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Fatal System Error

Private nonprofit hospitals, which benefit from huge tax breaks, fail to care for the East Bay's poorest residents — and now one public hospital is on the verge of collapse.



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Nonprofit hospitals in California received $3.27 billion in total government subsidies and benefits in 2010, while only providing $1.43 billion in charity care (meaning free or discounted health services to low-income patients), according to the Institute for Health and Socio-Economic Policy, the research arm of the California Nurses Association. By some measures, nonprofit hospitals aren't doing much more for low-income communities than for-profit hospitals that don't receive the same tax benefits. Many of these nonprofits, which operate more like profit-driven corporations with massive annual incomes, also avoid meaningful scrutiny because of a lack of clear governmental standards and reporting requirements. The worst offender in the East Bay is the nonprofit healthcare giant Kaiser Permanente, both in terms of its hospitals' questionable records of charitable care and its broader lack of transparency.

Simply put, the private nonprofits aren't doing their job, and the public is paying the price. The public hospitals that primarily treat low-income and uninsured people — while caring for very few privately insured residents — are struggling under the weight of the community's health problems. And in areas like West Contra Costa County, that struggle can have fatal consequences.

There are three main types of hospitals that provide emergency care and broader patient services in the East Bay and throughout California. There are public hospitals, which include county hospitals and district hospitals, the latter of which are run by publicly elected boards and cover specific geographical regions, known as healthcare districts. The nonprofit hospital systems, by contrast, are privately run organizations that are exempt from paying corporate income and property taxes, because they classify themselves as mission-driven charities. And the third main category is for-profit hospitals — corporations that pay shareholders and taxes, just like any other business.

In California, there are 79 public hospitals (including 8 University of California hospitals), 226 nonprofit hospitals, and 138 for-profit hospitals, according to 2013 statistics from the Office of Statewide Health Planning and Development (OSHPD), which collects hospital data. (Some hospital systems report as a single entity, so the total number of facilities in the state is higher.)

In Alameda County and Contra Costa County, nonprofit hospitals dominate. There are two county-run hospital systems — Alameda Health System (which includes Highland Hospital in Oakland as its main facility) and Contra Costa Regional Medical Center in Martinez. And there are also two publicly run district hospitals in the East Bay — Doctors Medical Center in San Pablo and Washington Hospital in Fremont. And in terms of full-service hospitals with emergency departments, there's only one for-profit in the East Bay — San Ramon Regional Medical Center.

In the nonprofit sector in the two East Bay counties, there are a total of seventeen hospitals, a majority of which are affiliated with three different nonprofit health systems: Kaiser Foundation Hospitals, Sutter Health, and John Muir Health.

While public hospitals get direct taxpayer support through municipal budgets or property tax revenues, the nonprofits receive public subsidies in the form of large annual tax breaks — a major benefit that comes with broad legal responsibilities.

"One doesn't often think of nonprofits hospitals as making money, but they do," said Contra Costa County Supervisor John Gioia, who represents West County, where DMC is located. "Some do very well. The issue here really is about earning your nonprofit status and earning the tax break."

In 1994, California enacted Senate Bill 697, requiring that, in exchange for tax breaks, all private nonprofit hospitals must "assume a social obligation to provide community benefits in the public interest." The law mandates that hospitals conduct regular assessments of the healthcare needs in their communities and submit to the state an annual "community benefit plan" outlining their investments in direct care for the poor and broader public health programs.

The law doesn't include any specific requirements for how much hospitals must spend on community benefits, or where those dollars must go, but does state that community benefits can include subsidized medical services for low-income people and the uninsured, programs that support vulnerable populations, health research, education, training programs, and outreach clinics.

At the federal level, the Affordable Care Act (Obamacare) also recently affirmed the community-benefit obligations of nonprofit hospitals, establishing specific rules for how hospitals should justify their tax breaks. Hospitals must publish community health needs reports and submit specific financial reports to the Internal Revenue Service, which regulates all charities. The IRS guidelines are generally similar to California's rules, though state and federal policies don't always align in terms of what hospitals are allowed to claim as community benefits.

In an area like the East Bay where the nonprofit health systems provide a large portion of all hospital services, robust community benefit initiatives can go a long way in helping the poor and uninsured access care. This is especially important in the most impoverished parts of the region, where the needs for community benefits are clear — and where public hospitals can only do so much to meet the demand.

For example, DMC's service area, which includes Richmond and San Pablo, encompasses high concentrations of people living in poverty, and residents in these cities tend to have more health problems than those in the rest of Contra Costa County. Compared to countywide averages, West County has higher rates of obesity and asthma hospitalization, and residents of Richmond and San Pablo — the majority of whom are black and Latino — face higher risks of heart diseases, strokes, diabetes, and other health problems. Those cities also have disproportionately high rates of homicides, unemployment, and high school dropouts.

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