There is no consensus on whether for-profit or nonprofit hospitals give better care, but it is clear that there are potential downsides to a switch.
Would a for-profit Mission be efficient — or ruthless? There is no consensus on whether for-profit or nonprofit hospitals give better care, but it is clear that there are potential downsides to a switch. Check out this story on citizen-times.com: https://www.citizen-times.com/story/news/local/2018/08/11/mission-health-hca-healthcare-sale-western-north-carolina-asheville/914120002/
The emergency department of Mission Hospital is seen in this file photograph.(Photo: Angeli Wright/awright@citizen-times.com)Buy Photo
ASHEVILLE – The idea that Mission Health might realize economies of scale if sold to industry titan HCA Healthcare makes sense to retired physician Dr. David Mouw.
But Mouw nonetheless worries a transition from Mission's status as an independent nonprofit to being part of a Fortune 500, for-profit company could result in too much emphasis on making money and not enough on making people well.
"I think the whole society is run so ruthlessly by corporations ... that it just scares you," he said.
The effects of hospitals switching from nonprofit to for-profit in general also worries academics and people in the health care industry.
There is no consensus nationally on whether for-profit institutions worsen or improve care, but it is clear there are downsides when a hospital or health system starts answering to shareholders instead of community members.
Mission Health officials say a sale to HCA would protect important services for at least five years and require that the company offer to sell any money-losing services to other buyers. By making the system more efficient, HCA will safeguard the ability of what is now Mission Heath to serve Western North Carolina into the future, they say.
"You won't see any difference in the way people are cared for in the community," Janice Brumit, a member of the Mission board, said earlier this year.
"I know that there are things (Mission does) that don't make any money, but they're critical" to the region's well-being, said Mitchell County resident Amanda Martin. What, she wondered, would prevent HCA from cutting corners or dropping an unprofitable service?
Martin and Mouw attended a recent forum on the potential impact of the foundation that would get the proceeds from the sale. It was put on by a local think tank on health issues affecting older people in conjunction with a group worried about the potential loss of health care services in Mitchell and Yancey counties.
How much money the foundation might control could become known in the next two weeks. Mission Health officials have said they hope to have a final sale agreement with HCA in mid-August.
The state Department of Justice would then review the deal to determine whether its terms protect the public interest. That is the most significant regulatory hurdle facing a sale and the process could take two to three months.
The issue of how well a for-profit company would serve WNC came up in a June meeting between Mission President and CEO Dr. Ron Paulus and members of City Council and the Buncombe County Board of Commissioners.
Paulus said HCA provides quality care at its hospitals and has a financial incentive to do so. The Nashville-based company owns 178 hospitals and 119 surgery centers in the United States and United Kingdom and employs than 240,000 people.
"In general, what's in (HCA's) self interest is ... to provide care that makes consumers and insurers want to have their families or their employees receive care there," he said. "So there's a natural barrier to sort of shirking because if you shirk, people aren't going to want to receive care there."
Most U.S. hospitals are part of the government or nonprofits like Mission. About 18 percent are run by for-profit companies.
Several studies have suggested privately owned hospitals are quicker to abandon money-losing services, may charge higher rates and sometimes do not provide the same level of care as their nonprofit competitors.
But there have also been studies that have found little or no difference in key measures of hospital performance. Some experts theorize for-profit companies make up for the pressure of satisfying shareholders in part by operating more efficiently than nonprofits, something Mission officials say will happen here.
Mouw said he saw pharmaceutical companies invest in drugs that would be most profitable but not necessarily the most needed when he worked as a family physician.
He sees great potential in the proposed foundation but worries about the impact of a for-profit orientation on what's now Mission Health.
A 2004 analysis of several different studies on the cost of care found private for-profit hospitals in the United States charge more for services than private not-for-profit hospitals. It was done to gauge what might happen if for-profit hospitals were allowed to expand their small share of the Canadian market.
"For-profit hospitals result in both higher mortality rates and greater payments for care than do not-for-profit hospitals," they wrote. "The evidence strongly supports a policy of not-for-profit health care delivery at the hospital level."
A 2012 paper of the impact of tax law changes on nonprofit hospitals written by professors at Niagara University in New York and Emory University in Atlanta, said studies of the issue give a decided advantage to nonprofits over for-profits.
"Standard management theory would suggest that a for-profit firm will face more pressure than does a nonprofit firm to divest unprofitable services," authors of the study published in the American Journal of Public Health wrote.
"For example, nonprofit hospitals admit seriously mentally ill patients from the emergency room more frequently than do for-profit hospitals. ... Nonprofit hospitals are also more likely to than for-profit hospitals to provide AIDS services, alcohol and drug outpatient programs, psychiatric emergency services, and obstetrical care as well as operate an emergency room and trauma center," they wrote.
