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Charity care at East Bay hospitals

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Charity care at East Bay hospitals

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A Contra Costa Times investigation finds that East Bay hospitals benefited from at least $81 million in tax breaks in 2005, while providing less than $43 million in charity care.

Hospital charity gets checkup
Can hospitals justify big tax breaks?
Contra Costa Times
Sunday, September 2, 2007

The East Bay's nonprofit hospitals receive millions of dollars more in tax breaks each year than they dole out in charity care to the poor and uninsured.

The hospitals benefited from at least $81 million in tax breaks in 2005, while providing less than $43 million in charity care, a Times analysis reveals.

Whether nonprofit hospitals do enough to justify their lucrative tax-exempt status has become a national debate.

The requirements for nonprofit status are vague. Both Congress and the Internal Revenue Service are looking into the issue.

In the East Bay, despite the hefty tax breaks nonprofit hospitals receive, the burden of providing free or discounted health care to the uninsured falls primarily on struggling, government-run public hospitals, the Times found.

In Contra Costa County, the two public hospitals -- Contra Costa Regional Medical Center and Doctors Medical Center -- provided nearly 82 percent of charity care in 2005. Doctors declared bankruptcy last year, but it remains open.

In Alameda County, the three public hospitals -- county-owned Highland and two district hospitals, Washington and Alameda -- provided 54 percent of the charity care total. Combined, the nine nonprofit hospitals contributed 46 percent.

Critics say it can be hard to tell the difference between nonprofit and for-profit hospitals in their levels of charity care, aggressive collection practices and high pay for top executives.

The Times did a statewide analysis and closely examined 13 hospitals in Contra Costa, Alameda and Solano counties. The only for-profit local hospital is San Ramon Regional Medical Center.

The analysis revealed:

n Statewide, in three of the past five years, the average for-profit hospital provided higher levels of charity care than the average nonprofit institution.

n Charity care among nonprofit hospitals in the East Bay varies widely, ranging from a high of 8 percent of operating expenses to a low of 0.3 percent.

n More than half of local nonprofit hospitals have charity care figures below the state average of 2.2 percent.

n Measured against hospital operating expenses, charity care has declined sharply at one of the East Bay's most financially successful nonprofit institutions -- the John Muir Health system. It provided less than half the level of charity care in 2005 that it did in 2001.

n Patients often have a difficult time learning about charity care and how to apply for it. Many local hospitals have not revised their written charity care policies to fully comply with AB774, a state law that took effect Jan. 1.

Executive pay varies widely, ranging from $787,000 in total compensation for the ValleyCare CEO in Pleasanton to $280,000 for the top executive at Sutter Solano Medical Center in Vallejo.

The Times could not compile comparable numbers for Kaiser Permanente hospitals because the nonprofit health system does not file the annual financial reports that others submit.

Hospital leaders cite an array of services beyond charity care that benefits low-income people, including mobile health and dental vans, contributions to community clinics, free screenings, educational programs and research on diseases. Such activities, they say, cost them millions.

"We give in other ways, " said Lynn Baskett, executive director of the John Muir Community Health Alliance.

The issue is drawing increased national scrutiny in part because only hazy guidelines exist about the benefits nonprofit hospitals must provide.

Decades ago, the IRS required such hospitals to give free or discounted care to the poor to qualify for tax-exempt status.

But in 1969, the IRS changed its definition of charitable services to a broader, loosely defined community-benefit standard.

Nonprofit hospitals lobbied for the change, arguing that the then-new Medicare and Medicaid programs would dramatically reduce the number of uninsured people and thus the need for charity care.

That did not happen. Today, nearly 6.6 million Californians, or more than 20 percent of the population, lack health insurance.

The stakes in the debate are high for taxpayers and hospitals. Nationwide, nonprofit hospitals had $12.6 billion in tax breaks in 2002, according to a Congressional Budget Office report issued in December.

In the East Bay in 2005, such hospitals benefited from an estimated $61 million in state and federal income tax breaks, and $19 million in property tax breaks, the Times found.

The hospitals also received millions of dollars worth of exemptions on bond financing and sales taxes.

For some patients, charity care can mean the difference between bankruptcy and financial survival.

Vallejo resident Betty Simmons knows about big hospital bills. After a massive heart attack in 2004, she racked up more than $500,000 in expenses at John Muir Medical Center in Concord. She had been laid off from her job as a technical illustrator and was uninsured.

The hospital eventually wrote off most of its charges, but separately employed doctors continued to bill her. At one point, six collection agencies pursued her.

"The entire experience was devastating, " she said. "I was being bombarded with bills. I was trying to recover. It was just very stressful."

Statewide, the typical nonprofit hospital in 2005 spent 2.2 percent of its operating expenses on charity care. Local hospitals that fell below that average included:

n John Muir in Walnut Creek at 0.8 percent

n John Muir in Concord at 0.7 percent

n Alta Bates Summit in Berkeley at 0.9 percent

n Alta Bates Summit in Oakland at 2.0 percent and

n ValleyCare in Pleasanton at 0.5 percent

These numbers represent charity care sums ranging from $3.2 million at John Muir's Walnut Creek hospital to $5.9 million at the Alta Bates Summit hospital in Oakland to $860,000 at ValleyCare.

