Grassley Renews Probe of Nonprofit Hospitals

The Iowa Republican has asked the IRS for data on how many of the nation’s approximately 3,000 tax-exempt hospitals are in compliance with charity care requirements.


Grassley asked for information about whether tax-exempt hospitals are meeting the statutory requirements laid out in section 501 of the Internal Revenue Code.

The lawmaker is renewing his probe of tax-exempt hospitals after hearing reports that ‘at least some of these tax-exempt hospitals have cut charity care, despite increased revenue.’

Senate Finance Committee Chairman Chuck Grassley has renewed efforts to ensure that nonprofit hospitals are earning their tax-exempt status by providing enough services for low-income people.

In a letter to Internal Revenue Service Commissioner Charles Rettig, the Iowa Republican asked for data on how many hospitals are in compliance with the requirements for tax-exempt status and the status of IRS examinations of those not in compliance.

“Making sure that tax-exempt hospitals abide by their community benefit standards is a very important issue for me,” Grassley said in his letter.

“As chairman of the Senate Judiciary Committee, I oversaw an investigation into the billing practices of the Mosaic Life Care hospital. That investigation resulted in debt relief of almost $17 million for thousands of low-income patients.  This issue is still just as important to me now that I am chairman of the Senate Finance Committee,” Grassley wrote.

The Mosaic Life inquiry examined the billing and debt collection practices at the health system after news reports indicated it had sued low-income patients who should have qualified for charity care.

Grassley told Rettig that he was renewing his probe of tax-exempt hospitals after hearing “reports” that “at least some of these tax-exempt hospitals have cut charity care, despite increased revenue, calling into question their compliance with the standards set by Congress.”

He asked Rettig for information about whether tax-exempt hospitals are meeting the statutory requirements laid out in section 501 of the Internal Revenue Code, and he cited in his letter an article in Politico that suggested nonprofit hospitals were profiting from the Affordable Care Act while simultaneously cutting their charity care.

In February 2018, Grassley sent a letter to the IRS to inquire about how the agency reviews nonprofit hospital compliance.

Acting Commissioner David J. Kautter responded in April 2018 that the IRS reviews the status of about 1,000 U.S. tax-exempt hospitals each year by reviewing Forms 990, hospital websites, and other information in order to identify the hospitals with the highest likelihood of noncompliance.

Kautter said the IRS assigns either a compliance check or examination to those hospitals that appear to be most at risk of noncompliance.

Melinda Hatton, general counsel for the American Hospital Association, said her organization was confident that nonprofit hospitals are meeting their mission.

“In 2015, an AHA analysis of Schedule H filings reported that 13.3% of tax-exempt hospitals and health systems total expenses were devoted to community benefits programs, and that half of that spending was attributable to expenditures for providing financial assistance to needy patients and absorbing losses from Medicaid and other means-tested government program underpayments,” she said.

Hatton said an analysis by Ernst & Young for the AHA found that hospitals’ and health systems’ community benefit activities outweigh the value of their federal tax exemption by a factor of 11 to one. “According to the report, non-profit hospitals in 2013 were exempt from an estimated $6 billion in federal taxes and provided an estimated $67.4 billion in community benefits,” Hatton said.

“Making sure that tax-exempt hospitals abide by their community benefit standards is a very important issue for me.”




Questioning the ethics of pursuing “grateful patients”

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Questioning the ethics of pursuing “grateful patients”

Naming a wing, unit or hospital building after a wealthy donor is nothing new, and hospital executives have long had programs to build relationships with “grateful patients” who wish to make a contribution.

piece this week in the New York Times challenges this practice, and in particular, the ethics of analyzing patient financial data and public records to identify likely donors.

A 2013 change to privacy laws made it easier for hospitals to share information with fundraisers. Now many hospitals have built automated systems to perform “wealth screenings”, combining patient medical records, financial information and publicly-available information such as property records, and political and charitable contributions to identify patients with the means and likelihood of making a large donation. Target patients may receive nicer amenities or a visit from a hospital executive, and follow-up from the hospital’s development staff.

Medical ethicists are split on the practice, with one calling it “unseemly but not illegal or unethical”, but another saying that the practice, and particularly getting physicians involved in the process, is “fraught with danger”.

Previous research has shown that half of oncologists reported being trained to identify potential donors, and a third had been directly asked to solicit donations from patients. The reactions of physicians and patients profiled are mixed. Many doctors feel uncomfortable about the practice but recognize the importance of philanthropy.

Some patients want to express their gratitude through donation—but others expressed concerns about misleading connections between their doctors’ needs and where their donations would be spent.

They also questioned whether large health systems with billions in revenue and millions in profits should be routinely pursuing large donors. Rising public scrutiny around billing practices also highlights the dissonance between asking for philanthropic donations while at the same time aggressively pursuing a schoolteacher or bus driver for thousands of dollars in out-of-network claims.

We’d expect these tensions to continue to grow, as rising margin pressures make philanthropic income even more critical for hospitals—but transparency and a growing healthcare consumer marketplace raise questions of how much of a nonprofit health system’s work truly is “charitable”.



A Little-Known Windfall for Some Hospitals, Now Facing Big Cuts

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Most hospitals are nonprofit and justify their exemption from taxation with community service and charity care. But the Trump administration could require some of them to do more to help the poor, and the hospitals that are in the cross-hairs are those benefiting from an obscure drug discount program known as 340B.

The 340B program requires pharmaceutical manufactures to sell drugs at steep discounts to certain hospitals serving larger proportions of low-income and vulnerable people, such as children or cancer patients. The participating hospitals may charge insurers and public programs like Medicare and Medicaid more for those drugs than they paid for them and keep the difference.

By one estimate, the program saved hospitals $6 billion in 2015 alone. The original intent of the program, enacted in 1992, was for hospitals to use the revenue to provide more low-income patients a broader range of services.

Many institutions that serve mostly low-income and uninsured populations say they need the program. “Most nonprofit hospitals have very slim profit margins, and they’ve come to rely on this revenue,” said Melinda Buntin, chairwoman of the Department of Health Policy at Vanderbilt School of Medicine. A hospital lobbying group said that for some rural hospitals, the funding cut “could actually be the difference between staying open and closing.”

But there is concern that 340B has come to include hospitals that don’t need the extra help and are not using its windfall as originally intended.