A 2015 study from the University of California San Francisco found nonprofits put about 1.9 percent of their operating expenditures toward charity care while for-profits spent 1.4 percent.
But a 2007 survey of research by the Rand Corporation said studies "provide conflicting evidence on whether and how for-profit ownership affects hospital costs."
Authors said researchers had found "no consistent pattern" in results for different ownership types.
As evidence a sale to HCA will not mean a lower quality of care, Mission officials have cited a 2014 study published in the Journal of the American Medical Association of 237 hospitals that converted from nonprofit to for-profit status over a seven-year period.
"Conversion was associated with better subsequent financial health but had no relationship to the quality of care delivered or to mortality rates at the converting hospitals," its authors wrote.
They also said they found no evidence of any "decrease in the provision of care to poor patients or to racial or ethnic minorities" after hospitals became for-profit.
Authors said the hospitals studied were generally "struggling financially" and losing money on operations before becoming for-profits. That was a big reason why they made the change.
Its annual revenue, less provision for bad debts, grew to $1.6 billion in its most recent fiscal year. Its operating margin — roughly equal to what a for-profit business would call its profit margin — actually improved for at least each of its past three fiscal years, according to data provided to bond investors.
Mission today might not be a typical nonprofit institution, although HCA's backers say HCA is among the better for-profit hospital companies.
Truven Health Analytics, an IBM company, named Mission Health one of the nation's 15 best hospital systems this year, the sixth time that's happened over the last seven years.
At HCA, spokesman Ed Fishbough said Mission Health's "reputation for quality care is one of the many reasons we are excited about this potential partnership. We share Mission Health’s commitment and are proud of our history of quality care."
Numerous HCA hospitals have made Truven's top 100 list over the years and 106 of its 178 hospitals have been recognized as top performers on key measurements of quality by the organization that accredits hospitals, he said.
Mission and HCA have admirable records, and community members should not expect big changes in the quality of care, said Jeff Goldsmith, a Virginia-based health care consultant who did work for Mission several years ago.
Not everything a hospital does for a community shows up in an academic study or in a quality-recognition program.
Mission Health, primarily through its six constituent hospitals, provided $110.5 million in what the Internal Revenue Service calls "community benefits" in 2015, the last year for which figures are publicly available.
A little more than $30.2 million of that was charity care in which Mission waived some or all of bills because of patients' inability to pay. Another $3.6 million was the difference between the cost of providing services to recipients of Medicaid, the federal health program for the poor, and the amount the government paid.
Most of the rest, $76.6 million, went to subsidize unprofitable medical services or to support programs to promote community health, according to Mission's tax returns. Small portions of that amount went to help educate health care professionals or for medical research.
MIssion Hospital told the IRS many services at its children's hospital were among those it subsidized. Mission also supported efforts like stop smoking programs, health counseling and education at area African-American churches, scholarships for 21 students in health fields at Western Carolina University.
A major recipient was the Asheville-Buncombe Community Christian Ministry's Doctors Medical Clinic, a free clinic that served more than 6,000 people in 2015. Mission and ABCCM have jointly supported the project since the mid-1990s.
The two organizations roughly split the cost of operating the clinic south of downtown with the hospital's contribution including laboratory and X-ray work, said the Rev. Scott Rogers, executive director of ABCCM. The hospital's tax form put its contribution at $430,007.
Pharmacist Laura Lever helps a man with his medication at Asheville-Buncombe Community Christian Ministries' free clinic south of downtown in this file photograph. Mission Health has partnered with ABCCM over the years to support the clinic. (Photo: William Woody / wwoody@citizen-times)
"The hospital's been a wonderful partner with us in that for all of these years. At this point we don't know what the outcome of the sale will be" regarding the clinic, Rogers said.
When he asks Mission officials what, if any, role HCA might play in the clinic, "The standard answer is, 'We'll let you know if the sale's approved.' "
"We’re proud of the many ways we support states and communities across the country, including through the significant taxes we pay, the economic growth we promote, and the free and discounted care we provide," he said.
The company as a whole provides about $3 billion a year in charity care, discounts for the uninsured and other uncompensated care, he said.
Fishbough did not address specifics of Mission's community benefit spending, but said HCA has a "history of corporate giving and sponsorships, community outreach and employee volunteerism."
Volunteers with the MANNA Food Bank pack food into bags during a MANNA Packs for Kids program packing session in this file photograph. The program provides food slipped into needy students' backpacks on Fridays when school is in session and Mission Hospital listed support for it as one of the community benefits it provided in its 2015 tax return. (Photo: William Woody / wwoody@citizen-times.com, William Woody / wwoody@citizen-times.com)
Paulus said he couldn't speak to what community health activities HCA might undertake or what charities it might support.
