Friday, April 04, 2008

WSJ OK - a vintage expose

When liberal blogs reference information from the Wall Street Journal - such as Bob Davis' recent exposure of the incoherence of McCain's economic thinking - it's often prefaced with phrases like "even the WSJ acknowledges" or "reported in the WSJ of all places."

Many people, it would seem, know the WSJ primarily by its radical-right op-ed section, famous for equally rabid support of imperial adventure, torture, tax cuts and deregulation to the point of zero. But that's only half the story. The WSJ is a completely schizophrenic paper. Its reporters do much of the world's best investigative business journalism, regularly delving deep into the way individual companies and whole industries game the systems in which they operate.

Today's front-page expose, Nonprofit Hospitals, Once for the Poor, Strike it Rich, by John Carreyrou and Barbara Martinez, is vintage Journal reporting. The article details how many well-heeled hospitals have gamed their non-profit status, receiving far more in tax breaks than they give back in charity care. Carreyrou and Martinez look at several hospitals that offer luxury care primarily to the wealthy and well-insured, pay their execs like in a manner comparable to that of publicly-owned for-profit companies, and build up enormous assets.

Abuse of nonprofit status stems largely from loose definitions of the "community benefits" that hospitals must provide to justify their tax exemptions. For example:

St. Louis-based BJC HealthCare, counts the salaries of its employees as a community benefit. BJC, which runs 14 hospitals in Missouri and Illinois, says on its Web site that it provided more than $1.8 billion in benefits to various communities in 2004. Its payroll, including its CEO's $1.8 million compensation, accounted for $937 million of that figure, while charity care represented $35 million, according to BJC.

Some, of course, serve mainly Medicaid and uninsured patients - and generally have trouble making ends meet. Then there's Exhibit A, Norwestern Memorial in Chicago:

At some nonprofits, the good times are reflected in new facilities and rich executive pay. Flush with cash, Northwestern Memorial Hospital in Chicago has rebuilt its entire campus since 1999 at a cost of more than $1 billion. In October, it opened a new women's hospital that features marble in the lobby, birthing rooms with flat-screen televisions, 1,000 works of art and a roof topped with 10,000 square feet of gardens. In 2006, Northwestern Memorial's former chief executive officer, Gary Mecklenburg, received a $16.4 million payout.

But Northwestern Memorial has been frugal in its spending on charity care, the free treatment for poor patients that nonprofit hospitals are expected to provide in return for the federal and state tax breaks they receive. In 2006, Northwestern Memorial spent $20.8 million on charity care -- less than 2% of its revenues and a fraction of what it received in tax breaks. By comparison, the hospitals run by Cook County, where Northwestern Memorial is located, spent 14% of revenues on charity care....

Around Chicago, Northwestern Memorial is known as a hospital that attracts the well-heeled. It's a short walk from the Magnificent Mile, the famous thoroughfare lined with expensive shops and restaurants. At Northwestern Memorial's new Prentice Women's Hospital, expectant mothers can watch TV or browse the Internet on 42-inch flat-screen televisions, order room service 24 hours a day and page nurses and doctors via a wireless system. Some birthing rooms have views of Lake Michigan. Only 6% of Northwestern Memorial's patient revenues come from Medicaid.

The article is not a hatchet job. Many of the well-heeled, thriving hospitals featured doubtless provide substantial community benefit. But it does highlight the way elite hospitals exploit the loose definitions of 'community benefits' to operate at margins that for-profit companies -- not to mention inner city hospitals that serve primarily Medicaid and uninsured populations -- can only envy.

The article also has implications for the candidates' healthcare plans. Like insurance companies and doctors, hospitals exploit perverse incentives to jack up costs - profiting handsomely as they do their bit to make per capita American healthcare spending almost double that of other industrialized countries:

...much of the industry's profit growth comes from strategies it honed to increase profits. Among them: demanding upfront payments from patients; hiking list prices for procedures and services to several times their actual cost; selling patients' debts to collection companies; focusing on expensive procedures; and issuing tax-exempt bonds and investing the proceeds in higher-yielding securities.

Untaxed investment gains have greatly increased some hospitals' cash piles. Ascension Health, a Catholic nonprofit system that runs 65 hospitals, mostly in the Midwest and Northeast, reported net income of $1.2 billion in its fiscal year ended June 30, 2007, and cash and investments of $7.4 billion. That's more cash than Walt Disney Co. ha

Rupert Murdoch took over Dow Jones in December 2007. So far, he has not touched the kind of in-depth investigative reporting exemplified here - though he did grumble, while the acquisition was pending -- that Journal features are often "too long." We'll see whether News Corp ownership -- not to mention the grim economics of the newspaper industry -- erode this indispensable watchdog over time.

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