Seeing dollar signs in nonprofit hospitals

As other sectors have
faltered, the nonprofit
sector has grown.

COLUMBUS (AP) — At first glance, two big news items of last week — a projected state budget deficit of up to $1.9 billion, and Attorney General Marc Dann’s probe into the finances of Ohio’s nonprofit hospitals — may seem only distantly related.

But look again.

There’s a reason Dann, fellow state attorneys general, congressional Republicans and the Internal Revenue Service are all pushing nonprofit hospitals for more thorough financial reporting: Hospitals represent the largest piece of a nonprofit sector that has been succeeding as other, taxpaying industries fail.

According to the National Council of Nonprofit Associations, the number of charitable nonprofits filing with the IRS jumped 68 percent between 1993 and 2003, to 837,027. Such businesses are not required to pay the taxes other businesses pay because they are deemed to provide charitable benefit to their communities.

Dann wants Ohio’s 174 nonprofit hospitals, including the world-renowned Cleveland Clinic, to come forth with evidence that they are worthy of their charitable status. In theory at least, failure on the hospitals’ part to make a convincing case could mean an influx of new tax revenue for Ohio’s dwindling reserves without the whisper of a statewide tax increase.

In Montana, a study commissioned by Attorney General Mike McGrath determined that 11 major, nonprofit hospitals were doing a less than stellar job of identifying patients worthy of charity care before sending their bills to debt collectors, a key component of their mission from the state’s point of view.

The hospitals are confident, however, that they are meeting their charitable goals.

Watching as the issue spread from Washington into the states, the Ohio Hospital Association prepared and released its first Community Benefit Report this summer, detailing the ways its member hospitals serve their communities.

“It’s completely understandable why there is this appetite for more information, why there is this thought that might be entertained out there, ‘If we could only collect taxes from some of these organizations that aren’t paying ...,”’ said Mary Yost, a spokeswoman for the hospitals. “But from our perspective it’s shortsighted. They are not looking at the big picture of ‘What are hospitals able to do with their resources that benefits the community, that they might not be able to do if they paid taxes?”’

The hospital association’s report estimated that Ohio’s $58.8 billion nonprofit hospital industry provided $1.5 billion in net community benefit in 2007 alone, including the Medicaid losses they absorbed that would otherwise have fallen to government, the charity care they provided, and the $887 million they invested in additional programs of civic benefit, such as disaster preparedness efforts and medical research.

There is no denying, however, that the nonprofit sector — both at the state and national levels — has grown as other sectors have faltered.

A 2006 study by the Johns Hopkins Nonprofit Employment Data Project ranked Ohio’s nonprofit sector as the second-fastest growing, after Nevada’s. It had a 14.7 percent gain in jobs from 2002 to 2004 compared to an overall loss of jobs of about 1 percent. Nonprofit workers made up 10.6 percent of the state’s overall work force, the study found — slightly higher than the national average.

Among charitable entities, hospitals are king — employing a third of all nonprofit workers in the country and at the highest salaries, the study found. The sector’s employment is followed consecutively by nursing and residential care facilities, educational institutions, and social assistance organizations.

Its largesse has simultaneously made the hospital industry a political powerhouse, which helps explain why an earlier effort to improve financial reporting by hospitals — launched in 2006 by Dann’s predecessor, Republican Jim Petro — was ultimately unsuccessful.