Hospitals say many factors influence charity care levels, including how many low-income uninsured people live in nearby neighborhoods and seek emergency care.

"If the patients don't show up here, I can't offer them discounts, " said Robert Petrina, chief financial officer for Alta Bates Summit.

Charity care at John Muir dropped by nearly half from 2001 to 2005. At its Walnut Creek hospital, it dipped from 1.9 percent of operating expenses to 0.8 percent. At its Concord hospital, it dipped from 1.3 percent to 0.7 percent.

Amounts fluctuate because many patients fail to do their part by submitting the supporting documents required with a charity care application, said Michael Moody, John Muir's chief financial officer.

"We have no control over this, " he said.

Critics counter that many people fail to complete the paperwork because no one tells them about the availability of charity care.

Children's Hospital Oakland had the lowest level of charity care among nonprofit facilities in 2005. But its numbers are not necessarily comparable with those of other hospitals because more children than adults are now insured and thus do not need charity care.

Federal law requires hospitals to stabilize anyone who shows up at their emergency room doors. The poor and uninsured must receive life-saving treatment with no questions asked.

It is what happens afterward that sparks debate.

Each hospital establishes its own charity care policy and, until this year, policies often differed dramatically.

Under public pressure, Sutter Health broadened its charity care policy in 2004 to make more people eligible. That led to marked increases in charity care at several of its East Bay hospitals, including Sutter Delta, Alta Bates Summit and Eden.

Patients filed a class-action lawsuit against the hospital chain in 2004, and Service Employees International Union accused it of gouging the uninsured.

Sutter is not alone in being hit with such complaints.

Insurance companies often negotiate with hospitals to get lower rates for their policyholders. But the uninsured have no one to bargain for them and thus were charged full price.

The result is that those least able to afford it often had bills thousands of dollars higher than the average insured patient did.

Sutter settled the lawsuit last year, discounting its rates for the uninsured and restricting its collection practices.

Several local Sutter hospitals now have charity care figures well above the statewide average.

Last year, California lawmakers sought to expand rights for patients at all hospitals.

AB774, sponsored by former Assemblywoman Wilma Chan, D-Oakland, prohibits hospitals from charging low-income uninsured patients more than the Medicare or Medi-Cal rate, in most cases.

"To balance your books off people who could least afford it just didn't seem right to me, " Chan said.

The new law also limits collections. Hospitals must now wait 150 days before making a negative report to a credit agency or suing low-income patients over unpaid bills.

Hospitals also cannot send a bill to a collection agency if the patient is attempting to qualify for charity care, negotiating a payment plan or making partial payments.

"We've just seen too much behavior by different hospitals that are really very predatory, " said Richard Thomason, policy director for SEIU United Healthcare Workers-West, which supported AB774.

In the past, some hospitals moved to collections within two weeks, Chan said.

"It just ruined a lot of people's lives, " she said.

Judith Williams can identify with that. Sutter Solano Medical Center charged her more than $9,000 for two heart tests in 2005. Her insurance covered $160.

After the in-home care worker told Sutter Solano she did not have the money, the hospital suggested a $448 monthly payment. A collection agency took over when she said she could not afford that.

The bad debt now shows up on her credit report, as she discovered recently when she tried to buy a table.

"They refused me, and I was just devastated because I had never been refused, " she said. The experience made her feel "second class."

AB774 now clarifies who is eligible for charity care or discounted payments. At a minimum, it must include uninsured patients with family incomes less than 350 percent of the federal poverty level.

That would be $60,095 for a family of three or $72,275 for a family of four.

Some insured patients will also be eligible if they meet the same income guidelines and have high annual medical costs.

In the nationwide nonprofit debate, executive compensation has drawn nearly as much scrutiny as charity care.

Some patient advocates argue that lucrative salary and benefit packages do not align with a hospital's charitable mission.

"It's hard for us to take seriously hospitals' complaints that they cannot afford certain patient protections when we see executives being compensated at a very high level, " said Anthony Wright, executive director of Health Access California, a consumer advocacy group.

Hospital leaders counter that the marketplace dictates salaries. They say they must remain competitive to attract top-notch managers, particularly in the Bay Area.

Executive compensation in the East Bay varies widely, with public hospitals typically having lower salaries.

Among the highest paid in 2005 was Marcelina Feit, CEO of ValleyCare Medical Center in Pleasanton, whose compensation package totaled $786,000.

J. Kendall Anderson, president and CEO of John Muir Health, earned $765,000 in salary and benefits that year.

But the biggest paycheck went to Tony Paap, who retired in February 2005 after 26 years at Children's Hospital Oakland.

In 2004, Paap's compensation included $633,000 in salary and benefits, plus a company vehicle.

In 2005, his final-year payout reached more than $1 million. That included two months of salary, unused paid time off and extended sick leave, and benefits in his retirement agreement.

