Written by Victoria Pelham The Desert Sun
Posted on: Mar 17, 2013 

About the bill

The bill from Democratic Assemblyman Bob Wieckowski of Fremont and Rob Bonta of Alameda would require not-for-profit hospitals and nonprofit multispecialty clinics to:
• Raise their charity care spending to 5 percent of their net revenue.
• Create a community benefits statement discussing the benefits plan they want to pursue and a description of the process for its approval.
• Revise its community benefits plan every two years.
• Develop a community health needs assessment that is evaluated in the community benefits plan; must seek input from health care providers, registered nurses, community groups and health-related organizations.
• Must provide summary of how they encouraged community participation.
• Definition of charity, excluding shortfalls from Medicare and Medi-Cal.
• “Measurable improvements” in health of community, particularly among “underserved and vulnerable populations,” and mechanisms to evaluate its effectiveness.
• Standardized method for determining value of community benefits.
• Must make public the value of charity care every year.
• Must post its IRS 990 form publicly on its website.
• Must make public the names of individuals on its governing board.

RANCHO MIRAGE — A new bill under consideration in Sacramento would require not-for-profit hospitals such as Eisenhower Medical Center to raise charity spending to 5 percent of their net revenue.

The law, proposed by California Assemblymen Bob Wieckowski of Fremont and Rob Bonta of Alameda — both Democrats — would require full disclosure of where the charity dollars are spent. The bill establishes a new regulatory step to review community benefit statements and plans that nonprofit hospitals already are required to produce. These plans would be made available to the public.

“They get all kinds of public benefits and they have an obligation to meet that (gives) back to (the community) in what they provide in terms of charity care and community benefit,” said Charles Idelson, communications director with California Nurses Association, a key sponsor of the bill.

Idelson said the bill would demand transparency and accountability from nonprofit hospitals that are often more profitable than for-profit hospitals across the state.

“There is what we believe to be substantial abuse of their nonprofit status both in what they provide in charity care and what they provide in community benefit,” said Idelson, speaking generally about nonprofits. He did not address Eisenhower’s operations specifically.

He said that profiteering is common in the hospital industry and that many are engaging in questionable practices under their charity care and community benefit obligations, listing things that are not actually charity care, such as cost-cutting services or marketing, in their descriptions.

But Eisenhower CEO G. Aubrey Serfling called the proposed requirement ridiculous, noting that the hospital provides vast amounts of care through Medicare and MediCal that is under-reimbursed and not included in the bill’s version of charity care spending.

“At a common sense level, I don’t think you could get to the conclusion that it isn’t serving the community,” he said. “Politicians see a social need and don’t want to spend the money and are trying to find a way to force it on the hospitals to meet the need with no reimbursement — which I think is bad public policy.”

The valley not-for-profit spent 2.7 percent of its budget on charity care spending, without including government programs, and 18 percent with these included, according to the 2012 community benefits plan the hospital submitted to the state.

“If we were required to increase our contribution ... and if they didn’t include the under-reimbursement, it would have a huge negative impact; maybe we’d even lose our not-for-profit status, I don’t know,” Serfling said. “But I would hope the public would come to see that taking care of the elderly and taking care of the poor are a community benefit as well.”

Serfling said he agreed with the concept of being held accountable for their charitable purpose, but he added that the requirement is really an over-simplistic view.

“It should involve other elements of examining the worthiness of the institution,” he said.

For example, Serfling noted that roughly 70 percent of Eisenhower’s community patients are elderly.

Jan Emerson-Shea, vice president of external affairs at the California Hospital Association, a hospital lobbying firm actively opposing the bill, said the strict regulations were too uniform to meet community needs like those at Eisenhower and called the bill very misguided.

“This bill would impose a one-size-fits-all direction from Sacramento and really would ignore the needs of what the Coachella Valley needs, what San Francisco needs, what Fresno needs,” she said. “Every community has different needs and the hospitals are currently responding to those individual local community needs.”

Shea added that the definition of charity care spending should include Medicare and Medi-Cal, which together created payment shortfalls of $9 billion last year. She said this would only get worse with coming cuts to Medicare expected in 2015 and beyond, and the bill was coming during a period of deep change as the state’s hospitals figure out how to adapt to the Affordable Care Act, which will go into full effect in 2014.

Serfling said the bill was absolutely ill-timed.

The state and federal governments offer tax exemptions for not-for-profit hospitals with no current minimum requirement for charity care spending. In the past, the federal government had required 5 percent of revenue to go to charity care in order to receive tax exemptions.

