Medical Center in Galloway Township, that already have a deal in place to help pay for municipal services, will have to pay the greater amount of the new fees or the amounts due under earlier agreements, which will be allowed to run their course.
AtlantiCare’s 2017 agreement with Galloway called for increasing per-bed payments each year through 2022. This year the amount was $274,000. The health system will have to pay more under the new system. Since 2016 AtlantiCare has been in tax litigation with Atlantic City.
It is difficult to calculate the number of beds that would be subject to the fee. The count excludes skilled nursing, psychiatric, sub-acute, and newborn beds, plus an undefined set of “acute-care beds not commissioned for use.”
The legislation carves out the 89-bed Deborah Heart & Lung Center in Browns Mills, Burlington County, from having to pay the per-bed fees. That’s because Deborah meets two requirements, involving patient billing and the value of community benefits that the hospital provides.
First, Deborah does not bill patients, but rather accepts whatever its patients’ insurance companies pay or provides charity care to those who qualify. Second, its community benefit, as calculated on its 990 tax return, amounts to more than the required 12% of expenses. Deborah’s community benefit was close to 18% in 2018, according to its tax return.
Christine Carlson-Glazer, vice president for government relations at Deborah Heart & Lung, said Browns Mills had not sued it in tax court, but Deborah still wanted to preserve its charitable mission. She said Shriners Hospitals for Children and St. Jude Children’s Research Hospital are two others that do not bill patients.
“It’s not a mission that a lot of other places embrace,” Carlson-Glazer said.
Scripps CEO: Care rationing near if Californians ignore COVID-19 mitigation efforts
Hospitals in Southern California will need to start rationing care if more action isn’t taken by the community to mitigate the spread of COVID-19, Chris Van Gorder, president and CEO of Scripps Health, wrote in a Dec. 28 op-ed for The San Diego Union-Tribune.
As of Dec. 29, 20,642 California residents were hospitalized with COVID-19. The state’s hospital bed capacity is 72,511. In San Diego County, where Scripps is headquartered, 18 intensive care unit beds were available as of Dec. 28, “not even enough to handle a single mass casualty incident,” Mr. Van Gorder wrote. Out of Scripps’ 173 ICU beds, seven staffed beds were available as of Dec. 28.
“This past weekend, one of our community hospitals ran out of room in their morgue. We are nearing the point where we have to make the decision of who gets care and who does not,” Mr. Van Gorder wrote.
He pleaded with the San Diego and California community to adhere to mask-wearing and social distancing guidelines, especially as the New Year’s Day holiday approaches. He called on residents to stay home for New Year’s, wear a mask, wash their hands, and not eat or drink with people who aren’t in their immediate family household.
Mr. Van Gorder’s commentary comes as Kaiser Permanente hospitals in Northern California are suspending elective, non-urgent procedures through Jan. 4 as they continue to face a surge in COVID-19 hospitalizations. The Oakland, Calif.-based system announced the suspension Dec. 26, days after Chair and CEO Greg Adams said during a news conference, “We simply will not be able to keep up if the COVID surge continues to increase. We’re at or near capacity everywhere.”
Could coronavirus derail the decades-long shift to value-based care?
As the coronavirus sickens tens of thousands of Americans while pressuring the bottom lines of medical providers, analysts worry the pandemic could also hit pause on the decades-long march toward value-based care, as hospitals and doctors look to recoup revenue in the short-term instead of putting more dollars at risk.
Massive health systems and independent physician offices alike are diverting funds to shore up resources like personal protective equipment, ventilators and staff to prepare for an expected influx of COVID-19 patients or to cope with those already there. Expenses are skyrocketing as providers halt non-essential visits including lucrative elective procedures like joint replacements, winnowing down a major source of revenue.
Clinicians in value-based payment arrangements face higher levels of financial risk than their fee-for-service counterparts. Money spent preparing for the coronavirus and treating COVID-19 patients will be a sunk cost and they could be dinged financially again at the end of the year when their spending and performance is evaluated.
Already, the coronavirus is leading providers to think about exiting the models.