The program has grown considerably, most recently as a result of an expansion included in the Affordable Care Act. As of 2004, about 200 hospitals benefited from the 340B program; by 2015, over 1,000 were participating. The program now encompasses 40 percent of all hospitals and an even larger number of hospital-affiliated clinics and pharmacies.

It might seem odd to give discounts on drugs to help hospitals offer care to low-income patients. How can we be sure they’ll use the money for that?

An increasing number of hospitals are not.

A study published in JAMA Internal Medicine found that the early participating hospitals were more likely to be located in poor communities with higher levels of uninsured people, to spend more of their budget on uncompensated care, and to offer more low-profit services than hospitals that started participating later.

“The 340B program may produce the results intended at some hospitals,” said Sayeh Nikpay, an assistant professor at Vanderbilt University and a co-author on the study. “But as the program grew, it benefited many hospitals with less need for assistance in serving low-income populations.”

Other research corroborates that hospitals aren’t using the 340B program as intendedA study in The New England Journal of Medicine was unable to find any evidence that profits from 340B have led to more access to care for low-income patients, or reductions in mortality rates among them. Another study in Health Affairs found that 340B hospitals have increasingly expanded into more affluent communities with higher rates of insurance.

The 340B program may have also inadvertently raised costs — for example, by encouraging care in 340B-eligible hospitals that could have been provided less expensively elsewhere. A study in Health Services Research found that hospital participation in 340B is associated with a shift of cancer care from lower-cost physician offices to higher-cost hospital settings.

The program may also encourage providers to use more expensive drugs. The more hospitals can charge insurers and public programs for a drug — relative to how much they have to pay for it under the program — the greater the revenue they receive. They also receive more revenue when the drugs are prescribed more often.

In January, Medicare lowered the prices it pays for 340B drugs by 27 percent. Although this move chips away at how much hospitals can benefit financially, it does little to address how much insurers and individuals pay for prescription drugs or the value they obtain from them. In addition, the move does nothing to increase hospital spending that could help the poor.

It may even harm some health care organizations, leading to lower-quality care at those institutions that are helping the poor. Studies have shown that, by and large, when hospitals lose financial resources, they make cuts that could harm some patients.

This can happen if cuts lead to reductions in workers who perform important clinical functions. A study in Health Services Research found that hospitals cut nursing staff in response to Medicare payment cuts in the late 1990s. Heart attack mortality rates improved less at hospitals that had larger cuts.

Another response to reduced revenue is cuts to specific services, which would harm patients who rely on them. A study by economists from Northwestern’s Kellogg School of Management found that some hospitals that endured financial setbacks during the Great Recession cut less profitable services like trauma centers and alcohol- and drug-treatment facilities.

Another study looked at a 1998 California law that required hospitals to comply with seismic safety standards — imposing a large cost on those institutions, without providing additional funding. Hospitals that were hit harder financially by this law were more likely to close; government hospitals responded by reducing charity care.

Hospitals could absorb cuts without harming care if they could become more productive — by doing more with less. Historically, there is very little evidence they have been able to do that.

Two powerful lobbies are now battling each other, with the pharmaceutical industry arguing that 340B has grown well beyond its original intent. Hospital lobbying groups are fighting back and also squaring off against the government, suing over the planned federal cuts.

Those are big clashes over a program that began modestly a quarter of a century ago to help the poor, albeit in a most convoluted way.



Can A Community Hospital Stick To Its Mission When It Goes For-Profit?

Proponents of hospital mergers say the change can help struggling nonprofit hospitals "thrive," with an infusion of cash to invest in updated technology and top clinical staff. But research shows the price of care, especially for low-income patients, usually rises when a hospital joins a for-profit corporation.

Mission Health, the largest hospital system in western North Carolina, provided $100 million in free charity care last year. This year, it has partnered with 17 civic organizations to deliver care for substance abuse by people who are low-income.

Based in bucolic Asheville, the six-hospital system also screens residents for food insecurity; provides free dental care to children in rural areas via the “ToothBus” mobile clinic; helps the homeless find permanent housing and encourages its 12,000 employees to volunteer at schools, churches and nonprofit groups.

Asheville residents say the hospital is an essential resource.

“Mission Health helped saved my life,” says Susan ReMine, a 68-year-old Asheville resident for 30 years who now lives in nearby Fletcher, N.C. She was in Mission Health’s main hospital in Asheville for three weeks last fall with kidney failure. And, from 2006 to 2008, a Mission Health-supported program called Project Access provided ReMine with free care after she lost her job because of illness.

After 130 years as a nonprofit with deep roots in the community, Mission Health announced in March that it was seeking to be bought by HCA Healthcare, the nation’s largest for-profit hospital chain. HCA owns 178 hospitals in 20 states and the United Kingdom.

The pending sale reflects a controversial national trend in the U.S. as hospitals consolidate at an accelerating pace and the cost of health care continues to rise.

“We understand the business reasons [for the deal], but our overwhelming concern is the price of health care,” says Ron Freeman, chief financial officer at Ingles Markets, a supermarket chain headquartered in Asheville with 200 stores in six states.

“Will HCA after a few years start to press the hospital to make more profit by raising prices? We don’t know,” Freeman says.

And the local newspaper, the Citizen Timeseditorialized in March: “How does it help to join a corporation where nearly $3 billion that could have gone to health care instead was recorded as profit? … We would feel better were Western North Carolina’s leading health-care provider to remain master of its own fate.”

Across the U.S., the acquisition of nonprofit hospitals by corporations is raising concern among some advocates for patients and communities.

“The main motivation of for-profit companies is to grow so they can cut costs, get paid more and maximize profits,” says Suzanne Delbanco, executive director of the Catalyst for Payment Reform, an employer-led health care think tank and advocacy group. “They are not as focused on improving access to care or the community’s overall health.”

Merger mania across the U.S.

From 2013 to 2017, nearly 1 in 5 of the nation’s 5,500-plus hospitals were acquired or merged with another hospital, according to Irving Levin Associates, a health care analytics firm in Norwalk, Conn. Industry analysts say for-profit hospital companies are poised to grow more rapidly as they buy up both for-profits and nonprofits — potentially altering the character and role of public health-oriented nonprofits.

