Local cases led to measure
The memorandum accompanying Senate Bill 4, which would amend the Pennsylvania Constitution to give the legislative branch power to define what constitutes a “purely public charity”, cites ongoing tax exemption disputes in Warren County specifically when outlining the reasoning behind the bill.
“In fact, tax-exempt statuses for Warren Hospital, the Warren County YMCA, Habitat for Humanity, and other non-profits in the area have already been revoked since the Pennsylvania Supreme Court ruling,” the memorandum reads.
It goes into further detail concerning Warren General Hospital (WGH), “The decision to revoke Warren Hospital’s tax-exempt status, a hospital which annually provides over $4 million of charity care to those most in need of services and unable to pay, causes concerns about the hospital’s ability to remain an independent community hospital. It also raises concerns regarding potential job losses due to service restructuring.”
Where do the numbers cited in the memorandum come from?
According to the notes accompanying an audit of WGH’s financial statements included with the its 2011 tax returns, WGH spent $3,718,923 on benefits to the poor and $884,558 on benefits to the broader community in 2011 for a total of $4,603,481 in community benefits, one of the qualifying services under Act 55. This total constitutes approximately 6.6 percent of total WGH operating expenses. However, the audit notes those figures are unaudited and only included as notes.
An examination of WGH’s 2011 tax returns finds $2,472,357 listed in financial assistance and other community benefits at cost. This figure constitutes approximately 3.6 percent of total WGH operating expenses of $69,687,372.
When broken down, the unaudited figure from the audit notes of approximately $4.6 million is made up of traditional charity care ($486,321), unpaid cost of public programs ($3,192,666) and community health services ($39,936) under benefits for the poor and of community health services ($43,668), health professional education and research ($28,062), subsidized health services ($777,521), financial contributions ($14,863) and community building activities ($20,444) under benefits for the broader community.
Traditional charity, defined in the audit notes as, “services provided to persons who cannot afford to pay based on definitions using federal poverty guidelines,” is what most people think of when considering hospital charity service. It’s free or reduced cost care for those unable to pay for it.
According to a brief filed with the Warren County Assessment Board of Appeals patients whose household income is less than 300 percent of the federal poverty level qualify for reduced-cost or free care.
At a stated cost to the hospital of $486,321, this sort of charity constitutes approximately 0.7 percent of WGH operating expenses.
On the hospital’s 2011 tax filing, financial assistance not associated with any means-tested government program is listed at a cost totaling $181,620, or 0.26 percent of total expenses.
Unpaid costs of public programs, by far constituting the lion’s share of community service expenses listed by WGH, is described in the audit notes as, “the cost of treating Medicaid and indigent beneficiaries in excess of government payments.” In other words, it’s the difference between what a government healthcare program, such as Medicaid, pays a hospital for a service and what the hospital charges for the services.
The amount hospitals charge for services, or a service’s list price, varies considerably as there is no standard calculation method used by all hospitals. Hospitals typically negotiate with insurance companies on a price for service they insurance company will pay which is lower than full list price.
In the case of WGH, unpaid cost of public programs is listed in the audit notes as totaling $3,192,666, which is approximately 69.3 percent of total charity and approximately 4.5 percent of total operating expenses.
According to the hospital’s 2011 tax filing, unreimbursed Medicaid and unreimbursed other means-tested government programs cost WGH $1,386,687, or approximately 2 percent of total operating expenses.
Community Health Services, according to the audit notes, “include activities to improve community health such as education, support groups and chaplancy programs.
WGH’s 2011 tax return lists these services in total at $83,604, or approximately .1 percent of total expenses. The audit notes split the figure between services for the poor and services for the general community, but the two figures still total $83,604.
Health professional education and research is described by the audit as, “unpaid costs of training health professionals such as medical residents and nursing students… also included are financial contributions for scholarships.”
Both the audit notes and the 2011 tax filing list these services at a cost of $28,062, less than one-tenth of a percent of total operating expenses, for education. The tax filing indicates WGH reported no research costs as charity.
Subsidized health services, the second largest charity expenditure listed by the hospital, is described by the audit notes as, “services offered that exceed their revenue because of a need in the community.” These are operations run at a loss due to a community need.
The audit notes and tax filing agree on a figure of $777,521 as a cost for WGH subsidized health services in 2011, or approximately 1.1 percent of total operating costs.
Financial contributions are just that, according to the audit notes, “cash, services and equipment donated to the community or community organizations.”
A figure of $14,863, less than one-tenth of a percent of total operating costs, is listed in both the audit notes and the 2011 tax filing for financial contributions.
Finally, community building activities are defined in the audit notes as, “services and time dedicated to enhancing the welfare of the broader community.”
The audit notes list a cost of $20,444 for community building activities, again less than one-tenth of one percent of operating costs, the tax filings do not contain a listing for the activity.
Only specific types of contributions are included in the tax filing form.