A survey published this week of more than 220 accountable care organizations nationwide found almost 60% are likely to drop out of their risk-based model to avoid financial losses. Some 77% are “very concerned” about the coronavirus’ impact on their 2020 performance.
“The value-based movement is at a critical juncture,” wrote National Association of ACOs CEO Clif Gaus in a letter to CMS Administrator Seema Verma last month.
Fee-for-service still dominates — roughly 40% of healthcare payments made in 2018 were under fee-for-service, according to the Health Care Payment Learning & Action Network (LAN) — but it’s been on the downswing. One in three healthcare payments currently flows through some sort of alternative payment model, and that has been projected to grow.
Among the four main types of value-based arrangements — shared risk, global capitation, bundled care and shared savings — most require an upfront financial commitment. And providers are unlikely to put more capital at risk given the current economic situation, analysts told Healthcare Dive, instead focusing on making up the losses they sustained during the outbreak by ramping up capacity.
Doctor’s offices and hospitals will reschedule delayed procedures and even operate on weekends to recapture as much revenue as possible before they’re likely to consider taking on more risk.
“Even if you’re not in the hotspots, you are preparing right now. This puts on hold a lot of the initiatives that have been on the value-based side of things,” Jefferies senior healthcare analyst Brian Tanquilut told Healthcare Dive. “I don’t think the value-based discussion goes away, but I think it will take a recovery of the hospital system before it can go there.”
Pleas for loss waivers
The National Association of ACOs told CMS in mid-March that ACOs in Medicare’s flagship ACO program the Shared Savings Program, along with other shared risk models like the Next Generation ACO model and the upcoming Direct Contracting initiative, could face losses beyond their control because of the pandemic.
CMS did pause some reporting requirements for value-based initiatives late last month. The agency pushed back the deadline for groups participating in the Medicare ACO program, Merit-based Incentive Payment System and the Hospital Readmissions Reduction Program to report quality data, or waived reporting entirely for the fourth quarter of 2019. The relaxation was framed as a way to help value-based organizations free up time and resources amid the pandemic.
But provider groups including NAACOS and the American Hospital Association have lobbied aggressively for the Trump administration to forgive all ACO losses for 2020. CMS is reviewing their request.
But all normal rules have gone out the window, experts say, and it’s almost impossible to move the needle toward value in the future when providers are facing a tsunami of patients now.
“This is not about managing a population. This is about doing everything you can to keep these people alive,” Dean Ungar, vice president of Moody’s Investors Service, told Healthcare Dive. “Coronavirus is really a five-alarm fire. But if your building’s on fire, that doesn’t really tell you how to maintain your business in normal circumstances.”
Silver lining?
Some, however, are more optimistic that the unique financial challenges brought on by the pandemic highlight the problems with the traditional fee-for-service model and could even nudge providers toward value-based arrangements down the line.
“If all of your revenue is based on patients walking in the door, when they can’t walk in the door anymore, you’re kind of up the creek without a paddle,” Dan Bowles, SVP of growth and network operations at accountable care organization Aledade told Healthcare Dive. “You need to find a way to create non-visit-based revenue.”
Some hope the pandemic could help the value-based movement in the long term as practices look for ways to uncouple revenue from patient volume. And, as medical costs continue to rise, accounting for 19% of the country’s GDP, any pause in the shift to value-based care due to the coronavirus is likely to be a short detour, not a complete derailment.
“Maybe some providers are going to see it in a different light when their business kind of dries up — see that there’s a benefit to it,” Ungar said. “Ultimately, it’s a trend of where things are going, but it’s a big ship and it’s moving slowly.”
And value-based care arrangements were built predominantly for the populations being hit hardest by the coronavirus: those with serious underlying medical conditions like chronic lung disease or severe obesity.
If those vulnerable patients were being treated in value-based arrangements, it’s possible more COVID-19 cases could have been caught earlier before they became life-threatening, Moody’s analyst Stefan Kahandaliyanage told Healthcare Dive. That could renew industry’s focus on managing the health of those most at-risk from novel infectious diseases in the future.