Nonprofit hospitals are exempt from state and local taxes. In return, they must provide community services and care to poor and uninsured patients — a commitment that is honored to varying degrees nationwide.

Of the nation’s 4,840 general hospitals that aren’t run by the federal government, 2,849 are nonprofit, 1,035 are for-profit and 956 are owned by state or local governments, according to the American Hospital Association.

In 2017, 29 for-profit companies bought 18 for-profit hospitals and 11 not-for-profits, according to an analysis for Kaiser Health News by Irving Levin Associates.

Sales can go the other way, too: 53 nonprofit hospital companies bought 18 for-profits as well as 35 nonprofits in 2017.

A recent report by Moody’s Investors Service predicted stable growth for for-profit hospital companies, saying they are well-positioned to demand higher rates from insurers and have less exposure to the lower rates paid by government insurance programs such as Medicare and Medicaid. In contrast, a second Moody’s report downgraded — from stable to negative — its 2018 forecast for the not-for-profit hospital sector.

‘We wanted to thrive, and not just survive’

Ron Paulus, Mission Health’s president and CEO, says he and the hospital’s 19-member board concluded last year that the future of Mission Health was iffy at best without a merger.

HCA declined to make anyone available for an interview but provided this written statement: “We are excited about the prospect of a transaction that would allow us to support the caliber of care they [Mission Health hospitals] have been providing.”

Driving Mission Health’s decision, Paulus says, were strained finances and the board’s strong feeling that the hospital needed to invest in new technology, modern data management tools and top clinical talent.

“We wanted to thrive and not just survive,” he says. “I had a healthy dose of skepticism about HCA at first. But I think we made the right decision.”

During the past four years, Paulus says, the company has had to cut costs — from between $50 million and $80 million a year — to preserve an “acceptable operating margin.” The forecast for 2019 and 2020, he says, saw the gap between revenue and expenses rising to $150 million a year.

Miriam Schwarz, executive director of the Western Carolina Medical Society, says many physicians in the area were surprised by the move and “are trying to grapple with the shift.”

“There’s concern about the community benefits, but also job loss,” Schwarz says. Still, she adds, the doctors in her region “do recognize that the hospital must become more financially secure.”

Weighed against community concerns is the prospect of a large nonprofit foundation created by the deal. Depending on the final price, the foundation could have close to $2 billion in assets.

Creation of such foundations is common when for-profit companies buy nonprofit hospitals or insurance companies. Paulus says the foundation created from Mission Health could generate $50 million or more a year to — among other initiatives — “test new care models such as home-based care … and address the causes of poor health in the community in the first place.”

In addition, HCA will have to pay upward of $10 million in state and local taxes.

Mixed results

Industry analysts say the hospital merger and consolidation trend nationwide is inevitable given the powerful forces afoot in health care.

That includes pressure to lower prices and costs and improve quality, safety and efficiency; to modernize information technology systems and equipment; and to do more to improve overall health.

But academics and consumer advocates say hospital consolidation yields mixed results. While mergers — especially purchases by for-profit companies — provide much-needed capital and financial stability, competition is stifled, and that’s often led to higher prices.

Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University, and colleagues examined 366 hospital mergers from 2007 to 2011 and found that prices were, on average, 12 percent higher in areas where one hospital dominated the market versus areas with at least four rivals. Another recent study found that 90 percent of U.S. cities today have a “highly concentrated” hospital market. Asheville is one, and Mission Health is dominant there.

“The evidence is overwhelming at this point,” Gaynor says. “Mergers solve some problems for hospitals, but they don’t make health care less expensive or better. In fact, prices usually go up.”

Mission Health CEO Paulus says he believes HCA is committed to restraining price increases and the growth in costs.

If no obstacles arise, Paulus says, HCA’s purchase of Mission Health would be formalized in August and finalized in November or December, pending state regulatory approval.




AHA report: Hospitals spend almost $3 trillion, support more than 16 million jobs

Every dollar a hospital spends yields roughly $2.30 of additional business activity; for every hospital job, another two are supported.

A new report from the American Hospital Association highlights just how much hospitals are driving their local economies, as well the national one, with data showing hospitals directly employ nearly 6 million people and purchase more than $900 billion worth of goods and services from other businesses.

But that’s not all. Enter the ripple effect. The goods and services hospitals buy drive economic vitality throughout their communities, with each hospital job supporting roughly two additional jobs in the community. Every dollar a hospital spends yields roughly $2.30 of additional business activity.

When you incorporate that ripple effects into calculations, the AHA reported hospitals actually support 16.5 million jobs nationwide and almost $3 trillion in economic activity.

“In 2016, America’s hospitals treated 143 million people in their emergency departments, provided 605 million outpatient visits, performed over 27 million surgeries and delivered nearly 4 million babies. Every year, hospitals provide vital health care services like these to hundreds of millions of people in thousands of communities. However, the importance of hospitals to their communities extends far beyond health care,” the AHA said.

When it come to states whose hospitals send the most money into the their economies, it’s no surprise that California is the top spender, with $103 billion in total expenditures. Factor in that ripple effect and the Golden State’s total economic output from its hospitals more than doubles to $230 billion.

New York, Texas, Florida and Pennsylvania rounded out the top five states that are most impacted by hospital expenditures, the report said.

When it comes to a hospitals impact on the state’s labor force, it’s not just about who creates the most. Maine is actually the state most impacted by hospital job creation with total of 38,105 hospital jobs. That hospital workforce makes up a little more than 14 percent of the states overall workforce. Ohio was the second most impacted state, with 298,371 hospital jobs that constitute just almost 13 percent of the state’s workforce.

Minnesota, West Virginia and Massachusetts rounded out the other top five states whose workforce is impacted by hospital jobs. Minnesota’s hospital workforce constitutes a little more than 12 percent of the overall state force, West Virginia’s hospital workforce was nearly 11.7 percent and Massachusetts was almost the same with 11.6 percent.

As both healthcare and economic cornerstones of their communities, the pressure is greater for hospitals leaders to find new ways to add value, maintain financial margins and keep doors open. That is one of the drivers behind the rash of merger and acquisition activity. With ever-increasing regulatory burdens that require more manpower or physician’s time to manage, coupled with the need to make much needed updates in technology, modernize facilities to meet current trends or just maintain appropriate levels of care and accommodation for patients, not to mention staying competitive for hospitals in areas where other systems want to dip into their patient volumes, hospital leaders are eyeing mergers as a means of keeping doors open sot they can continue to support their communities both clinically and economically.


