| CONTINUING SERIES Here are our prior posts on AG Madigan's charitable hospital proposal: Show Me the Study: Mom Madigan Knows a Secret that is Best Kept from the Children; Illinois Attorney General Madigan Continues Her Crusade Against Illinois Charitable Hospitals: Show Me the Study; and Illinois Attorney General Oversteps Bounds: Sending Illinois Health Care Attorneys into Ecstacy and Scaring Tax-Exempt Hospitals. |
Illinois Attorney General Lisa Madigan must have smiled as she drank her Sunday morning tea while perusing the New York Times (after checking out the endorsements for the upcoming Illinois primary in the Chicago Tribune). Reporter Robert Pear had mentioned her in an article that examined congressional and state scrutiny over nonprofit hospital practices. See R. Pear, Nonprofit Hospitals Face Scrutiny Over Practices (March 19, 2006). The article began by focusing on congressional concerns as to whether there was enough charitable in charitable hospitals. Both Senator Grassley (Senate Finance Committee) and Representative Bill Thomas (House Ways & Means) have been investigating nonprofit hospitals. The article also mentions some of the billing practices that concern AG Madigan.
We suspect after reading the article, Mom Madigan took in some of the other pleasures...
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of a bright Sunday morning. But read closer, the article does anything but validate AG Madigan’s misguided charity hospital proposal currently working its way through the state legislature. Congress is clearly dissatisfied with the care provided by charitable hospitals and is looking for a solution. If AG Madigan is equally dissatisfied, why doesn’t she work with Congress to fashion a solution that applies to all charitable hospitals throughout the country? By pursuing separate legislation, AG Madigan risks exposing Illinois charitable hospitals to two sets of rules—something that will prove burdensome. She also risks placing them at a distinct disadvantage when they attempt to access the municipal bond market to finance new facilities
A second article caught our eyes on Sunday. It appeared in a free newspaper called the Gazette. In it, reporter Vivian Malli does an outstanding job tackling AG Madigan’s proposal. See, Madigan Backs Poor in Hospital Fight (March 3, 2006)—we found the paper in a bin of recycled newspapers.
According to Malli, Texas and Ohio require charitable hospitals to devote at least 4% of total patient revenue to free or discounted care. Nevada and Pennsylvania both focus on total operating revenues, requiring that community benefits total at least 3% to 4% of total operating revenue. Granted these numbers are based on total revenue rather than operating expenses, but these formulations appear to require considerably less charitable care than AG Madigan’s proposal. Given the low operating margins, there may not be all that much difference between using operating revenue or operating expenses. So once again, we must ask the core question: Where did AG Madigan get her 8% number? We might add that the 8% number is a minimum. AG Madigan theoretically requires hospitals to provide unlimited charity care if eligible individuals demand a hospital to provide it. We were informed by the AG’s office that it is very unlikely the amount will ever exceed 8%. But if that is true, why not limit the requirement to 8%?
Malli also reminds us of the obvious: There is no such thing as free care—someone pays. She quotes a spokesperson for a non-partisan health care consumer group as indicating that the cost is most likely to be borne by insured patients in the form of higher premiums. So AG Madigan has really proposed a stealth tax on insured employees. The health care system is a balloon. You can squeeze one part of it (the hospitals) in an effort to get something for free, but there will be a bulge somewhere else (insured employees). It is here that we strongly disagree with AG Madigan. She is clearly dissatisfied with the United States health care system, but fails to recognize that a comprehensive solution is required. Her solution just shifts bloated costs to someone else in a closed-system while failing to comprehensively address the larger financing issues.
AG Madigan’s proposal focuses heavily on charity care (free care to poor people). However, it ignores many other community benefits provided by Illinois charitable hospitals. According to Malli’s article, in fiscal year 2005, Resurrection Health Care system provided $13.8 million in charity care, but $377.8 million in other community benefits. Although the term nonprofit focuses on the absence of profit, it does not mean that services must be provided for free. That also holds true for the term “charitable.” There is little doubt that many of the community benefits and services provided by charitable hospitals would qualify a freestanding charitable organization for federal 501(c)(3) status. Although the standards that apply for 501(c)(3) status and Illinois property tax exemption differ, there is undoubtedly some overlap. Why does AG Madigan persist in ignoring that overlap?
Before the Illinois state legislature enacts AG Madigan’s proposal, the following questions need to be answered:
A. Why is the 8% number proposed by AG Madigan the appropriate number? Where is the econometric study that shows that 8% is the “right” number?
B. Why are there no econometric studies that assess the impact of AG Madigan’s proposal on the number of charitable hospitals? How many of these hospitals will close their doors or convert to for-profit hospitals?
B. Why are many forms of community service by charitable hospitals ignored by AG Madigan’s proposal?
C. What will be the impact of AG Madigan’s proposal on insurance premiums paid by employers and employees?
D. What will be the impact of AG Madigan’s proposal in terms of bond financing costs (e.g. interest rates and bond insurance premiums) for hospitals attempting to access the municipal bond market? Will that cost impede health care modernization?
E. What safeguards will be put in place to eliminate “advisable” political contributions by those hospitals (actually their executives since charities cannot intervene in political campaigns) in order to obtain statutorily-provided exemptions from the 8% requirement? Let's give AG Madigan the benefit of the doubt on this one--we assume she is well-intentioned and isn't looking for campaign contributions. But what about her successor? This is Illinois.
F. Is it appropriate for Illinois’ chief law enforcement officer to be running an administrative review process out of her office? Shouldn’t this sort of activity be handled by a state administrative agency that issues regulations that are subject to judicial review?
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