A revolution is sweeping across the health care industry, and it has turned medicine into big business. Bigger health systems mean better care, say some analysts. Others predict a crisis in which compassion is replaced by Wall Street toughness. Morning Call reporters Jeffrey G. Fleishman and Ann Wlazelek examined the trend in a three-month investigation encompassing more than 100 interviews and review of hundreds of medical documents and studies.
Lehigh Valley-based hospitals donate small percentages of their multimillion dollar budgets to care for the poor, despite Pennsylvania laws that require them to make substantial charitable contributions because of the tax breaks they receive.
HealthEast, non-profit holding company for Lehigh Valley Hospital Center, Allentown Hospital and Gnaden Huetten Hospital, received nearly $1.2 million in real estate taxbreaks from school districts, counties and municipalities. HealthEast had a $200 million budget last year, which registered a tax-free $13 million profit.
Yet, HealthEast donated 1.3 percent of its total budget to provide free care for the poor.
It is figures such as these that are forcing some legislators and medical analysts to ask: Are non-profit hospitals fulfilling their charitable missions? And is that charitable mission defined clearly enough by the courts and legislatures?
Pennsylvania State Rep. Italo Cappabianca, D-Erie, chairman of a House committee investigating non-profit corporations, said:
"I don't know how any non-profit institution can say it made a $13 million profit when there are poor people out there who are not getting medical care because they can't pay for it. "
The charitable care issue heated up so much in Vermont that the city of Burlington decided to tax the 500-bed Medical Center of Vermont. "The hospital was not a charity anymore . . ," said John L. Franco, assistant city attorney. "It was acting more and more like a business. "
"The hospital was receiving $2.8 million in tax breaks and only giving $1.4 million away in free care. So we sent them a tax bill for $2.8 million and boy were they surprised. Our feeling was the city will tax the hospital and the city will provide the charitable care," said Franco.
Hospital spokesman Larry Gilbert said: "The hospital (which has a $100 million budget) deserves tax exempt status because it is a charitable institution. " Gilbert said the case, which is awaiting a decision from a Superior Court judge, should be instrumental in better outlining state laws governing non-profit institutions. "No matter who loses, the case will go to the Supreme Court," Gilbert said.
The charitable mission of non-profit hospitals is being redefined by the extremely competitive health care industry. Government cutbacks to Medicare, Medicaid and other programs forced hospitals to compete like any other business. As a result, they began competing with each other to better attract patients and doctors.
Rashi Fein, a Harvard University medical analyst, said that hospital management has not yet acclimated to its new environment and is finding it difficult to retain charitable missions in a volatile business world.
"I wouldn't be too harsh on them," said a lawyer who represents hospitals. "Once they were part of a planned economy but government and the courts" put them on a more competitive playing field, he said.
"In the current marketplace you can't concentrate too much on providing indigent care or you'll go out of business," said Jan Schulman, spokesman for the American Hospital Association. "And if you go out of business you jeopardize access of care to the whole community. Hospitals are caught between a rock and a hard place. "
Once the symbol of public charity, the hospital is now being transformed into an all-service provider that strives to meet even the most specialized needs of its community. Profits are plowed back into their facilities to cover operating costs, expansion and equipment.
"Non-profits (hospitals) will start out claiming to be altruistic," said Fein, professor of social medicine and health policy at Harvard. "But the marketplace is a tough new task master. The behaviour of non-profits will become more like for-profits. "
The gravely sick and very poor may become too costly for certain hospitals to care for, said Fein. And because of the increasing population of people who have low paying jobs that offer no insurance, care for the indigent is becoming the hottest debate in themedical community. In 1965, Medicaid provided care for 70 percent of the nation's poor. Today it covers only 40 percent - a dismal prospect, according to some medical experts, who said that many hospitals may not be picking up the costs either.
Recently, a woman sued the Easton Hospital claiming that her 28-year-old husband died of a heart attack in 1985 when he received substandard medical care because he was poor. On several occasions Dawn Higgins' husband, Terrance, went to the hospital emergency room complaining of chest pains.
The suit alleges that he wasn't treated properly because he had no insurance and ultimately told not to return to the hospital. Four days later Higgins died of a heart attack en route to the hospital. Because of the suit the hospital would not comment.
But officials from area non-profit hospitals insist their charitable missions have not been eclipsed by competitive market forces. "We have not turned anyone away because they couldn't pay," said David P. Buchmueller, president of HealthEast.
Officials from other hospitals and health systems, including Horizon Health Systems, a merger of St. Luke's and Muhlenberg Hospital Center and the Berkshire Health System, a merger of three Reading-area hospitals, also assert their concern for the indigent.
William Ihrie, a former HealthEast board member, said the competition among hospitals has affected their charitable missions. "Hospitals are caring too much about bricks and mortar and not enough about the patient. Where is the compassion and the caring? I sat around the board table at HealthEast and not once did we talk about the patient," said Ihrie.