"There's nothing that prevents HCA from providing money to charities. They do it all the time," he told local officials.
For WNC charities, the sale's biggest impact would be the flow of cash from the foundation getting whatever amount HCA pays to buy Mission Health.
The amount in investment earnings the foundation, called Dogwood Health Trust, could spend may be $50 million to $100 million or more a year.
Dogwood will typically not provide programs on its own, but will instead make grants to other organizations that would spend the money on health-related projects, said Dr. John Ball, head of the Mission Health board.
That kind of money is nothing to sneeze at, but it will have no direct impact on operations of the institutions that make up Mission Health once they are owned by HCA. Federal tax law prohibits benefits of the sale from being used to fund programs that would ordinarily be HCA's responsibility.
Coincidentally, the midpoint in the range of expected earnings, $75 million, is about what Mission Health told the IRS it spent in 2015 on promoting community health, helping other nonprofits' health projects, research and educating health care professionals.
As Fishbough and Paulus said, HCA will surely undertake charitable efforts of its own. But any reduction of those efforts compared to what Mission Health does has to be balanced against the new spending Dogwood Health Trust will do when tallying the pros and cons of conversion to a for-profit company.
Federal law limits hospitals' ability to turn away patients because they cannot afford to pay for care regardless of whether the hospital is a for-profit or nonprofit entity. Paulus and other Mission officials say HCA will be contractually bound to provide charity care and the company's charity care policy is actually more generous than Mission's.
Mission Health gives discounts on a sliding scale to people with incomes of three times the federal poverty level or less, said Rowena Buffet Timms, the hospital's head of government and community relations.
HCA gives a 100 percent discount for non-elective care for those with incomes less than twice the poverty level, then an 85 percent discount in most communities for those who make twice to four times the poverty level, she said.
In general, said Brumit, the Mission Health board member, "They care for the indigent and poor the same way that Mission always has."
As local government officials drawing up their agencies' budgets have noted with some glee, for-profit companies have to pay taxes while nonprofits do not.
Asheville city government estimates it will see $7 million more in property tax revenue if land, buildings and equipment owned by Mission are entered onto the tax rolls. That's the equivalent of a 4 percent increase in the 2018-19 budget City Council adopted in June.
Buncombe County expects to net $8.1 million, which works out to 2.6 percent of the amount it will spend in general fund revenue this fiscal year. Other counties and municipalities with Mission facilities will see smaller amounts. But since their budgets are smaller, the impact in percentage terms could be just as significant.
This building on Long Shoals Road in Skyland is one of several Mission Health facilities around Western North Carolina. HCA Healthcare will have to pay property taxes on it and the others if it buys Mission Health. John Boyle/jboyle@citizen-times.com (Photo: John Boyle/jboyle@citizen-times.com)
It is difficult to calculate with precision what the amount of those tax bills on HCA's activities in WNC will be. But, if HCA's operating profits for the Mission system are the same next year as Mission's were in its 2017 fiscal year -- something that's impossible to predict -- and HCA didn't find a way to offset them with deductions, the company could owe Washington and Raleigh as much as $16 million.
They will reduce pressure on local governments to raise taxes and may allow them to cut taxes or provide more services.
But someone will have to pay those extra taxes. It could be patients and insurers in the form of higher rates, or, as Mission officials predict, HCA will make up the difference by being more efficient than Mission is.
"There are a lot of ways in which you can improve the cash flow of an organization without raising rates," said Goldsmith, the health care consultant. "That is one area in which HCA knows what they're doing."
One possibility, he said, would be "negotiating more effectively up front with patients about their financial responsibility" so they are more likely to pay their hospital bills.
Paulus has said Mission and HCA are roughly comparable in the efficiency of their direct provision of health care but HCA is significantly better in back office areas like billing or buying supplies and equipment.
As the nation's largest hospital company, "Every single thing they buy, they buy at the lowest cost in the United States, if not the world," he said earlier this year.
Back office functions like billing and purchasing make up about 30 percent of Mission's annual spending, or more than $500 million annually, Buffet Timms said.
In addition to reducing the amount of spending in those areas, HCA might also improve over Mission in the percentage of unpaid bills it collects, potentially resulting in a significant increase in revenue, she said.
Paulus acknowledged in his meeting with local government officials in June that HCA would almost surely reduce the number of people Mission employs to handle billing.
But, he said, HCA as a whole typically has job openings for those types of workers and more than half of them work from home. People who collect money for Mission hospitals today might switch to jobs billing for hospitals across the country if the sale is consummated, he said.
It is possible that HCA will use the Mission purchase to expand further in North Carolina, where it has no presence now. But it is unlikely it would not want to buy Mission unless its executives think the deal will be profitable.