Ascension’s decision to cut back services stirs debate among Milwaukee officials

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Milwaukee officials are urging Ascension Wisconsin to postpone its controversial scale back of services at Milwaukee-based Wheaton Franciscan-St. Joseph Hospital, which primarily serves a low-income neighborhood, according to Wisconsin Public Radio.

St. Joseph Hospital, which primarily serves patients covered by Medicare and Medicaid, plans to shutter its surgical and medical units, slowly sifting out inpatient care by July 1. Roughly 51 percent of the hospital’s patients are covered by Medicaid, 5 percent are uninsured and about 20 percent are covered by commercial health plans.

The closure of the surgical and medical units would leave no general acute care hospital north of downtown Milwaukee, an area plagued with widespread health disparities. Ascension, however, emphasized it is not leaving the city. Another Ascension hospital, Milwaukee-based Columbia St. Mary’s, is located 5.6 miles southeast of St. Joseph’s.

“We aren’t abandoning where low-income [patients] live, we are actually strengthening our ability to serve the people that live in the city of Milwaukee by combining the efforts of Columbia St. Mary’s and St. Joe’s,” Bernie Sherry, senior vice president who oversees the Wisconsin market of St. Louis-based Ascension Health, told Becker’s Hospital Review.

Since Ascension disclosed it would stop providing surgical and inpatient care at St. Joseph Hospital April 5, the health system has received criticism from multiple city officials and residents.

“We have an economic model now where if you have money, you’re going to get the best healthcare in the world, but if you’re poor, guess what? Get on a bus, hopefully you can get to a hospital five miles away and maybe you’ll get healthcare,” Milwaukee Alderman Michael Murphy told WPR. Mr. Murphy also emphasized that the implications of reducing services at St. Joseph go beyond the individual hospital.

Milwaukee Alderman Bob Donovan is asking Ascension to delay the closure of these units by one year to collect community feedback and find ways to mitigate the loss of services prior to phasing them out.

“If this request is rejected, I have already contacted the Office of the City Attorney and have asked them to watch carefully the process followed by Ascension to ensure that at a minimum, the corporation is in full and exact compliance with applicable state and federal laws and regulations,” said Mr. Donovan, according to WPR.

St. Joseph is part of Milwaukee-based Wheaton Franciscan Healthcare, which merged with St. Louis-based Ascension in 2016.

Geisinger reports net income increase despite issues with ACA health plan

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Dive Brief:

  • In a new financial report, Geisinger Health System reported a gain of nearly $200 million in net income to $324.9 million for the first half of fiscal year 2018 compared to the previous year, for an excess margin of 9%.
  • Operating income for the first six months was up from $51.9 million a year ago to $61.2 million in the current fiscal year and net revenue increased 8.1% to $3.3 billion. However, Geisinger’s operating margin dropped from 3% for the first three months of the fiscal year to 1.8% through half the year.
  • One area of concern for the integrated healthcare system was its Affordable Care Act (ACA) health plan. Geisinger Health Plan (GHP) struggled after the company didn’t get $11 million in cost-sharing reduction (CSR) payments following President Donald Trump’s decision to stop payments in October.

Dive Insight:

Geisinger’s net revenue growth is connected to an increase in net patient service revenue after the provision for bad debts of nearly 5% and an increase in premium revenue of 11%.

“Net patient service revenue benefited from the realization of growth plans centered on market share growth and the opportunistic capture of high-acuity, clinical service volumes. Premium revenue benefited primarily from rate increases,” Geisinger said in the report.

ACA marketplace volatility, namely the end of CSR payments, as well as higher utilization affected GHP. The company believes the higher utilization is connected to GHP members concerned they would lose coverage if Congress repealed the ACA. Despite Congress’ and the president’s threats and a few close votes, the repeal didn’t happen. But before that effort stalled, Geisinger said many members got healthcare services just in case.

“Similarly, provider tiering in benefit plan changes for self-insured employees were announced in the fall of 2017. These benefit changes caused certain employees to accelerate medical services through providers that fall under higher out-of-pocket tiers beginning Jan. 1, 2018. These one-time impacts, while negatively affecting second-quarter results, are expected to improve operating profits beginning in the third fiscal quarter,” Geisinger said in the report.

Geisinger expects to resolve the CSR non-payment issue this year after raising the average premium rate by 31% to help offset the loss of payments. GHP also gained more than 20,000 members in its exchange plans, a 39% increase, for 2018, which should help offset losses.

GHP had 559,643 members in its health plans through the first half, which was a 0.4% increase compared to a year ago.

Concerning utilization, Geisinger had an increase of 3.5% in discharges and 2.6% in discharges and observations/23-hour stays compared to a year ago. “This growth was attributable to success in expanding clinical programs. Based solely upon hospitals controlled for two years or more, Geisinger experienced a 2.9% increase in discharges when compared to the year-earlier period,” the report states.

However, percent of occupancy based on physically available beds dipped from 60.2% to 59.9%.

Meanwhile, outpatient visits were on the rise. Outpatient emergency room visits increased from nearly 174,000 the previous year to almost 181,000 in fiscal 2018. Clinic outpatient visits increased from 1.65 million to 1.77 million.

Geisinger is the latest nonprofit to offer updates about finances. Over the past week, other major nonprofits have released financial information, including:

All had positive notes in their reports. Cleveland Clinic and Mayo Clinic said operating income and revenue bounced back in 2017 after rough numbers in the previous year. UPMC said its clinical and insurance sides had strong performances as net income hit $1.3 billion. Profits for these companies have been scrutinized as critics question whether they are giving enough back to their communities as nonprofit organizations.

Johns Hopkins favored out-of-state patients over locals to increase revenue, lawsuit claims

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A former supervisor in the patient appointments department at the Johns Hopkins Health System Corp. has accused the medical system in a lawsuit of prioritizing out-of-state patients over Maryland residents to boost revenue.

Anthony C. Campos said in the lawsuit filed Wednesday in U.S. District Court that his department was directed with the task of “filling the plane” with patients from outside Maryland. The directive to bring in more of these patients came from the highest ranks at the medical system, the lawsuit contends.