“Costs are very high and there’s been a pandemic,” Kahandaliyanage said. “Let’s get more healthy before the next pandemic comes.”
Operation Warp Speed at a crawl
The Centers for Disease Control and Prevention reported on Monday that 2.1 million doses of coronavirus vaccines have been administered in two weeks. While this might sound like an impressive number, it should set off alarms.
Let’s start with the math. Anthony S. Fauci, the government’s top infectious-disease doctor, estimates that 80 to 85 percent of Americans need to be vaccinated to reach herd immunity. Both the Pfizer and Moderna vaccines require two doses. Eighty percent of the American population is around 264 million people, so we need to administer 528 million doses to achieve herd immunity.
At the current rate, it would take the United States approximately 10 years to reach that level of inoculation. That’s right — 10 years. Contrast that with the Trump administration’s rosy projections: Earlier this month, Health and Human Services Secretary Alex Azar predicted that every American will be able to get the vaccine by the second quarter of 2021 (which would be the end of June). The speed needed to do that is 3.5 million vaccinations a day.
There’s reason to believe the administration won’t be able to ramp up vaccination rates anywhere close to those levels. Yes, as vaccine production increases, more will be available to the states. And Brett Giroir, assistant secretary for health at HHS, argued on Sunday that the 2.1 million administered vaccines figure was an underestimate due to delayed reporting. So let’s be generous and say the administration actually administered 4 million doses over the first two weeks.
But even that would still fall far short of the 3.5 million vaccinations needed per day. In fact, it falls far short of what the administration had promised to accomplish by the end of 2020 — enough doses for 20 million people. And remember, the first group of vaccinations was supposed to be the easiest: It’s hospitals and nursing homes inoculating their own workers and residents. If we can’t get this right, it doesn’t bode well for the rest of the country.
Here’s what concerns me most: Instead of identifying barriers to meeting the goal, officials are backtracking on their promises. When states learned they would receive fewer doses than they had been told, the administration said its end-of-year goal was not for vaccinations but vaccine distribution. It also halved the number of doses that would be available to people, from 40 million to 20 million. (Perhaps they hoped no one would notice that their initial pledge was to vaccinate 20 million people, which is 40 million doses, or that President Trump had at one point vowed to have 100 million doses by the end of the year.) And there’s more fancy wordplay that’s cause for concern: Instead of vaccine distribution, the administration promises “allocation” in December. Actual delivery for millions of doses wouldn’t take place until January, to say nothing of the logistics of vaccine administration.
The vaccine rollout is giving me flashbacks to the administration’s testing debacle. Think back to all the times Trump pledged that “everyone who wants a test can get one.” Every time this was fact-checked, it came up false. Instead of admitting that there wasn’t enough testing, administration officials followed a playbook to confuse and obfuscate: They first attempted to play up the number of tests done. Just like 2 million vaccines in two weeks, 1 million tests a week looked good on paper — until they were compared to the 30 million a day that some experts say are needed. The administration then tried to justify why more tests weren’t needed. Remember Trump saying that “tests create cases” or the CDC issuing nonsensical testing guidance?
When that didn’t work, Trump officials deflected blame to the states. Never mind that there should have been a national strategy or that states didn’t have the resources to ramp up testing on their own. It was easier to find excuses than to admit that they were falling short and do the hard work to remedy it.
Instead of muddying the waters, the federal government needs to take three urgent steps. First, set up a real-time public dashboard to track vaccine distribution. The public needs to know exactly how many doses are being delivered, distributed and administered. Transparency will help hold the right officials accountable, as well as target additional resources where they are most needed.
Second, publicize the plan for how vaccination will scale up so dramatically. States have submitted their individual plans to the CDC, but we need to see a national strategy that sets ambitious but realistic goals.
Third, acknowledge the challenges and end the defensiveness. The public will understand if initial goals need to be revised, but there must be willingness to learn from missteps and immediately course-correct.
I remain optimistic that vaccines will one day end this horrific pandemic that has taken far too many lives. To get there, we must approach the next several months with urgency, transparency and humility.
HENRY KOTULA 