The California Nurses Association released a report prepared by the Institute for Health and Socio-Economic Policy in August that caused a stir in the medical community. The report, which uses data from 2010, is being cited heavily by the nurses’ labor union in its support of the bill.

The median of charity care spending at not-for-profit hospitals in California was at 2.54 percent, according to the report. It also found that 74.7 percent of California’s nonprofit hospitals did not provide charity care in excess of their government subsidies and that California counties and cities lose more than $1 billion because of their tax-exempt status.

The report analyzed the amount of federal and state income, property and sales taxes hospitals were exempt from as a result of their not-for-profit status in relation to the amount of charity care they provided.

Kaiser Permanente, also a not-for-profit hospital with 37 medical centers and 611 medical offices including three in the valley in Indio, Palm Desert and Palm Springs, was listed on the report as having $549,407,345 of exemptions in excess of charity care provided. Eisenhower, which has facilities in Rancho Mirage, La Quinta, Palm Desert, Cathedral City and Palm Springs, was listed as having $14,826,056 of exemptions in excess of charity care provided.

Its charity care spending was at 1.77 percent in 2010, according to the report.

Serfling said Eisenhower, like many nonprofit hospitals, serves its community in ways other than direct medical care.

“These other public services more than justify our not-for-profit status,” Serfling said, noting that if the hospital didn’t have the status, it would not be able to receive gifts and contributions it needs to keep the hospital functioning and serving the community at the same level.

In his 12 years at the hospital, Eisenhower has received more than $400 million in donations.

If it loses its tax-exempt status, the hospital would have to immediately repay its outstanding bonds, he said. Eisenhower and the not-for-profit health care industry would suffer a huge financial blow, he said.

Serfling added that nobody personally benefits from the ownership of a not-for-profit, since the money is reinvested into the community.

Eisenhower’s community benefits were estimated at $71.7 million in fiscal 2012. This figure included health fairs, education and wellness classes, screenings, support groups, school-based programs, patient transportation and clinical research, traditional charity care of $3,377,779 and shortfalls in Medicare and Medi-Cal programs of $57.6 million.

Eisenhower’s Rancho Mirage campus includes the Betty Ford Center for addiction treatment and the Barbara Sinatra Children’s Center for victims of abuse.and the hospital has a partnership with the LGBT Community Center of the Desert that features health education and a three-year grant funded by Eisenhower.

The report also cites the total executive compensation for all of the not-for-profit hospital CEOs and presidents. Serfling’s is listed as $1,336,620, 20th out of 111 listed.

“Overlarge executive compensation packages are especially inappropriate in the not-for-profit sector, as they belie the entire concept of the not-for-profit,” the report said.

Eisenhower is one of three hospitals in the valley. The other two, JFK Memorial Hospital in Indio and Desert Regional Medical Center in Palm Springs, are both for-profits and operated by Tenet Healthcare. The Desert Healthcare District owns Desert Regional, but Tenet runs it.

Charity care numbers at the area’s other hospitals for 2012 were $74.73 million at Desert Regional with a $30.985 million discount to the uninsured, and $5.89 million at JFK Memorial with a $30.08 million discount to the uninsured, according to their benefits brochures.

Glen Grayman, president of the healthcare district’s board, said he would like to hear the debate on the bill, but that he couldn’t comment either way.

“I’m sure the regulations currently in place are substantial; whether or not they require additional regulations, I think I’m unable to say not knowing the current regulations in place for not-for-profits,” he said.

Emerson-Shea called the study and the motivations behind the bill into question, saying the report was highly biased and conducted by an institute headed by the husband of CNA’s executive director, Rose Ann DeMoro. She also said it only looks at a narrow segment of what these hospitals do and does not take into account the “hundreds of millions of dollars that hospitals around the state provide in community benefits.”

“This is a broader political ploy by the labor union who has not been successful at organizing workers at some of the not-for-profit hospitals,” she said.

Idelson said the research was conducted based on publicly available data by the research department and was unbiased.

He added that many not-for-profits were abusing their status, and opponents were only looking out for their bottom line, not what’s in the community’s best interests.

“They should be held responsible in making sure our patients and communities get the care they need and there’s transparency in how they function and they’re not using their nonprofit and community benefits status as a scam and, too often, we see that occurring,” he said.

As for concerns about how the ACA could impact not-for-profits if this bill is enacted, Idelson added that there would be time during hearings for the hospitals to voice legitimate concerns. But he noted that many of them championed the bill and should not rely on it as a reason not to put these restrictions in place.

“You can’t on the one hand say, ‘We got the law we wanted,’ then turn around and say, ‘We can’t be held accountable for our behavior because of a law we championed,’” he said.