In Maryland, hospitals are required under an agreement with the federal government to operate under global budgets assigned to them by the state that limit how much revenue they can make in a given year. The budgets were put in place as part of a broader effort to cut soaring health costs and improve care.

But the budgets only apply to patients who live in Maryland. Any money brought in by treating out-of-state patients is additional revenue for the hospital.

The lawsuit contends that Hopkins is violating a clause in its budget agreement with the state that says hospitals can’t deny services to patients for inappropriate financial reasons. The medical system is also required to provide care that focuses on the community, something the lawsuit contends can’t be done if the emphasis is on patients from elsewhere. The medical system also hid what it was doing from the Centers for Medicare and Medicaid, which oversees payments through public health programsand the Health Services Cost Review Commission, which sets the hospital’s global budgets, according to the lawsuit.

An attorney representing Campos said he was not available for comment.

“I think Maryland residents will find it highly offensive that Hopkins is pushing out-of-state residents to the front of the treatment line while Maryland residents are forced to the back of the line all in the interest of profits,” said the attorney, Lindsey Ann Thomas, with the law firm of Conti Fenn & Lawrence LLC.

In a statement Wednesday night, Johns Hopkins said the “the complaint is without merit. Safe and high quality care for all patients, regardless of where they live, is our number one priority. Our census shows that the majority of our patients are from Maryland and that the number has steadily increased over the past several years.” ​

The medical institution began pushing for more out-of-state patients in 2015, Campos said in the lawsuit. He pushed back and told his bosses his team was getting complaints and concerns from doctors about the preference being given to out-of-state patients. Campos’ supervisors responded that they were following the orders of senior management, according to the lawsuit.

Priority was sometimes given without taking into consideration which patients were sicker, the lawsuit said.

The tactics to attract these patients became more aggressive over time, the lawsuit said. Johns Hopkins USA, a medical concierge service, was enlisted to help prioritize out-of-state appointments. The medical system began targeting the most profitable departments, including neurosurgery, oncology, otolaryngology, pediatrics and surgery. In some departments, a supervisor was ordered to intervene if an out-of-state patient could not get an appointment within 30 days, and those patients were also given priority on wait lists, the lawsuit said.

In May 2016, the Department of Patient Access was told that 250 to 350 additional out-of-state cases were needed that fiscal year to reach profit targets of $5 million to $7 million, according to the suit.

Campos is asking that the government be awarded damages and Johns Hopkins fined under the False Claims Act. He is also asking for a “percentage of any recovery allowed to him.”

How the Cleveland Clinic grows healthier while its neighbors stay sick


The Clinic is a global success story, but its host community remains mired in poverty.

On the Cleveland Clinic’s sprawling campus one day last year, the hospital’s brain trust sat in all-white rooms and under soaring ceilings, looking down on a park outside and planning the next expansion of the $8 billion health system. A level down, in the Clinic’s expansive alumni library, staff browsed century-old texts while exhausted doctors took naps in cubbies. And in the basement, a cutting-edge biorobotics lab was simulating how humans walk using a cyborg-like meld of metallic and cadaver parts.

And about a block away — and across the street that separates the Clinic from the surrounding Fairfax neighborhood — a woman named Shelley Wheeler was trying to reattach the front door of her house. She’d had a break-in the night before.

Wheeler has lived in the neighborhood for almost 50 years and seen it wither; her street is dotted by vacant lots and blighted homes. Infant mortality is almost three times the national average. But she’s also warily watched as one player continues to grow: The health system with gleaming towers that are visible from her front stoop.

“Cleveland Clinic is just eating everything up that they can,” she said, pointing to the 17-block stretch of land where the system has steadily expanded — to the frustration and protests of Wheeler and her neighbors.

“At some point, Cleveland Clinic is going to come” for her land, she added. “When, we don’t know. I’m trying to save my house,” Wheeler said — before excusing herself to meet with police investigating her break-in.

There’s an uneasy relationship between the Clinic — the second-biggest employer in Ohio and one of the greatest hospitals in the world — and the community around it. Yes, the hospital is the pride of Cleveland, and its leaders readily tout reports that the Clinic delivers billions of dollars in value to the state. It’s even “attracting companies that will come and grow up around us,” said Toby Cosgrove, the longtime CEO, pointing to IBM’s decision to lease a building on the edge of campus. “That will be great [for] jobs and economic infusion in this area.”

But it’s also a tax-exempt organization that, like many hospitals, fought to preserve its not-for-profit status in the years leading up to the Affordable Care Act. As a result, it doesn’t have to pay tens of millions of dollars in taxes, but it is supposed to fulfill a loosely defined commitment to reinvest in its community.

That community is poor, unhealthy and — in the words of one national neighborhood-ranking website — “barely livable.”

More than one-third of residents in the census tract around the Clinic have diabetes, the worst rate in the city, according to the latest data from the Centers for Disease Control and Prevention. That’s just one of numerous chronic and preventable health conditions plaguing the area around the Clinic. Meanwhile, neighborhood residents say there are too few jobs and talk of hearing gunfire every night.

It’s the paradox at the heart of the Cleveland Clinic, as it lures wealthy patients and expands into cities like London and Abu Dhabi. Its stated mission is to save lives. But it can’t save the neighborhood that continues to crumble around it.

The neighborhood

The area around the Cleveland Clinic’s main campus has higher rates of diseases such as coronary heart disease, cancer, diabetes and chronic kidney disease.

An oasis of prosperity

The local joke is that Cleveland’s economy is powered by its basketball team’s superstar LeBron James. But leaving the airport, the first billboard advertises the real engine of the city: its local hospitals. And no hospital is bigger, richer or more influential than the Cleveland Clinic — which was praised by both Mitt Romney and Barack Obama in their 2012 debates, a rare point of agreement between the candidates. (The Clinic took out full-page ads to celebrate.)

While Cleveland isn’t especially prosperous, the Clinic’s campus is a world apart, evoking an upscale resort or an airport’s international terminal — an alternate universe where smokers and fast-food restaurants are banned, where foreign-language speakers are numerous and where live music and farmers markets are frequent.

