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Are charitable hospitals providing charitable care?

Fifty years ago, Detroit had 42 hospitals to serve its inner-city population. Today, four remain.

Ascension, one of the largest charitable non-profit hospital systems in the United States, has led the exodus, having shut down three of its Detroit hospitals in the past 10 years because of low profits. Yet Ascension is planning to open a new $224-million hospital just 30 miles away in profitable suburbia.

The scene is becoming all too familiar in poverty-stricken urban centers across the U.S., says George Nation.

“This is part of a larger problem,” says Nation, a professor of finance and law in the College of Business and Economics. “The vast majority of charitable hospitals are not concerned with providing charitable care. They are concerned with increasing their profits.”

For that reason, says Nation, no hospital should be tax-exempt. His research suggests that hospitals need the fiscal discipline and independence that comes with being a for-profit taxable institution. Only then, and only when they are coupled with a private and competitive health insurance sector, can hospitals achieve the highest quality healthcare at the lowest possible cost, without sacrificing patient autonomy.

A role for a competitive free market in healthcare

The subject is complicated and controversial, says Nation, and it became even more so on March 30, 2010, when President Obama signed the Patient Protection and Affordable Care Act, a law that Nation believes will only make matters worse.

“The best way to control cost and continue to develop the best medicine in the world—while maintaining patient autonomy—is to develop a competitive free market that encourages innovation, productivity and cost control,” he says.

Changing the status of so-called charitable hospitals, Nation says, would boost competitiveness while helping provide healthcare to the poor.

“The tax revenue from formerly tax-exempt hospitals,” he says, “could help cover the cost of providing basic health coverage for the poor.”

Nation’s research on hospital networks and healthcare costs has led him to believe a tiered health insurance system is not only practical, but necessary.

“The lower tier would provide only basic health care or what is referred to as ‘high-value’ care,” he says. “Americans who can afford it could opt to buy higher tiered insurance that would have premium coverage. Waiting periods would be shorter—or nonexistent—and these plans would cover ‘low-value’ in addition to ‘high-value’ care.”

Nation’s healthcare research is timely. In one of the first judicial decisions of its kind, the Illinois Supreme Court last month revoked the property tax exemption of Provena Covenant Medical Center. The court ruled that Provena did not provide enough charity care to justify its tax break, noting that “… a mere 302 of its 110,000 admissions received reductions in their bills based on charitable considerations.”

It’s only a matter of time before more court battles grab the headlines, says Nation.

“This is an important issue that is likely to gain national traction,” he says. “The Provena decision could be an indication of things to come for the industry.”

Story by Tom Yencho

Posted on Wednesday, June 02, 2010

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