But Rev. Grant Harrity, president of the HealthEast board and of the Phoebe Home said: "The charitable mission is always at the forefront . . . As long as I'm on the hospital board there will never be a newspaper article saying: 'Miss Jones was turned away because she couldn't pay. ' "
Because LVHC is located in the Allentown suburb of Salisbury Township, LVHC president Samuel Huston said the hospital does not see too many indigents. Most of Allentown's poor are treated at Sacred Heart, in the inner city, and at Allentown Hospital, according to HealthEast officials. LVHC also does not see the great numbers of poor patients who walk in to the emergency room at Allentown and Sacred Heart hospitals.
Said one HealthEast official: "Maybe we're in good shape because we have a very small indigent community. "
The 1980 census revealed that 27,183 Lehigh County residents - 10 percent of the county population - were considered poor. The census also showed that 15,872 of those people lived in Allentown. "There's a heck of a lot of poor people out there," said Alan Jennings, director of the Community Action Committee of the Lehigh Valley. "And those census numbers are old. The number of poor is a lot higher today. "
Darryl Lippman, administrator of The Allentown Hospital, said government cutbacks and competition among hospitals for limited dollars, may be creating a two-tiered system of medicine between rich and poor. Lippman said his hospital admits everyone regardless of their ability to pay. But the continued financial pressures put on hospitals, he said, "at some point may shortchange the patient. "
One physician claims that during these cost-conscious times neither hospitals nor some physicians want to care for the indigent. Of Lehigh County's 460 physicians 107 accept patients on medical assistance, according to statistics supplied by the Lehigh County Board of Assistance. Dr. Max Stierstorfer said he gets 50 calls a day from Medicaid recipients needing care.
Stierstorfer said he recently had a patient in need of specialized treatment and follow-up care for dangerously high blood pressure. When he tried to get an appointment with a specialist, the patient was told he needed $150 to be seen, and when Stierstorfer tried to find him specialized care through a hospital clinic, Stierstorfer said he was told, 'Well you're a doctor. ' "
Stierstorfer took the case to a meeting of the executive committee of the Lehigh County Medical Society in July to get its help. Society President Dr. David O. Williams, a radiologist, said the committee acknowledged the problem and would address it with the full board. However, the consensus, according to Williams, was that the state should provide more services and full-time staff to treat the poor - that physicians should not be required by law, as they are in Massachusetts, to accept Medicaid patients.
Critics claim the hospitals should not wait for the poor to walk through their doors. They claim hospitals should create programs and go out and look for the indigent. All area hospital systems have numerous programs such as Hospice, which cares for the terminally ill in their homes. There are poison centers and burn centers and others, which hospital officials claim are big money-losers but are needed by the community.
When asked about LVHC's small budget for indigent services, Huston said: "Well what about the $300,000 a year we lose on MedEvac, the $300,000 on the burn unit, the $600,000 on the out-patient clinic and the $520,000 on Hospice? "
But critics from government and social service agencies contend that while these programs - which enhance HealthEast's image as a premier medical presence - are good for the community they are not necessarily charity.
How charity has been defined is vague.
On Feb. 13, 1985 the Pennsylvania Supreme Court ruled that a company specializing in medical statistics and data analysis could not be tax exempt because it was not a "purely public charity. " In that case, the court handed down a five-point check list on what a charitable institution should be. The list has been used as precedent in similar Pennsylvania cases involving nursing homes and other health care related businesses. To be public charity an institution must:
Advance a charitable purpose.
Donate or render gratuitously a substantial portion of its services.
Benefit a substantial and indefinite class of persons who are legitimate subjects of charity.
Relieve the government of some of its burden.
Operate entirely free from profit motive.
Currently, hospitals don't fall under this check list. Pennsylvania law puts hospitals under their own category separate from other charitable institutions, requiring them to operate for the community good and to donate substantial care to the poor. But beyond that general description, state law poorly defines the meaning of "hospital," said Alfred K. Hettinger, Lehigh County solicitor who represents the county assessment board.
Non-profit hospitals are being challenged by local and state government officials who claim that in some instances hospitals are receiving tax breaks that are disproportionately small compared to what they contribute in free care for the poor. Some lawyers and government officials interviewed said this debate will continue to heat until state legislators better define a hospital's community obligation. "And I wouldn't be surprised if the five- point check list for other public charities will one day apply to hospitals," said Hettinger.
But even that five point check list is vague, according to Hettinger and others. The court does not define what "substantial" is and it also does not clarify "free from profit motive. "
In 1986, most health systems in the Lehigh Valley posted healthy profits. HealthEast reported a $13 million profit; Horizon $3.5 million, and Geisinger Foundation, located off Interstate 80 in Danville, $24 million. Berkshire Health System does not report a corporate profit, according to a spokesman, who said that profits of its three hospitals are returned to the hospitals themselves.
In addition to healthy profits, the health systems also benefitted by not having to pay taxes on their profits like private sector businesses because they are charitable institutions.
Frank Trembulak, vice president and treasurer of the Geisinger Foundation, asked: "Could you imagine if we had to pay taxes on our $24 million profit? " Taxes would wipe away about one-half of the profits earned by hospitals. Trembulak said those kinds of losses would mean cuts to research, education and other programs.
The profits from Geisinger and other hospitals are supposed to go back into the charitable mission - unlike profits from private sector businesses that are distributed to shareholders.
