A Tale of Two Hospitals

Darryl’s post last week on Grassley’s efforts to move legislation to require minimum charity care standards for tax-exempt hospitals reiterated a warning from an even earlier post about “one size fits all” solutions to tax-exemption for health care providers.

I agree. And so I present “A Tale of Two Hospitals” – or maybe that should be a tale of one giant health care conglomerate and a stand-alone community hospital to highlight the point. Today’s Boston Globe has a very in-depth story on Partners Health Care, formed in 1993 by a consolidation of Massachusetts General Hospital and Brigham and Women’s Hospital. This article details how Partners (a nonprofit) is aggressively expanding with new high-profile outpatient facilities, new hospitals in potential profit centers, and an ever-increasing war chest of earnings. And arguably pushing out less well-funded community hospitals in the process.

The second story is the tale of Mt. Sinai Hospital in Chicago, which serves a population made up largely of the poor and uninsured. Darryl blogged about Mt. Sinai, too, but it is a particularly poignant comparison to Partners and hence worth repeating. The story notes

Seventy-two percent of its patients are either uninsured or covered by Medicaid. Only 10% have commercial health insurance — the only type that gives the hospital a profit margin.
The incidence of heart disease, infant mortality, asthma and HIV in the area surrounding the hospital far outpaces the rates in greater Chicago and the rest of the country. The life expectancy of local residents is a full decade less than the U.S. average. Poverty is rampant.

And as a result, Mt. Sinai’s finances are precarious: over the past five years, it has moved between an annual a small net income and losses as high as $15 million. All this while Advocate Health, one of the most profitable health conglomerates in the country, closed a nearby hospital (actually, it turned it into a long-term care facility) in favor of pumping $500 million into facilities in Chicago’s suburbs.

Now let’s get this straight. I’m not against free-market success. In fact, I’m generally a supporter of market-based solutions, and my theories regarding the proper application of tax-exemption are market based. I have no ill-will toward Partners’ success in its market, which obviously reflects excellent management and a focused business plan. But Partners doesn’t deserve tax exemption. Whatever the history of its constituent hospitals, today Partners is simply a big business pursuing its market opportunities. Mt. Sinai, on the other hand, is what we should be focused on in developing a sensible policy for tax exemption for health care providers: an organization that serves a population that every other provider is running away from like another sequel in the Friday the 13th series.

Unlike Senator Grassley, I wouldn’t tie tax-exemption strictly to charity care, though that certainly would be part of the equation. What I would do is require a hospital or health-care provider seeking exemption to detail what populations it serves, or services it provides, that for-profit health care systems do not provide, and how much it spends on these services. In other words, to get exemption, a health care provider will have to provide explicit detail regarding what it does that is not provided by the market. Let the market do its work and give Partners a pat on the back for its market success – just like we give Microsoft or Intel or Apple a similar pat. And give Mt. Sinai tax-exemption and government funding to help it continue its mission to serve a population no one else cares about.

JDC