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September 15, 2011

Bullock Releases 4th Annual Report on Charitable Purposes of Montana’s Hospitals

HELENA – Attorney General Steve Bullock today released the fourth annual report on the charitable performance of Montana’s nonprofit hospitals. The report examines the 10 largest hospitals in the state and, for the second year, the 12 smaller, critical access facilities.

The report, titled Montana’s Hospitals: Issues and facts related to the charitable purposes of our hospitals and the protection of Montana’s consumers, is available online along with a cover letter from Attorney General Bullock (pasted below).

Nonprofit hospitals in Montana are granted tax exempt status, a standing that saves them tens of millions of dollars a year. With this valuable status comes an obligation to provide benefits to the communities they serve.

As the reports says, “In light of the high cost of medical care and the recent economic recession, the importance of charity care for a community has perhaps never been greater.”

The Montana Department of Justice oversees nonprofit corporations in the state. This report is the fourth annual assessment of the charitable achievements of hospitals in Montana.

In September 2006, the Attorney General’s Office began surveying pricing policies, including variations related to insurance coverage; charity care policies and practices; and debt collection practices.

September 2011

My office, in cooperation with the School of Public and Community Health Sciences at The University of Montana, is pleased to make the fourth annual Montana’s Hospitals report available to consumers throughout the state. Again this year, I would like to express my thanks to Larry White and his team for pulling together and analyzing the statistical data.

The report is an annual assessment of the charitable purposes of the 10 largest nonprofit hospitals and foundations in our state. For the second year, the report also includes information about 12 smaller, critical access hospitals in Montana.

All of these 22 nonprofit hospitals are public benefit corporations under Montana law. They exist to serve their communities, not to make a profit. Because of this, they have been given tax exempt status – a status that saves them tens of millions of dollars annually. These hospitals have a duty to provide community benefits to the areas they serve. Charity care – free or discounted services to those with demonstrated financial need – is the most significant community benefit nonprofit hospitals provide. It is in the interest of all hospitals and the communities they serve to ensure that all qualified patients are provided charity care rather than face collection actions on debts they cannot afford to repay, and which the hospital will likely end up writing off as bad debt.

As this fourth report shows, charity care continues to increase in Montana, although it still varies widely across hospitals. The large hospitals have increased charity care significantly over the past four years, from a median 1.57% of their budgets in 2006 to 2.79% of their budgets in 2009. Table 4 and Graph 2. As was pointed out last year, Montana’s small hospitals continue to show a lower level of charity care overall, although there was an increase from 1.32% of their budgets in 2008 to 1.59% in 2009. Table 4.

While the trend of increasing percentages of overall budgets dedicated to charity care is encouraging, there appears to be room for continued improvement. Montana’s nonprofit hospitals sent accounts totaling more than $122 million to collection in 2009. Appendix 5. While the hospitals properly need to pursue collection efforts in appropriate cases, it is highly likely that many patients whose accounts were turned over to collection could have qualified for charity care at the outset.

Charity care is one of several categories of “community benefits” upon which hospitals’ nonprofit status is justified for purposes of receiving tax exemptions. When all community benefit categories are considered, with only one exception, Montana’s nonprofit hospitals provide benefits that substantially exceed the value of the tax exemptions they receive. Table 7a and Appendix 4. Even when considering charity care costs alone, 8 of the 10 large hospitals and 7 of the 12 small hospitals provide benefits that exceed the value of their tax exemptions. Table 7b.

As I pointed out last year, and as this report shows, traditional charity care now amounts to only a fraction of a hospital’s total “community benefits.” Appendix 3. Hospitals should ensure that less specific community benefits are not displacing direct charity care, and that those expenditures classified as “community benefits” are wanted or needed in a particular community.

One category of community benefits that warrants specific attention is subsidized services. Seven of the 10 large hospitals spend more on charity care than on subsidized health services. In contrast, three of the large hospitals spend millions more on subsidized health services than they do on charity care. These health services include the acquisition and financial support of medical practices that otherwise would exist in the communities and, therefore, may not properly be considered a “community benefit” according to applicable criteria. Appendix 1 (Community Benefit Definitions). This may be indicative of changes in the health care delivery system that are not unique to Montana. Nevertheless, it has implications with respect to whether the hospitals are truly operating as nonprofit entities.

Our nonprofit hospitals are invaluable assets in our communities. They face significant challenges in these difficult economic times, and the services they provide are deserving of recognition and appreciation.

The Attorney General is responsible both for monitoring nonprofit corporations and for protecting the interests of those served by a nonprofit corporation. Thus, it is the responsibility of my office to ensure that they continue to perform the charitable purposes for which they were formed. We hope this series of reports will help consumers, community members, hospital administrators, board members, and other stakeholders gain a greater understanding of how our hospitals are performing their charitable purposes.

Most sincerely,

Steve Bullock
Attorney General