Health care “nonprofit” conglomerates

Minnesota has the same problem as Pennsylvania, apparently.  We are better protected from auto insurance companies restricting our choices than we are from health insurance companies.   While Minnesota has five large companies competing, here in Western PA, we are down to two.

The bubble in health care is visible and obvious.  Drive around Pittsburgh, and write down the construction that you see.  What is being built?  Not everyone can work in health care.  And why is it so profitable (especially for “nonprofits”)?

In addition, there is the problem of these huge corporations being taxpayer funded.  That is, they are not funding the government since they don’t pay taxes, so all the government services they use and benefit from are funded by the taxpayers.

From Star Tribune:

This leads to two questions. The first is whether a high-performing health care system should be exclusively composed of nonprofit organizations. The second is whether Minnesota hospitals and insurers actually fulfill the kind of mission that would justify nonprofit status.

We believe the answer to both questions is no. When carefully examined, Minnesota’s largest health care entities are hiding behind some very small nonprofit fig leaves.

According to the Star Tribune’s 19th Annual Nonprofit 100, nonprofit health systems, hospitals and insurers comprise 19 of the 20 largest nonprofit organizations in Minnesota and take in 92 percent of the overall revenue among the top 100.The top 15 among these organizations generated enough revenue in 2013 to rank them among the 50 largest publicly held companies headquartered in Minnesota. State taxpayers are generously subsidizing entities that, in certain cases, generate more revenue than Fortune 500 companies.

Meanwhile, the excess of revenue over expenses at these nonprofits is eye-popping. In 2013, Mayo Clinic had a margin of revenue over expenses of $612 million. While Mayo is a global brand, HealthPartners, Allina Health and Fairview Health Services also had margins totaling $848 million.

…According to the New England Journal of Medicine, tax exemptions saved nonprofit hospitals $13 billion nationwide in 2013. In 2005, according to the Minnesota Department of Health, the tax exemptions received by Minnesota nonprofit hospitals totaled $443.6 million, or $540.3 million in 2014 dollars. These numbers rival the controversial public subsidies for the new Vikings stadium. What do Minnesotans receive in exchange?

…Accountability starts with requiring nonprofit hospitals to provide charity care equal to at least half the value of the tax exemptions received. Hospitals that fail to meet this basic threshold should lose their nonprofit classification.

In addition, the boards of directors of Minnesota’s nonprofit health systems ought to reflect the diversity of the communities they serve. A review of the composition of two of Minnesota’s largest health system boards found them to be predominantly composed of white, male business executives. There is no question that business acumen is important, but governing boards should be more representative of the community and strive to provide culturally competent care. Hospitals and insurers should appoint appropriately diverse boards to maintain their nonprofit status.

If operating revenue is not expended in the provision of charity care or other charitable services, then it is important to explore how it is being utilized. One way revenue is being spent is through an increase in executive compensation.

In 2013, the average compensation for the four highest paid nonprofit CEOs in Minnesota — all leaders of health care systems — was $2.18 million. This trend is not limited to the C-suite. IRS 990 forms show that many lower-level executives are making more than $1 million a year.

Another way revenue is being spent is through a medical arms race for the latest technology and facilities, as a smaller number of health systems compete for customers and to provide the most profitable services.

Last, mounting financial pressure is driving acquisitions of physician groups and hospitals. Despite these pressures, some have maintained their independence.

Our concern is not that some hospitals and insurers are successful in terms of profitability. Rather, the problem concerns how profits are spent when Minnesota taxpayers are providing generous subsidies. We are not advocating for the dismantling of Minnesota’s nonprofit hospital and insurer infrastructure. The provision of charity care, education and research are true community benefits. But other activities deserve heightened scrutiny.

Everyone sees the need for improvement in our health care system. Minnesota’s nonprofit health care entities should be enthusiastic about innovations designed to improve care, satisfy patients and lower costs. Unfortunately, ostensibly nonprofit health care systems are often blind and deaf to alternatives, particularly when offered from the outside or when innovation threatens to decrease revenue. Examples of organizational ossification are not hard to find.

The fee-for-service payment system is a major force behind expensive care, and it is clear that bundled payments for an episode of care is one way to restrain costs and encourage collaboration. Pregnancy is the perfect episode of care to test bundled payments. Regrettably, when the idea was first proposed to various Minnesota health care executives, responses ranged from “what would it take for you to give this idea up?” to “you are talking about a for-profit entity.” Fortunately, such attitudes are changing.

Two future health care scenarios appear plausible. One is further system consolidation until only two or three large systems remain. Some see this as desirable and inevitable, but we know how consolidation has worked out in other industries, such as airlines and cable television. This would result in health care entities that are “too big to fail.”

The preferable course is a health care landscape built on reformed nonprofit organizations existing for reasons beyond boundless growth. Nonprofit health care systems and insurers should serve as platforms for innovation — even in collaboration with for-profit partners. Partnerships focusing on innovation will result in higher value care for all Minnesotans. That would be a real community benefit.

Steve Calvin is medical director of the Minnesota Birth Center. Theodore J Patton is an investigator for the Minnesota Department of Commerce. The views expressed here by Patton do not necessarily represent those of the Minnesota Department of Commerce.


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