Oregon Legislators Could Limit Hospital Tax Breaks, Increase Financial Scrutiny

Inside Good Samaritan Hospital.jpg

Oregon legislators are on track to propose bills that would increase financial reporting requirements and could limit property tax breaks for hospitals based on how much they spend on charity care and employee pay.

Many Oregon hospitals qualify for property tax breaks due to their nonprofit status. In exchange, hospitals are supposed to support a program or activity that promotes health in a community or provide free “charity care” to people who cannot afford it. But the amount of charity care hospitals provide has declined since the Affordable Care Act expanded health coverage. Critics question whether hospitals can claim the benefits of a nonprofit.

Oregon’s most profitable hospital in 2017 provided no charity care, an analysis by The Lund Report found.

“If the health systems are going to continue to claim tax breaks they need to uphold their part of the bargain for what it means to be a charitable organization,” said Kirsten Isaacson, research coordinator for the Service Employees International Union, or SEIU.  

Isaacson is part of a workgroup on hospital charity care that includes hospital officials and is led by Rep. Andrea Salinas, D-Lake Oswego. Next week, the workgroup will review a draft of a preliminary bill that would require hospitals to spend a certain amount on community benefit and develop a three-year strategy to address community health care needs. It would also forbid insurers from requiring hospitals to charge for all copayments and deductibles as a condition of reimbursement.

Mandatory Financial Assistance

The draft legislative concept would require hospitals to have a written financial assistance policy for discounting hospital charges that insurance does not cover. Hospitals would have to waive the cost entirely for patients who make 200 percent of the federal poverty level or less. Under those guidelines, individuals making $24,980 or less and a family of four making $51,500 or less in 2019 could qualify for free care.

For patients making between 200 and 400 percent of the federal poverty guideline, hospitals would have to charge the Medicare rate and provide the following discounts:

  • 50 percent off the first $1,000
  • 90 percent off charges between $1,000 and $5,000
  • 95 percent off charges between $5,000 and $10,000
  • 100 percent of all charges more than $10,000

The discounts would apply to households that make between 400 and 600 percent the federal poverty level in instances where the households’ medical costs exceed 10 percent of its annual income.

Any patients who receive this financial assistance may not be charged more than $2,400 or 10 percent of their income level, whichever is less, over the next 12 months.

“I want to make sure we are providing patients and consumers a level of fairness and some transparency around what they can expect on financial assistance for hospitals,” Salinas said.

An Unfair Marketplace

Dave Northfield, Oregon Association of Hospitals and Health Systems’ spokesman, said in a statement that hospital spending on programs that promote community health has “been steadily growing for years.”

Hospitals’ charity spending in 2017 ranged from nothing to tens of millions of dollars, according to state data. Legacy Emanuel Medical Center spent the most at more than $56 million; followed by Oregon Health & Science University’s Hospital, which spent more than $32 million and Providence St. Vincent Medical Center, which spent almost $30 million.

Legacy Mt. Hood Medical Center devoted the most to charity care relative to its operating revenue, spending almost 13 percent of its $149 million in total operating revenue.

Northfield noted that hospitals have continued to spend on charity care “despite declining financial resources.”

Shriner’s Hospitals for Children spent almost 12 percent of its total operating revenue on charity care despite running a loss of more than $14 million. Legacy Emanuel Medical Center, Mid-Columbia Medical Center, Providence Milwaukie Hospital and Providence Medford Medical Center all spent more than 5 percent of their operating revenue on charity care despite losing money in 2017.

“Oregon hospitals have long shown a commitment to serve their communities and honor the state and federal obligations that go with non-profit status,” Northfield said.

However, seven hospitals spent less than 1 percent of their total operating revenue on charity care in 2017.  They included Blue Mountain Hospital, Southern Coos Hospital and Health Center, Pioneer Memorial Hospital-Heppner, Willamette Valley Medical Center, Lower Umpqua Hospital and Harney District Hospital.

Willamette Valley Medical Center was among the 12 most profitable hospitals in 2017.

“Some hospitals really do much more in charity care than other hospitals, and there is no threshold that says you must do this amount,” Salinas said. “It’s not fair both within the marketplace, between hospitals systems and even within hospitals systems.”

Salinas said her draft of the preliminary bill is subject to change after a review by the workgroup next week, but hers is not the only one attempting to hold hospitals more accountable for their charity care.

Examining Executive Pay

A legislative concept filed in the House Revenue Committee in December proposes limiting a hospital’s property tax break based on how much it spends on charity care and employee pay.

To qualify for the tax break, hospitals and health clinics would have to report how much they spent on charity care the previous year and provide the names and incomes of any officials who earned more than $1 million.

Under the potential rule, the amount saved by the property tax exemption could not exceed the amount the hospital or clinic spent on charity care. In cases where a hospital pays any official or employee more than $1 million, the maximum property tax exemption would get reduced by the sum of all compensation that exceeds $1 million.

“Health care systems and the health care industry are bringing in incredible amounts of revenue,” Isaacson said. “When your CEO pay jumps and says they don’t have enough staff to meet patient needs, we have to question priorities.”

Isaacson said the labor union did not file the legislative concept. However, the union is currently in dispute with Providence Health & Services over millions of dollars in executive pay.

The bill lacks a sponsor, and no interest group has claimed it so far.

Typically, committee chairs know who submitted a bill but recently appointed House Revenue Committee Chair Nancy Nathanson, D-Eugene, declined to be interviewed for this story via a staffer.

Charity care spending declined since the Affordable Care Act due to increased coverage around the country, but many still struggle to afford increasingly expensive deductibles and premiums.

Charity care recently started to increase again. Median charity care spending across the state increased by less than half a percent from the first quarter of 2017 to 2018, according to a quarterly state report on hospital financials, according to a state report on hospital finances.

“Although it remains low compared with spending prior to the implementation of the (Affordable Care Act), total reported charity care charges have grown steadily year over year,” the report said.

This is due in part to hospitals expanding their criteria for charity care and changes in how they determine eligibility for charity care.  The amount of unpaid hospital bills has also decreased since more Oregonians became insured, but it increased relative to patient revenue by one-third of a percent from the first quarter of 2017 to 2018.

Some hospitals are counting covering those unpaid bills as charity care, the report said.

“The bottom line is always, is it fair?” Salinas said. “Is it fair to the taxpayer? Is it fair to the people receiving the care?”

You can reach Jessica Floum at [email protected].

You can see two more premium stories for free. To subscribe, click here. Our newsroom depends on premium subscriptions.