Misery Loves Company

Philip Betbeze, for HealthLeaders Media, February 19, 2008

I have always had serious doubts about that saying, but if misery does in fact love company, hospital leaders should now take heart. You now have company in what some of you see as a Congressional witch hunt. That's because you have now been joined by about 136 colleges and universities as targets of federal probes about whether your institutions deserve their rich tax breaks. In the case of institutions of higher learning, Congress is poking around about how they use their endowment largesse.

Sens. Max Baucus (D-MT) and Charles Grassley (R-IA), the finance cops in the Senate, have now included colleges and universities in the long-running investigation over how charitable organizations use their money. They sent out a letter and survey (remember that, hospital CEOs?) last fall to colleges with at least $500 million in their endowments, seeking information about how that money is spent. Colleges grew their endowments an average of 21 percent in the last year while tuition growth continues to outpace inflation. With colleges, the open-ended, wide-ranging fact-finding investigation focuses on how they are using (or not using) their big endowments to help people afford the tuition at their chosen school, while in healthcare, it focuses on whether nonprofit hospitals deserve their federal tax exemption based on the amount of unreimbursed care they provide to the destitute.

The fact that the Senate Finance Committee is digging into other nonprofits with deep pockets might give hospital executives cold comfort, although it should reduce their persecution complex.

Baucus and Grassley are doing good work. At least among hospitals, there are bad actors that take advantage of their nonprofit status to pad their endowment, their profit margin, or their executives' pockets while using every trick in the book to avoid shelling out those bucks for uncompensated care. They are few, but they need to be reined in. A fair policy on how much is enough, in the case of providing uncompensated care, as well as accounting and reporting standards to go with it, would be a welcome evolution, at least among the hospital executives I talk with. You'll hear it bandied about in the media as a community benefit standard, which, of course, doesn't currently exist.

All the same, the hospital executives I talk to regularly believe the long-running investigation is doing serious public relations damage to the hospitals that do take seriously their charitable mission. Colleges are now finding that their community benefit standard is now under at least as much scrutiny. For example, I like college athletics as much as the next guy, but whether donations to the multimillion-dollar business that college athletics has become should be tax-deductible is an eminently fair question to ask. Similarly, as Grassley has been quoted, "it's fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank."

Though their missions couldn't be more different, in most cases, hospitals and colleges are being scrutinized for the same reason: They continue to raise prices significantly--for healthcare and tuition, respectively--while building their profit margin and endowments at similarly high rates. While that equation might be perfect for a profit-making entity, it's clearly problematic for organizations that profess to deserve tax breaks because of their charitable missions.

Where this will all lead is anyone's guess, but at least hospitals are no longer being singled out.

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.
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