The streets of the Clinic’s 165-acre campus are smooth; the bike lanes paved; a 77-foot-wide fountain greets visitors outside the main lobby. The buildings are all sleek steel and glass — a deliberately white color scheme that resembles an Apple store. Guests can take tours to see the thousands of pieces of art dotting the rooms and walls, picked out by the Clinic’s three full-time curators. A spine of green parks wind between more than a dozen buildings. High-profile speakers like Facebook’s Sheryl Sandberg and Microsoft’s Satya Nadella drop by for televised conversations with Clinic CEO Cosgrove.

All the major buildings are connected by skyways, some of which feature flat-screen TVs that loop ads for the Clinic’s own services. A doctor on staff could spend years entirely inside this bubble, from parking in an adjacent garage every morning — where art prints from artists like Andy Warhol and Roy Lichtenstein hang in the corridors — to eating at the 24-hour Au Bon Pain, never setting foot on the sidewalks outside.

The beautiful, sheltered campus reflects decades of willful development, says Richey Piiparinen, who studies urban planning at Cleveland State University and says that the Clinic — like many big-city institutions — has deliberately walled itself off. “It’s divorced from the neighborhood. It’s [even] policed differently,” Piiparinen said, referencing the Clinic’s private force of 122 officers.

Step off campus, and the cracked sidewalks and trash welcome you to a different world; a dozen empty liquor bottles littered one half-block alone.

Just a few blocks from the Clinic’s high-end Intercontinental Hotel — where the flagship restaurant serves $49 steaks and $220 bottles of Dom Perignon — a McDonald’s sign announces $1 soft drinks. There are boarded-up buildings and weed-choked vacant lots. One store advertises bail bonds.

The population of the two neighborhoods that surround the Clinic — Fairfax and Hough, which are about 95 percent African-American — dwindled to 18,000 as of 2010, down from more than 38,000 in 1980 and more than 100,000 in 1960. There’s visible blight and houses with peeling paint. One fence was draped by an assortment of raggedy clothes, slowly getting soaked in a rainstorm. Unlike the Clinic just blocks away, there are no bike lanes.

And the poverty manifests in poor health outcomes, with the rate of preventable illnesses like chronic heart disease and high cholesterol well above the local and national averages. The Clinic’s own community assessment, published last year, ranked Fairfax and Hough as “highest need” possible in terms of health care access.

“You have one of the best global brands in health care, but some of the worst health care disparities” next door, Piiparinen said. “That’s the impact of not being connected to the neighborhoods.”

A climate of mistrust

It wasn’t always this way.

Almost a century ago, when the Cleveland Clinic set up shop on Euclid Avenue, the street was known as Millionaire’s Row. Industrialists like John Rockefeller and other elites made their homes on the boulevard. But the neighborhood turned over as taxes went up and wealthy residents fled to the suburbs. Today, there’s a very different millionaires row: The line of doctors’ luxury cars every morning, driving in from Cleveland’s suburbs in their high-end SUVs and even a few Teslas.

That daily traffic helped lead to a $331 million construction project called the Opportunity Corridor, a new three-mile highway that’s backed by the Clinic, run by the state transportation department and involves ripping up streets and tearing down dilapidated parts of town. (When asked about the project’s purpose, the Clinic’s top tour guide explained that the current road to campus “goes through neighborhoods that people don’t want to go through” and the Opportunity Corridor would help staff and patients get to the hospital faster.)

The construction project has been bogged down by controversy, however. A local councilman, T.J. Dow, temporarily blocked the project in early 2016, warning that the redevelopment wouldn’t benefit the residents of his community. The city later withheld millions of dollars in funding, saying the state wasn’t meeting its promised goals for minority hiring, before reaching a new deal last year.

Area residents circulate scare stories about the Clinic that are a mix of half-truths and outright myths. Several old churches in the neighborhood have burned down in recent years, and after the Clinic bought one newly vacant lot, some residents engaged in wild speculation — without any evidence — that the Clinic was responsible for the blaze. The Clinic has built power stations in the neighborhood that, despite no scientific proof, have alarmed locals who are worried about health risks.

That fear goes both ways: Even longtime Clinic leaders are uneasy about the neighborhood that they’ve spent years in. “I should’ve warned you: Don’t walk around here at night,” one 15-year executive advised.

Neighborhood residents are especially dismissive of the disproportionately white or foreign patients they see flock to the Clinic, suggesting that their presence is subtly gentrifying the neighborhood. A signature project by the local development corporation — which is backed in part by Clinic donations — was a large Middle Eastern market that’s a few blocks off campus and clearly intended for international customers. Over the course of four nights in an on-campus hotel last year — no matter the hour — as many as eight Middle Eastern men would sit around a table off the lobby, drinking tea and wearing garb that stood out in gloomy, rainy Cleveland. The hotel also offered subtle cues about who its best customers are; in the gym, there wasn’t a working channel showing the NCAA men’s basketball tournament, but there were nearly two dozen international channels, mostly in Arabic.

International patients are especially appealing to the Clinic and other top hospitals because they pay full fare — much more than the Medicaid rates for poor patients and a lot more than the fractional pay or charity care write-offs from treating the uninsured.

The campus’ expansion and seeming priorities aren’t lost on residents. One elderly African-American woman, a retired nurse who worked for decades in the city’s public hospital, said she’d talk about the Clinic only if I didn’t use her name. “You know what we call it?” she said, lowering her voice. “The plantation.”

“Cleveland Clinic and Toby Cosgrove really need to renegotiate their relationship with the black community,” said John Boyd, whose family has lived about two blocks away from campus since 1923 — and who says he’s scared to go to the Clinic for treatment. “[They’ve] been absolutely no benefit to the black community.”

Tensions break out

Those tensions spilled out at a community meeting in March 2016, as more than 100 black residents vented for hours about the Opportunity Corridor project.

The standing-room-only meeting — deliberately held in an events room at a local police station, Councilman Dow told the crowd, because previous meetings had been so rowdy — was framed as a chance to discuss the Opportunity Corridor’s effect on the community. Dow and two other black councilmen, Zack Reed and Jeffrey Johnson, stood at the front of the room — along with a pair of white out-of-town developers, who had projects tied to the corridor.

The atmosphere was heated from the opening moments, as some community members stood to harangue Dow, asking if he was holding up the project to seek side deals; others worried that the community was giving up valuable land for too little return.

But after a rough start, the councilmen began winning over the crowd after channeling their frustration toward the out-of-town developers and invoking the community’s distrust of the Clinic.