But in some cases, the profits take a roundabout route before being distributed to the charitable mission.
In its 1988 proposed budget, HealthEast will give $500,000 to HealthEast Enterprises, the corporation's for-profit subsidiary, which includes a realty company, pharmacy and paging system. About $200,000 will be used to pay taxes on land held by HealthEast Realty and the remaining $300,000 will be used to form a joint venture with physicians in a community ambulatory care center.
But because HealthEast Enterprises is a fledgling corporation, officials said it won't turn profits over to the non-profit holding company for some time. As a result, criticssaid that instead of investing the $500,000 to its for-profit subsidiary, HealthEast should use it to lower patient costs.
But Buchmueller said the for-profit arm is an extension of the charitable mission set in place by HealthEast and its three hospitals. Future profits from HealthEast Enterprises will be plowed back into the hospitals to compensate for dwindling federal aid. Horizon, Berkshire and Geisinger also have for-profit subsidiaries. Like HealthEast's, their subsidiaries bring in less than one percent of their total revenues that help compensate for government cutbacks.
The subsidiaries of each hospital system are young and officials say that in the future they will be relied upon heavily. "We'd like to create a new stream of revenue," said Thomas Paisley Jr., president of HealthEast Enterprises. "These subsidiaries are investments in the future. "
Paisley and officials from other hospital systems said that they should be allowed to set up for-profit subsidiaries, especially because of the competitive nature of health care. They also claim that non-profit hospitals should be given special privileges because they offer charitable services that would otherwise not be met.
However, a controversial study done for the Harvard Business Review last January stated that for-profit hospitals "offer better results for society" than their non-profit counterparts. "They (investor-owned hospitals) require virtually no societal investment to keep them afloat," stated the study. "They are more efficient than non-profits, reinvest their earnings in newer plant and equipment, and offer just as broad a range of services to a large number of patients, including medically indigent. "
The American Hospital Association reported that in 1984 for-profit hospitals gave 4.3 percent of their services to "unsponsored care. " Non- profit hospitals gave 4.6 percent. There are no for-profit hospitals in Pennsylvania. And, according to the state Health Department, Pennsylvania has the highest medical costs per patient in the U.S. "That's hypocrisy," said Rep. Cappabianca, who said non-profits should be geared toward lowering patient costs.
While HealthEast, Berkshire and Horizon have posted profits over the last two years, none of them has reduced patient costs. Rates in some cases rose despite profits, and HealthEast reported its room, X-ray and laboratory rates will rise about 10 percent next year.
A Capital Blue Cross study done for Lehigh County government found that costs for four specialized services offered at Allentown Hospital or LVHC were significantly higher than those charged by hospitals in 21 Pennsylvania counties.
The study was done to determine how much county government had to pay into its employee health care plan for costs not covered by Blue Cross. Nearly 50 percent of all employees used The Allentown Hospital or LVHC. Twenty-seven percent went to Allentown Osteopathic Medical Center and Sacred Heart Hospital.
The highest costs to the patient were in four areas: maternity care, genital and urinary defects, mental disorders and congenital defects. For maternity care, county government paid $52.70, higher than the $35.98 average for hospitals in 21 counties. For genital and urinary defects the county paid $51.26, higher than the $29.79 average. For mental disorders the county paid $29.02, higher than the $14.43 average. And for congenital problems, the county paid $26.10, higher than the $10.10 average. Maternity care rates were based solely on The Allentown Hospital.
"The study tells me that, where The Allentown Hospital has the monopoly, their prices are higher," said Lehigh County Administrator John Kachmar. HealthEast would not comment on the figures because it did not review the the Blue Cross study.
A check of government files and other records reveals a financial breakdown of several area hospitals and health systems:
HealthEast - between its three hospitals, LVHC, The Allentown Hospital and Gnaden Huetten, HealthEast receives over $1.2 million in real estate tax breaks from counties, municipalities and school districts. It also made a tax- free $13 million profit last year. Of its $200 million budget, HealthEast donates about $2.4 million to ambulance corps, community education, Hospice and other programs. Another $2.6 million is given in free care to indigents.
Horizon Health System - between its two hospitals, St. Luke's Hospital and Muhlenberg Medical Center, Horizon receives over $550,000 in real estate tax breaks. It also made a $3.5 million profit. Of its projected 1987 budget of $29.1 million, Muhlenberg Medical Center expects to donate $850,000 to charitable services. Of its proposed budget of $85 million, St. Luke's Hospital expects to donate $2.4 million to charitable services.
Berkshire Health System - Between its three hospitals, Community General, Reading Hospital and Medical Center and Pottsville Hospital, Berkshire receives more than $1.7 million in real estate tax breaks.
Easton Hospital - Last year the hospital spent $939,487 of its $60 million budget on charitable care.
Allentown Osteopathic Medical Center - The hospital gave $265,323 of its $28.5 1986 budget to charitable care.
Sacred Heart Hospital - In 1986, the Catholic hospital gave $2.2 million out of its $50.4 million budget to charitable care.Copyright © 2014, Los Angeles Times