For 2017, HCA reported profits of $2.2 billion on revenue of $43.6 billion after allowance for bad debt, a rate of return of about 5 percent.
Dr. John Ball, chairman of the Mission Health board of directors, speaks during a forum at UNC Asheville Aug. 3 on the impact of what are called health conversion foundations, the organizations that receive the proceeds of sales of nonprofit hospitals to for-profit companies. Angeli Wright/awright@citizen-times.com (Photo: Angeli Wright/awright@citizen-times.com)
The roughly comparable figure for Mission Health, its operating margin, was about 4.1 percent last fiscal year, a figure that does not include substantial gains on its investments.
HCA did not pay a dividend to shareholders last year, but announced one that amounts to a little less than 5 percent of profits this year. In other words, people who invest in HCA stock are betting more on the prospect of the company becoming larger and thus more valuable, not so much on cashing large dividend checks.
Paulus told local officials in June that even as a nonprofit, Mission has to make a profit to have extra money to invest in facilities and services.
But, the pressure for Mission as it is to become larger or increase its operating margin may not be the same as at a for-profit company. And, no one expects it to send out dividend checks.
"What they've demonstrated over the course of decades is that they're able to do that while maintaining high quality," he said.
Without the HCA sale, Paulus says Mission would have to make changes itself in order to stay in business over the years.
Three-quarters of Mission's patient load are people covered by Medicare and Medicaid. Since those government programs do not cover the full cost of care, Paulus says Mission Health regularly has to make large cuts in its operations to keep from losing money.
Ball, the Mission Health board chairman, predicted shortly after the HCA was announced that without some type of action the system "would ultimately fail. We would bleed to death over a long period of time," making cuts in expenses of $70 million each year "from here to eternity."
Paulus was a little less pessimistic, saying, "Mission Hospital would never go out of business, but it would be very different and people would have to leave the community for many services that are available today."
But many or all of the safeguards against cutting services Mission says will be in its sales contract with HCA will apparently be gone in a few years too.
Martin, the Mitchell County resident, wonders just what Mission Health would look like under for-profit ownership.
The proposed sale, she said, amounts to "pulling the rug out from under all these health care providers and saying, 'You're working for the stock market now.' "
Here’s a summary of some of the financial impacts that ownership by a for-profit company like HCA Healthcare would be likely to have on what it is now Mission Health. The health system reported $1.6 billion in revenue after provision for bad debts for its 2017 fiscal year.
Community support. Five foundations and a nonprofit with the mission of benefitting Mission Health hospitals had $58.6 million in assets at the end of 2015 and spent $17.9 million that year, according to their tax returns. That money will no longer be available to directly help the hospitals once a sale goes through. Mission has lured major donors for some of its capital projects over the years, but getting people to make large or small gifts to a for-profit company will be challenging.
Efficiency. HCA would bill patients and insurers and buy equipment and supplies more efficiently than Mission does, Mission officials say. Mission President and CEO Dr. Ron Paulus says the two entities are similar when it comes to efficiency of their clinical services.
Financing. Industry experts say larger companies like HCA sometimes have a greater ability to borrow money to fund improvements than nonprofits do. It is not clear whether that would be an advantage over Mission’s current situation, however. The health system can issue bonds through an arm of state government, which means the interest bond holders get is tax-free, thus reducing the amount of interest Mission has to pay when it borrows money. This mechanism would not be available to HCA because it is a for-profit company.
Getting and giving. Mission Health and its six hospitals reported $76.6 million in expenditures for community benefits for 2015. The figure includes medical services that don’t pay for themselves, educating health care professionals and helping community organizations working on health-related issues. It is unknown how much of that spending would continue under HCA.
On the other hand, the sale would result in a foundation with assets of $1 billion to $2 billion or more dedicated to improving the health of Western North Carolina residents by addressing social determinants of health – a category that can take in everything from the availability of healthy food, crime, education and opportunities to get exercise in neighborhoods. Annual spending could range from $50 million to $100 million or more.
Longevity. Mission relies more heavily than many health systems on payments from the government programs Medicare, which covers those 65 and older, and Medicaid, which covers some low-income people. Its leaders say that means it will have to make cuts to its operations in the future if it remains independent. In recent years, however, the percentage of revenue Mission brings in that is greater than expenses – at a for-profit company, that would be called the profit margin -- has been increasing.
Taxes. HCA would have to pay property taxes of about $15 million annually to Asheville and Buncombe County alone and smaller amounts to other local governments around WNC. Those are bills that, as a nonprofit, Mission doesn’t have to pay. Mission said last week it does not have an estimate of what HCA’s total property tax costs would be. The company would also have to pay state and federal corporate income taxes on its profits and those bills would probably run into the millions of dollars also.
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