“I told Dr. Cosgrove, the people in my neighborhood don’t trust the Clinic,” Reed said, warning that the system’s vague promises of helping the community didn’t usually end well. “We the people of color, the poor people, get what I call the hot dog and beer jobs.”

“I said to Dr. Cosgrove, you got to take down that invisible wall,” Reed added. “If you only believe you can work across the street if you’ve got a medical degree, then it’s us against them … We’ve got to train people in the neighborhood to work there.”

“Now you’re talking,” a woman shouted from the crowd.

“We need a hand up, not a handout,” Dow added.

After the meeting, the councilmen acknowledged the difficult relationship between the city and its flagship institution.

“If there’s anything that Cleveland Clinic does for the neighborhood, it’s that they’re located in Cleveland — and everyone who works there pays taxes,” Johnson said. But the hospital doesn’t do enough to provide emergency care, he charged; unlike its neighbor University Hospitals, it’s not a Level 1 trauma center, and the Clinic was sued by the city in 2010 and again in 2011 for failing to provide sufficient services when it closed one of its hospitals in economically deprived East Cleveland.

That lawsuit was resolved, but some bad feelings still linger — along with the perception that the Clinic is more concerned with complex procedures that attract foreign patients than the well-being of its neighbors.

“You can come from the Mideast and get a heart, but you can’t run down there” for an emergency, Johnson complained. “There’s something fundamentally wrong with that.”

‘We have more than fulfilled our duties’

Clinic leaders see it differently – and not just about its commitment to the neighborhoods. The hospital that the Clinic closed in East Cleveland was replaced by a new community center that leaders tout as a “model of success.”

“We have three obligations,” Cosgrove told POLITICO in a nearly hourlong interview. “We need to provide great health care, we need to provide great jobs and we need to support education. And we have done all those three things.”

The Clinic is ranked second in the U.S. News & World Report hospital rankings, an ever-present point of pride around the campus and in its marketing materials. It employs nearly 50,000 people in Ohio, just a few hundred jobs behind the state’s top employer, Walmart. And it spends millions of dollars on its own physician education as well as making community investments, like partnering with a local high school on a fast-track health and science program.

The Clinic also has put $500,000 into a program to get rid of blighted homes in the neighborhood, Cosgrove said, and has channeled funds and support into the Fairfax Renaissance Development Corp., which is involved in job training and other community services.

“This particular area of town, 40 years ago, was way worse than it is now,” Cosgrove said.

One of the Clinic’s most significant community investments is in the Langston Hughes Community Health and Education Center, a facility that’s a mile from campus and which offers services like free exercise equipment, adult day care and even some primary care. It’s a hub for uninsured neighborhood residents to be steered toward health coverage, and patient navigators on staff said they end up directing about 90 percent of residents with medical needs to the Clinic. And it has devoted fans who say the center is one of the only safe places in the neighborhood.

“I wish we had more [services] like it,” said Juliet Jones, a retired nurse who lives two blocks away — and who carries a miniature baseball bat whenever she leaves her house, worried about community violence and drug dealers. Jones says she can barely sleep at night, hearing gunshots and prowlers. Nearly every lot on her street is vacant, including the house Jones owns next door; after repeated break-ins, her daughter moved out.

Donnell Ezell is another patron of the center and, in many ways, a clear Clinic success story: The former occupational therapy assistant worked for the Clinic for years and got thousands of dollars in financial assistance to help buy a home and move into the neighborhood. Now retired, Ezell uses the Langston Hughes center to exercise and help his daughter, who was born with special needs, and he speaks with pride about what the hospital has done for him; a Clinic-branded chair, emblazoned with his name, is prominently displayed in his living room.

But the question isn’t whether the Clinic is doing good things for the community, critics say. It’s whether it’s doing enough.

Thanks to a loosely defined 50-year-old IRS regulation, the hospital is required to provide only “community benefit” in exchange for its tax exemption — no matter what those taxes would be worth. And in late 2013, three social advocacy groups concluded that the Clinic’s tax-exempt property in Cleveland was worth $1 billion, which meant the hospital was saving $35 million in annual property taxes alone. (The value of that property, and the forgone taxes, has only gone up since.) That money could go toward schools, roads and other city projects that desperately need funds, advocates say.

“It’s crazy to ask the everyday common person to invest in the city when you have these enormous nonprofits that aren’t,” saidScherhera Shearer, head of Common Good, one of the three advocacy groups, at the time.

But the clinic rebutted that report and has fiercely defended its tax-exempt status, successfully defeating regulators in 2014 after a decade-long battle when they attempted to strip property tax exemptions from a pair of satellite offices.

Cosgrove consistently argues that taxes would only worsen the financial pressures on hospitals like the Cleveland Clinic, and in his interview with POLITICO he pointed out that 23 percent of hospitals lost money last year. But that ignores that the Clinic isn’t one of them. Cosgrove’s hospital system cleared $514 million in profit last year and $2.7 billion the past four years, when accounting for investments and other sources of revenue.

And since the ACA coverage expansion took full effect, the Clinic’s been able to spend a lot less to cover uninsured patients; its annual charity care costs fell by $106 million from 2013 to 2015. But its annual community benefit spending only went up $41 million across the same two-year period, raising a $65 million question: Did the Clinic just pocket the difference in savings?

“I think we have more than fulfilled our duties,” Cosgrove said in response, pointing to the system’s total community benefit spending, which was $693 million in 2015. The majority of that spending, however, wasn’t free care or direct investments in community health; about $500 million, or more than 70 percent, represented either Medicaid underpayments — the gap between the Clinic’s official rate, which is usually higher than the rate insurers pay, and what Medicaid pays — or Clinic staffers’ own medical education.

Clinic leaders also argue that the hospital is a magnet that attracts talent and revenue to Ohio. The system calculated that its direct economic impact on Ohio in 2015 was $6.8 billion and its indirect economic impact was $5.8 billion.

“There are people like me who have moved to Cleveland to work for the Cleveland Clinic,” said Chief Financial Officer Steven Glass, who came to the system 15 years ago from Maryland-based MedStar.

“It’s not just how many people are employed at the Clinic,” Glass added. “When you’re drawing in world-renowned physicians, these are well-paying jobs in the community that then create [a] cascading effect.”

