The Quick Think: Command Stations on Tax Exemptions

Note: This piece was originally published over the weekend in our Sunday newsletter. Want content like this delivered to your inbox before it hits our blog? Subscribe here.

3-minute read

The Big Story: Not-for-profit hospitals don’t earn tax exemptions, researchers say

“Not-for-profit and for-profit hospitals report similar levels of unreimbursed Medicaid costs even though not-for-profits receive billions of dollars a year in tax subsidies, new research shows.”

Key graf: “’The nonprofit hospitals have not done enough to deserve their tax subsidy,’ said Ge Bai, an accounting professor at Johns Hopkins University and lead author of the study. ‘Taxpayers subsidize hospitals to help struggling, working-class Americans, but many nonprofits are not doing enough.’”

What it Means for Health Systems

Another brick pulled out of the wall.

Hospital critics have picked up another powerful, compelling dataset in the national campaign to paint hospitals as Big Business more focused on profits than on care. Painful though it may be to hear, the Modern Healthcare article is a strong piece about the situation some hospitals across America find themselves in. Even our own research shows that just 41 percent of people strongly feel their hospital is a good community partner. In addition, these situations signal the expectations among the public and state and local regulators about where those community benefit tax-equivalent dollars are spent. In short, they want to see more than just sponsoring the local minor league baseball team.

This conversation isn’t going away. The Big Business narrative will continue to build momentum if hospitals don’t tell their own story, are unable to or, worst of all, have a story that doesn’t line up with the reality.

Two things to bear in mind about these articles:

  • There’s a careful, data-driven and emotionally charged campaign by critics seeking to pin the blame for our dysfunctional healthcare system squarely on hospitals.
  • There’s misalignment within hospitals in getting their mission-driven story across the finish line and making sure their words are backed up by their actions. The door to criticism is cracked open when there are disconnects between different departments and different initiatives. And – critically – between the different levels of the organization to identify problems and ensure that every move made is in service to the mission. Hospital critics then shove that door wide open, leading to Congressional hearings and class action lawsuits.

So here’s our advice this week:

Check your story. Now – Put time on your calendar to have a real conversation. Soon.

  • Non-profit hospital or health system execs – Connect with your marcom, finance and clinical leadership to compare notes about how your organization is talking about the work it’s doing in the community and how that lines up with what it’s actually doing in the community. And is it what the community actually needs? Baseball team sponsorship vs. affordable housing. Your call.
  • Marcom leaders – Initiate that same conversation with your colleagues and C-suite.
  • For-profit leaders – Sure, the tax-exempt piece won’t apply, but that doesn’t mean you should miss the chance to review where and how your charity care and other community benefits are delivered. You, too, have a mission and a story…and critics.
  • Health services company execs – Bring your leadership team around the table to discuss ways that you’re giving back and aligning ops with mission. You may not be under the gun for IRS status, but, like the for-profit crew, it’s still worth taking a look. Private healthcare companies, particularly those backed by private equity, are taking hits as well.
  • Healthcare attorneys – On your next call with a non-profit hospital or health system client, ask them if they’re checking their story. Encourage them to think beyond compliance and consider the whole picture around charity care and tax-exempt status as a function of their mission.
  • Strategy or operations consultants – Ask how the project at hand fits into the mission to care for your client’s community. Ask your client to review the numbers and projections and then work with marcom to align those outcomes to the story they need to tell.

The knives are out, the narrative has taken shape and the numbers very often don’t look great. It’s not a time to spin and, frankly, even if you wanted to it’s not going to work anymore. It’s a time to buckle down and get it right, to match the desired outcome with the actual outcome, to match the stated mission and the desire and passion of you and your team and your clinicians and staff with the way care is delivered – both medically and financially.

After those conversations, get ahead. What’s interesting about the tax-exempt line of attack is that there’s no mention of outcomes. The criticism is purely financial. The push from critics as currently constructed is to spend the money, not to spend the money and achieve <X>. So that’s a fantastic opportunity for provider organizations. Align on where the money is going – get clear on charity care and all the rest – and then talk about how you’re not just spending it but also moving the needle towards better outcomes and equity. “Our critics say we don’t spend enough in the right places. We’re not just spending it but investing it in our community, and here are the returns.” That’s a winning, mission-driven message to leapfrog the Big Business naysayers. Just make sure it’s true.

This piece was originally published over the weekend in our Sunday Quick Think newsletter. Fill out the form to get that in your inbox every week.

Jarrard Inc.
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