Hospitals said they lost money on Medicare patients. Some made millions, a state

CHARLOTTE, NC — Atrium Health, North Carolina’s largest hospital system, publicly announced that in 2019 it provided $640 million in services to Medicare patients that were never paid for, the largest “community benefit” provided that year.

Like other not-for-profit hospitals around the country, Atrium calculates losses to the federal health insurance program for the elderly and disabled as a community benefit to meet legal requirements for federal, state and local tax breaks.

But the same year Atrium’s website says it recorded a $640 million loss on Medicare, the hospital system claimed an $82 million profit on Medicare and an additional $37.2 million profit on Medicare Advantage in a federally required financial filing, according to a published report. Oct. 25 by the North Carolina State Treasurer’s Office.

The lack of clarity about whether health systems like Atrium will profit or lose money by treating Medicare recipients reflects how loosely the federal government regulates how hospitals calculate their community benefits.

As a result, an analysis of North Carolina hospital financial data concluded, it’s unclear what taxpayers get from local nonprofit hospitals in return for billions of dollars worth of annual tax breaks.

“There is no transparency, no accountability and no oversight,” said North Carolina State Treasurer Dale Falwell, a Republican who is critical of Atrium and other hospital business practices. “With the hospital cartel, it always benefits the people.”

Atrium officials were not made available for an interview. In a statement, spokesman Dan Fogleman said the hospital system reported $85 million in services to Medicare patients that were not accounted for in the most recent cost report from the Centers for Medicare and Medicaid Services.

“And, as labor, equipment, supplies and inflation continue to increase health care costs, the gap between Medicare payments and the cost to provide the quality care we provide has widened in the post-Covid inflationary environment,” Fogleman said.

More than half of hospitals in the United States are nonprofit or government-run. The federal government intends to operate emergency rooms open to all patients regardless of their ability to pay, accepting patients insured by Medicare and using surplus funds to improve facilities and patient care to demonstrate that they are giving back to the community.

Although their tax-exempt status is based on charitable work, nonprofit hospital systems sat on more than $283 billion in assets from stocks, hedge funds, venture capital and private equity and other investments in 2019, according to a 2021 KHN analysis filing by the IRS.

Hospital systems used most of that for revenue and classified only $19 billion, or about 7% of their total investments, as primarily devoted to their nonprofit missions, the analysis found.

The new North Carolina report describes how hospitals’ self-reported Medicare profit margins differed from the financial picture provided to the public through IRS records, annual reports and community benefit documents.

While most hospitals reported significant Medicare losses, an analysis of data from more than 100 North Carolina hospitals found that Medicare had the largest gains from 2015 to 2020.

IRS audits are supposed to protect the public from fraud and abuse, but the system has major loopholes, say health economists and federal watchdog groups.

Federal law requires the IRS to review community benefit programs at least once every three years. Yet the agency “did not have a well-documented process to ensure these activities were being reviewed,” according to a 2020 report by the Government Accountability Office.

In response to GAO recommendations, IRS leaders last year updated the system so the agency could identify cases where hospitals were suspected of not meeting requirements.

The IRS referred nearly 1,000 hospitals nationwide to its audit division for violations of the Affordable Care Act from 2015 to 2019, but the IRS could not identify whether they were related to community facilities, the GAO said.

The tax agency has no authority to determine what activities hospitals must perform to comply with the law, the GAO said. An analysis of IRS data found 30 hospitals that reported no spending on community facilities in 2016, “indicating potential noncompliance,” the report said.

“It’s probably the result of the IRS being out of money,” said Vivian Ho, a professor of health economics at Rice University in Houston who worked on the North Carolina report. “They don’t have the resources to reconsider what information they should be looking for.”

It is important that the government collects accurate data from hospitals because the data affects all patients, Ho said.

Federal law prohibits IRS employees from discussing tax information submitted to the agency by people or organizations, IRS spokesman Anthony Burke said in response to questions about how effectively the government monitors hospitals.

Hospitals have long used what they report as losses to Medicare to justify charging patients higher prices for private insurance. Rand Corp. is a non-profit research organization. According to a study published in 2021, hospitals across the country charge private insurers more than they receive from Medicare for the same services.

In the Affordable Care Act, federal lawmakers mandated that to maintain their tax-exempt status, nonprofit hospitals must conduct a community health needs assessment, maintain a written financial assistance policy, set billing and collection limits, and charge a Limits must be set.

In a written response to KHN, the North Carolina Healthcare Association, which lobbies on behalf of hospitals, said hospitals paid $1.2 billion in charity care in 2020. It added that these community benefits can include many different activities, such as how much a procedure costs to cover the intermediate gap and what is paid to a provider, volunteering by staff and money for medical outreach programs.

“Providing care to underserved populations is part of their nonprofit mission,” the statement said.

Atrium spends millions of dollars each year providing care to people who need behavioral health care “but have no safety net — even from the state,” the association said.

Fogleman, the Atrium spokesman, said an advisory commission has consistently told Congress that Medicare payments do not cover the full cost of services at most hospitals, including Atrium.

In North Carolina, large hospital systems received $1.8 billion in tax breaks in 2020, according to the state treasurer’s office.

That same year, North Carolina hospital lobbyists reported collectively losing $3.1 billion to Medicare, according to the office’s report. Other data shows that they made a profit of $87 million.

From 2015 to 2020, the report concluded, 35 hospitals posted profits from Medicare each year.

Other hospitals listed in the report did not respond to requests for comment.

The American Hospital Association claims that the federal government reimburses providers significantly less than the cost of caring for Medicare recipients. Unlike private insurers, the federal government does not negotiate prices with hospitals. Medicare bases the amount it pays on hospitals’ location, labor costs and other factors.

The association’s general counsel, Melinda Hatton, said in a statement that “underpayments” totaled more than $75 billion in 2020. “These data show that few, if any, hospitals make much less profit based on Medicare payments,” she said.

But Glenn Melnyk, a professor of health economics and finance at the University of Southern California who reviewed the North Carolina data, said no one is sure how nonprofit hospitals are calculating their numbers.

“For-profit hospital systems are getting so big, we need more transparency,” Melnick said. “Health care is incredibly expensive, and if we don’t get it under control, it will bankrupt us.”

Nonprofit hospitals receive significantly more in tax breaks than they spend on community investments or charity care, according to a report released this year by the Lone Institute, a think tank in Needham, Massachusetts.

Using 2019 data from the IRS, researchers found that of 275 hospital systems across the country, 227 spent less on community investment or charity care than they received on tax breaks. The deficit totaled more than $18 billion, the report said.

Leah Kane is a senior attorney for consumer protection at the Charlotte Center for Legal Advocacy, a nonprofit that provides civil legal assistance to people who cannot afford an attorney. He said his agency receives calls from people who have not been offered charity care from hospitals.

He said his group is concerned that hospitals are providing charity care to uninsured patients but not to other people, such as the underinsured, who don’t have the income to pay thousands of dollars for treatments not covered by their insurance plans.

“People are angry and stressed,” Kane said. “They don’t know what it is [debt] They will have money for life.”

KHN correspondent Aneri Pattani contributed to this report.

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