But community residents say those dollars are largely spent in other neighborhoods and they don’t see much trickle-down effect on their own; Glass himself lives in a suburb a half-hour away. “Other than fast-food chains, there’s nothing else around,” said Jones, the retired nurse.

Teenagers who live in the neighborhood and were interning at the Clinic said that’s where they want to work as adults; they were stumped about where they would work, if not at the Clinic. “Construction,” said one 14-year-old girl — gesturing to the hospital’s in-progress project across the street.

There’s also a perception problem, at best, with what the Clinic thinks it does for the community versus what it actually does. Several Clinic PR staffers suggested that Microsoft CEO Nadella’s interview with Cosgrove was an example of how the hospital opens itself up, with community members welcome to drop by. But the free tickets to the one-hour session had been pre-booked online well in advance, and the overflow room was packed by staffers wearing doctor’s coats and Cleveland Clinic badges. (Many neighborhood residents said they weren’t especially interested in the talk, and didn’t know who Nadella was.)

Several Clinic officials pointed to a weekly farmers market on campus as another service for the community, which lacks grocery stores. But the vendors at the market tell a different story, both in terms of their products — many of which are upscale conveniences like flowers or dog treats — and their clientele.

The customers at the market “are mostly doctors and nurses,” said one vendor operating a stand that sold wool and honey products. That account was confirmed by residents. “Too expensive,” said 76-year-old Betty Moise, who’s lived in the neighborhood for almost five decades.

How much more should be done?

One way the Clinic could make a difference, some activists say, is by working out what’s called a payment in lieu of taxes — essentially, keeping their valued tax-exempt status but making a partial contribution instead. Hospitals have struck deals to do so in Boston and other cities, but Cosgrove isn’t keen on the idea in Cleveland. “As soon as they start doing the same thing with the churches and the Salvation Army and the Red Cross and all the other tax-exempt organizations, we’d be happy to do our part,” he said.

The Clinic also could ramp up investments in out-of-hospital care and social supports, part of a movement toward what’s called population health — where fixing community problems like lead exposure and food deserts are viewed as equally important as treating heart attacks. There’s a financial incentive for doing it well: Hospitals that succeed at population health are being rewarded with higher payments from insurance companies and the federal government.

But Cosgrove hesitates on committing wholeheartedly to that idea, too. “That’s a good direction to go,” he allowed. “But how much can we do in population health?”

“We don’t get paid for this, we’re not trained to do this, and people are increasingly looking to us to deal with these sorts of situations,” Cosgrove added. “I say that society as a whole has to look at these circumstances and they can’t depend on just us.”

Job counselors say there’s one move the Clinic can easily make: Be more generous with its approach to neighborhood hiring. Deborah Copeland, who does workforce development and career coaching at Fairfax Renaissance Development Corp., says she’s seen community members get hired at the Clinic in entry-level jobs — and promptly fired because they didn’t fit in right away or had problems managing themselves in the workforce.

“They call all of their employees caregivers. And I like that,” Copeland said. “But all caregivers are not caregivers every day,” she added, saying it’s important to realize that “people come with a lot of baggage sometimes and need to be developed.”

Copeland says her team has helped a few dozen community members get jobs at the Clinic over the past few years — a step in the right direction. But given the generations of built-in poverty and the neighborhood’s deep disparities, experts say it’s like hoping a sand wall will hold back the tide.

“How do you [intentionally] break down the barriers, after they … built them up?” muses Piiparinen, the Cleveland State University researcher. “The two easiest ways to do it are have your employees live in the neighborhood, and have your tenured residents work in the anchor institutions themselves,” he offered — not easy to do when the neighborhood is so poor and the Clinic wants to hire highly skilled doctors, researchers and managers.

Piiparinen and others acknowledge that while the Clinic is investing off campus, it will take more investment and commitment — much more — to really reverse a decades-long trend. But the Clinic’s eyes are elsewhere. Its most visible projects and leaders’ excitement center on a new on-campus building that’s designed by Norman Foster — “the world’s leading architect,” as various staff members enthused — and its planned hospital in London, overlooking Buckingham Palace.

And more expansion in Cleveland is inevitable. In the hospital’s master planning room, tucked behind an unmarked door just steps from the main lobby, the footprints of the Mayo Clinic in Rochester, Minnesota, and Johns Hopkins in Baltimore are laid over maps of the Clinic, which dwarfs them. Those maps are a reminder, said a Clinic spokesman, that “our national rivals, Mayo Clinic [and Hopkins] … they don’t own the buildings around them, they have no place to grow but up.” In contrast, “we own much of the neighborhood around us and can really grow.”

There’s certainly plenty of opportunity, between the property the Clinic already owns and the empty patches that increasingly dot the neighborhood as it slowly dies. And that’s what folks like Moise, who moved to Cleveland in 1968 and sat with friends on a sidewalk, half-expect to see happen.

“I sat and watched them cut that field yesterday. The city cut it. It looks so pretty,” she said, gesturing to the vacant lot across the street, covered in grass. “But I often wondered … I might be dead and gone … I often wonder, what would they build there?”

The value of hospitals’ tax exemptions

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The American Hospital Association released a report last week that said the benefits that not-for-profit hospitals provide to their local communities far outweigh foregone federal tax revenue. But Axios’ Bob Herman talked to some experts who said the AHA’s report has flaws and omissions that exaggerate hospitals’ community roles and understate the power of their tax exemptions.

  • The AHA did not account for the giant tax break hospitals get on their property, “which is just a joke,” said Craig Garthwaite, a health economist at Northwestern University.
  • “Exclusion of property taxes would be a very major problem,” added Gary Young, a health policy professor at Northeastern University who has studied tax exemptions for not-for-profit hospitals.
  • Calculating shortfalls from Medicare as a community benefit also raises a red flag. For-profit hospitals that pay taxes treat Medicare patients. The IRS doesn’t acknowledge Medicare shortfalls as a community benefit.
  • Plus, research shows hospitals often lose money from Medicare because of their high fixed costs and inefficiency, not because payments are too low. “That’s really just trying to get that (community benefits) number as high as possible,” Garthwaite said.

AHA’s response: Mindy Hatton, the AHA’s top lawyer, responded with a statement to Axios. The report did not include property tax values, she said, because the analysis only covered federal exemptions, which “Congress has jurisdiction over.”