For years Utah's not-for-profit hospitals have been providing charity care to indigent patients. And for years they're been shifting the cost of that care - plus other expenses including bad debt and unreimbursed care given to Medicare and Medicaid patients - to paying patients.
That's called "cost-shifting" - the commonly used hospital practice of increasing fees for patients able to pay their bills to compensate for those who can't or don't.Officials with Holy Cross Health Systems and Intermountain Health Care argue that all hospitals do it. If they didn't shift those costs, they would be out of business.
In 1989, IHC revenue exceeded expenses by $39 million. Uncompensated care amounted to $145 million. If the system's hospitals had not shifted the costs to paying patients, officials said they would have been $106 million in the red.
"Either we do our business this way, or we go out of business," said Daniel J. Wolterman, president of Holy Cross Health Services.
Richard Kinnersley, vice president of the Utah Hospital Association, agreed. "Every hospital in the country - with the exception of those such as Shriners, which are funded totally by contributions - are involved in cost-shifting. Our only alternative is to go out of business," he said.
But cost-shifting adds a sizable chunk to paying patients' hospital bills.
Kinnersley estimates cost-shifting increases "everyone's hospital rates by $325 a day." Holy Cross doesn't know how much shifting costs patients, but Wolterman said, "it would be a significant amount."
The Cache County Mayors Association questions the ethics of IHC's Logan Regional Hospital's cost-shifting practice.
The Salt Lake County and Cache County attorneys' offices also want to know how non-profit hospitals can claim property tax exemption for charity care given when the hospitals shift the entire cost of that care onto the shoulders of paying patients.
"The real issue is this: Out of the revenues we receive, do we provide services to the community that otherwise would not be provided? The answer is `yes,' " said William W. Nelson, IHC senior vice president. "That's one of the proposed criteria for property tax exemption. If a not-for-profit hospital weren't responsible for caring for those patients, who would do it and how would it be done?"
Nelson said many cities and counties previously provided indigent care. Salt Lake, in fact, once had a hospital with such a charitable mission. "But they chose to close it down and depend on not-for-profit hospitals to carry that burden, which we are doing," he said.
Utah's non-profit hospitals not only shift the cost for unreimbursed care given to those on federal programs, they also pass the cost of giving discounts to large insurance companies on to clients from the smaller insurance companies.IHC's annual report shows it provided $109.3 million in unreimbursed care last year - all of it cost-shifted. Some $81.4 million was unreimbursed Medicaid and Medicare, said Nelson. When asked what constitutes the other $27.9 million, he said, "other discounts to insurance companies."
Holy Cross has the same practice, Wolterman said. Many large insurance companies have negotiated discounts on their rates that get them out from under the burden of paying for the hospitals' additional costs.
"Which means somebody has to pick up those costs." Smaller insurance companies pick up that tab, Wolterman said.
IHC can't figure out what Logan's mayors and the two county attorney's offices are questioning.
"There is no magic here," Nelson said. "The funds to take care of those who can't pay don't come from a magic pot somewhere. We all pitch in on that."
But Cache County Attorney Gary McKean believes IHC has been playing numbers games with his county when it comes time for their annual application for tax exemption.
Logan Regional Hospital claimed a $2.1 million "gift to the community" last year in its tax-exemption appeal, he said.
But "when it comes down to actual charity - giving something without receiving anything in return - I would say it was only $100,000 out of that $2.1 million," McKean said. For that $100,000 in charity care, Logan Regional Hospital got out of paying taxes "in excess of $300,000" last year, McKean said.
"We could use that money," he said.
McKean and Salt Lake County Deputy Attorney Karl L. Hendrickson wonder if non-profit hospitals should be exempt from property taxes if they pass all costs - including charity care - on to paying patients.
"If someone is paying that cost, I question if it's a charitable gift," Hendrickson said.
And if it isn't a charitable gift, non-profit hospitals should be paying taxes, he said.
McKean agreed. His office urged the Cache County Council not to give Logan Regional Hospital a tax exemption last year because the hospital did not provide enough charity care to warrant it, he said.
However, the County Council voted to give the exemption.
But Nelson believes non-profit hospitals deserve tax exemption because they still provide "much more care to the indigent than for-profit hospitals do.
"If a not-for-profit hospital wasn't responsible for caring for those patients, who would do it and how would it be done?" he asked.
Salt Lake County denied exemption to some non-profit hospitals in its jurisdiction in recent years, too. Those denials are on appeal to the Utah Supreme Court.
Holy Cross and IHC said paying patients also pick up the tab for free community services and educational programs. "Is that news?" Nelson asked. Supplies and salaries for those programs would obviously come out of total charges to patients, he said.
Non-profit hospitals and the Utah Hospital Association blame the federal government for cost-shifting. "We are not defending the system. We don't think it's the right way to finance health care," Kinnersley said.
Federal politicians forced the system on hospitals, he said, by not being candid with the public about the problem and then raising taxes to fund Medicare and Medicaid.
"They have simply shifted the cost to the providers and let us become the tax collectors," he said. "We agree with the (Cache County) mayors. It's wrong. It's immoral. It's reprehensible and inappropriate. But it's the system our elected people have given us."
Cost of care
Uncompensated care at Utah's 54 hospitals:
*1990 estimate: $322,326,000
*Does not include projected $16 million reduction in Medicare payments.
Source: Utah Hospital Association