Sutter Healthcare Non-profit Status Being Examined
By Karen Nakamura
This is a tale of two companies that are the same. One is the rapidly expanding, highly profitable, California-based, Sutter Healthcare and the other is the not-for-profit, tax-exempt hospital system, Sutter Healthcare. In other words, Sutter Healthcare is having its cake and eating it too. But this jolly good ride may be coming to an abrupt halt with investigations now going on in the Senate Finance Committee.
According to its own financial statement, Sutter has approximately $2.5 billion in hard assets. These hard (i.e. buildings and equipment) assets have been accrued over a period of approximately 25 years and presently include 30 hospitals Sutter either owns or leases and nearly a hundred clinics and medical centers. It also sees profits in the hundreds of millions per year. After the profit and loss columns are added and subtracted for 2003, Sutter's net profit was $535 million with $2,588,000,000 in assets.
The other Sutter Healthcare has been awarded a not-profit status and is tax exempt. That means, because it takes charity cases, it hasn't paid a penny in taxes since it got its 501(c) tax-exempt status early on.
That may change. Sen. Charles Grassley (R-Iowa) has begun investigating Sutter Healthcare and nine other "not-for-profit" healthcare systems he accuses of abusing their tax-exempt status. And in August, the City of San Francisco's tax assessor challenged Sutter to show why it doesn't owe $4 million in back taxes, based on its huge profit margins. So why is Sutter also putting the screws to the uninsured to collect delinquent bills?
A class action suit was filed earlier this year by uninsured patients who claim Sutter has consistently overcharged patients and is using aggressive collection practices. In response, Sutter counter-sued for the difference between what these uninsured patients have paid and what the hospital charged. The ironic part here is that Sutter has been reported to be charged up to 30% more than other facilities and is showing 10-33% profits.
On May 25, 2005, Sen. Grassley, co-chairman of the Senate Finance Committee, responsible for federal tax legislation and oversight asked some of the nation's largest non-profit hospitals to show that their charitable activities are in compliance with the stipulations of their tax-exempt status. According to Grassley, these exemptions amount to "ten of billions of dollars every year." He plans to introduce legislation to tighten fiscal abuses laws and is currently investigating abuses.
According to the Senator's press release, "It's my duty to make sure charitable donations actually help those in needÉ It's also my job to make sure charities are earning their generous tax breaks. Tax-exempt status is a privilege. Unfortunately some charities abuse that privilege. By gathering information from nonprofit hospitals, I hope to learn whether the benefits they provide to the needy justify the tax breaks they receive."
Grassley in particular addressed ten hospital systems in an extensive letter calling for records on charitable activities, patient billing, and ventures with for-profit companies and hospitals. Among the ten systems Grassley's letter addressed was Sutter Health.
What started Grassley on this quest were problems that emerged with the United Way and the Red Cross. His first hearing was conducted in June of 2004 when he began to examine "the ways some tax-exempt organizations game the tax system." Another hearing was held in April of 2005 where he looked into "schemes to take inflated deductions for non-cash donations ...and the broad scope of charitable sector." That hearing also examined enforcement problems reported to the Internal Revenue Service commissioner. The Minnesota attorney general testified about highly questionable activities by non-profit health care operations in that state. Earlier in May of 2005, Grassley introduced legislation to crack down on abuses in life insurance contracts that involve tax-exempt organizations. He's also working on a series of legislative reforms to curb abuses and improve charities' accountability.
Questions asked in the review letter sent to Sutter Health and other providers included questions about charity care, community benefits such as how does the organization define charity care and what types of programs does the organization include in this definition.
Other questions include does the hospital have a charity policy and does it require certain types of charity care be provided? What are the largest categories of charity and how has this changed over the past 25 years? What percentage of patients is uninsured, covered by Medicare, covered by Medicaid or other state or federal programs for low-income patients or are covered by private insurance? The forthcoming answers from Sutter should be interesting. We'll be watching. The full letter is found on the Senate Finance Committee's website under Grassley press releases/May 25, 2005.
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