On the low end was Dr. Jeffrey Smith of Contra Costa Regional Medical Center, who earned $307,000 in 2005. That included a $168,000 salary, $47,700 for working after hours as a medical doctor at the hospital and more than $80,000 in benefits.

The smallest compensation package went to Terry Glubka, CEO of Sutter Solano Medical Center in Vallejo. She received $280,000 in salary, benefits and expenses.

Despite its significance, Chan's law has drawn little publicity.

Most patients are unaware of it, and many hospitals have been slow to change, said Jen Flory, staff attorney for the Western Center on Law and Poverty.

"I think the enforcement will come through litigation, " Flory said. "But the impact will be huge. It's the first regulation of any kind on what the uninsured can be charged."

The law also requires that hospitals inform patients about charity care. In the past, critics say, it too often remained a well-kept secret.

A 2004 Health Access study found that nearly half of the hospitals surveyed had no posted signs about financial assistance, and many staff members knew little or nothing about such programs.

A 2005 study by the California HealthCare Foundation had people pose as low-income uninsured patients needing a test or procedure. They made more than 600 visits and calls to hospitals to ask about financial assistance.

Hospital employees referred many of the callers to public programs or a county hospital instead. Few volunteered information about charity care.

Such studies helped convince lawmakers of the need for reform, Chan said.

Hospitals must now provide a written notice about financial assistance when services are rendered and when patients are billed.

They also must post charity care notices in emergency, admissions, patient billing and other patient areas.

A Times survey of East Bay hospitals in May found spotty compliance with the posting requirement. Doctors, Children's Hospital Oakland and Highland Hospital lacked clearly visible signs in their emergency rooms. Children's did have a sign in its admissions office, however.

Signs were easier to spot in some hospitals than in others.

In John Muir's Walnut Creek emergency room, unrelated documents partially blocked an 8«-by-11-inch charity care sign. But its Concord hospital had a clearly visible, much bigger sign with bold letters.

Kaiser Permanente in Vallejo went a step further than most hospitals by putting its financial assistance forms -- with highlighted sections about how to apply -- on an admitting office counter. Spanish, Tagalog and Chinese translations could be requested.

Several East Bay hospital officials said they work hard to get the word out. Alta Bates Summit provides information in eight languages and audits its financial counselors to make sure they are knowledgeable about charity care policies, Petrina said.

Many local hospitals have not fully updated their written charity care policies to meet the new requirements, a Times survey found.

"It's safe to say that none of them are complying with the new rules 100 percent, " said Clare Crawford, an attorney for Bay Area Legal Aid, who did her own survey.

Some policies contain inaccurate information about when bills can be transferred to a collection agency. Others fail to mention the new restrictions on how much the uninsured can be charged.

Turning to the Internet provides little insight. Most local hospitals do not post charity care policies in easy-to-find locations on their Web sites, and there is no requirement to do so.

But beginning in January, hospitals will be required to file their policies with the state as public records.

The state Department of Public Health has the responsibility to enforce Chan's law. It will check for compliance during its regular hospital inspections, spokeswoman Lea Brooks said.

Hospitals with violations must submit correction plans. They may also face fines of as much as $17,500 per violation, but the state health department has not yet developed the regulations to impose those fines.

"Some hospitals are already starting to comply, " Chan said.

"It may take them a little while, but I think this bill has a lot of bite to it, so I think they're going to comply over time."

Reach Sandy Kleffman at 925-943-8249 or


Look for posted charity care notices in the hospital emergency department or admissions office. It will detail whom to contact for more information.

If no one gives you a copy of the charity care policy, ask for it.

If you speak a language other than English, ask for documents in your language.

For sample letters to send if you are eligible for charity care and no one gives you an application, or if the hospital incorrectly begins collection procedures, go to The letters are at the end of a consumer fact sheet.

For more information on the new law, go to

In early 2008, the Office of Statewide Health Planning and Development expects to have each hospital's charity care policy available on its Web site at


Nonprofit, for-profit and public hospitals must:

Post notices about charity care in emergency departments, admissions offices, patient billing offices and other outpatient areas.

Provide written notices about charity care when services are provided and when a patient is billed.

Provide charity care notices in all languages spoken by at least 5 percent of the patient population.

Limit charges for uninsured people who earn 350 percent or less of the federal poverty level. They may not be charged more than the hospital's Medicare, Medi-Cal or Healthy Families rate.

At a minimum, enable people to apply for charity care or discounted payments if they are uninsured, or insured with high medical costs and earn less than 350 percent of the federal poverty level.

Wait at least 150 days before making a bad report to a credit reporting agency or suing low-income patients over unpaid bills.

Refrain from sending a bill to a collection agency if the patient is attempting to qualify for charity care, negotiating a payment plan or making partial payments.

Notify patients about their rights and credit counseling services before sending a bill to a collection agency.

Refrain from garnishing wages or placing liens on primary residences to collect unpaid bills. A collection agency may be able to garnish wages if it obtains a court order.