Although Orlando is a medium-sized metro, its two main hospital systems rank in the big leagues of top-grossing nonprofit hospitals in the nation, according to a recent report.
With annual gross charges of $8 billion, Florida Hospital came in fourth out of nearly 3,000 nonprofit hospitals, according to Becker's Hospital Review, which tracks the financial data of hospitals and health systems for national comparisons. On the same list, which was based on 2010 data, Orlando Regional Medical Center ranked 11th, with annual gross charges of $5.7 billion.
"Having one top-grossing hospital in a market the size of Orlando is unusual; having two is unheard of," said Gerard Anderson, professor of health economics at Johns Hopkins Bloomberg School of Public Health.
For many Orlando residents, having two thriving hospital systems that provide tens of thousands of jobs is a point of pride. Others see their impressive revenues as a potential boon for the area's uninsured.
That's because as nonprofits, the hospital systems are tasked with plowing their profits back into the community, often by providing free care for the poor and uninsured. In exchange, they pay no taxes. Their for-profit peers, on the other hand, divvy their earnings among shareholders and pay taxes, Anderson said.
But it's hard for community members to know whether hospitals are giving enough back.
"Since they don't pay taxes, their return to the community should be significant," said Bruce Ruben, president of the Florida Hospital Association, a trade group representing the state's hospitals.
Some believe strongly that it is not.
"Nonprofits hospitals are nothing more than big businesses that happen to sell health services, and they need to be treated like businesses," said John Colombo, law professor at the University of Illinois at Urbana-Champaign and an expert in nonprofit tax exemptions.
"We need to get over the fact that at the turn of the century nonprofit hospitals were the equivalent of poorhouses. They were where the poor went to die," Colombo said. "They were run by volunteers and religious orders, and that's how we got used to the fact that they all should be tax-exempt.
"But that's not the world we live in anymore. The nuns are gone," he said. "Many nonprofits are extremely profitable. We need to get rid of the notion that they ought to be tax-exempt."
The chief financial officers for Florida Hospital and Orlando Health see things differently.
"If you compared what we don't pay in taxes to what we give to the community in benefit, the taxes wouldn't come up anywhere close," said Florida Hospital CFO Ed Soler.
However, Soler said he didn't know how much the hospital's taxes would be if it had to pay them.
Orlando Health would likely owe about $50 million a year in taxes, CFO Paul Goldstein said.
"We returned three times that," he said, referring to the $149 million the hospital reported as community benefit to the Internal Revenue Service.
If a nonprofit hospital doesn't give enough back to the community, its tax-exempt status can be at risk.
Since 2010, four hospitals in Illinois have had their tax-exempt status revoked or challenged for not providing enough charitable care.
Last month, the city of Pittsburgh asked a court to remove the tax-exempt status of the University of Pittsburgh Medical Center for not contributing more to the city. The suit alleges that the hospital's rate of charitable contribution did not keep pace with its revenues.
The hospital was the top-grossing nonprofit hospital on Becker's list.
On its 2010 tax form, the Pittsburgh nonprofit reported giving back 3.6 percent of its total revenues in free care, or $204 million. However, an audit of the hospital found that it actually provided only $97 million in charitable care, or 1.9 percent, according to E.J. Strassburger, the attorney representing the city in the lawsuit.
The No. 2 hospital on Becker's list, Cleveland Clinic, provided $150 million in free care, or 2.6 percent of its total revenues, according to its 2010 benefits report to the community.
By comparison, Florida Hospital — a consolidation of seven regional hospitals — provided 5.5 percent of its revenues in charitable care in 2010, according to Soler.
That same year Orlando Health, another network of seven hospitals, gave back 3.5 percent in free charitable care, according to Goldstein.
Doing better is Grady Memorial Hospital, a tax-exempt facility in Atlanta that's publicly funded. The 953-bed hospital spent 30 percent of its total revenues in 2010, or $122 million, on charity care, said spokeswoman Denise Simpson.
Helping the uninsured
How well a nonprofit hospital cares for its community's uninsured is an important yardstick of whether it gives back enough, said Bloomberg's Anderson. The amount of charitable care it provides should be close to the percentage of its uninsured residents.
As an example, if 15 percent of a community's residents lack health insurance, as is the national average, Anderson would expect the hospital to treat "close to that, maybe 12 percent," he said. "If they're only providing 3 percent, they're not doing their job."
According to the 2010 census, 21.2 percent of Metro Orlando residents were uninsured.
At Florida Hospital, 5 percent of its patients are uninsured, and a bit more than 10 percent of Orlando Health's are uninsured, according to estimates by the institutions' CFOs.
"That tells me they're not doing their fair share," Anderson said.
When asked why Orlando Health didn't treat closer to 21 percent, Goldstein said, "I think it means they're not coming to the hospital. We certainly aren't standing out with signs saying you're not welcome."
Soler added that as many as half the uninsured patients who come to Florida Hospital qualify for Medicaid. The staff helps enroll them, so they do get coverage.
By comparison, other tax-exempt hospitals do better at serving uninsured patients, said Bloomberg's Anderson, who pointed to Dallas' Parkland Health & Hospital System, a 770-bed hospital that's publicly funded. In Dallas, 33 percent of residents don't have health insurance. However, 38 percent of Parkland's patients are uninsured.
When looking for ways to give back, Florida Hospital's Soler said, "we want to find that sweet spot between doing good and doing well."
He gave as an example paying to put in a wheelchair ramp in front of a low-income patient's home.
"If that's what it takes to get the patient home, that's what we do," he said.
"We can't discharge them if they can't get home," Soler said, "so the alternative is to keep them in a bed, which costs money."
Part of the problem with measuring what a hospital gives back stems from the IRS, which by its own admission has not done a competent job of policing how community benefits are reported, said Milton Cerny, an attorney for McGuireWoods in Washington who specializes in nonprofit tax law.
That's because how community benefits get measured is largely left to the hospital's discretion.
Furthermore, what the IRS counts as community benefit and what hospitals report to the community as benefit involve two different measures. The gap can be considerable.
"We have a broader perspective," Soler said.
For tax-exemption purposes, the IRS considers as community benefit: charitable care, shortfall from Medicaid payments, community-health programs (such as free flu shots and screenings), research, professional education (including the training of medical residents) and cash contributions to other charitable organizations.
Nonprofit hospitals itemize all of that on their 990 tax forms.
In their benefits reports to the community, however, Orlando's two large hospitals add other items to that list, including new construction, shortfall from Medicare and bad debt.
In Florida Hospital's case, what the IRS allowed in 2010 for community benefit was $266 million. But in the hospital's report to the community, the benefit was more than double that: $562 million.
Orlando Health's IRS-allowable benefit totaled $149 million. It reported $191.5 million in "total value to the community."
They vigorously defend the expanded definition.
The hospitals maintain that capital improvements are essential if they are going to compete and provide the state-of-the-art care the community has come to expect from them.
"We need new facilities, but the IRS doesn't count that as a community benefit, at least not yet," Goldstein said.
Last year, both systems embarked on the largest capital expansions in their 100-year histories. Orlando Health broke ground on more than $300 million of new construction, and Florida Hospital began $325 million in building projects.
"Probably some of their capital improvements do benefit patients," said Dawn Lipthrott of Winter Park, founder of the patient-advocacy website Ethical Health Partnerships. "But a lot of their building and purchases benefit them," she said.
Most hospital administrators also argue that Medicare doesn't pay enough to cover their cost of care, which is why the nonprofits add that shortfall to their community-benefit totals.
Florida Hospital claimed $115 million in Medicare shortfall in 2010, and Orlando Health listed $41 million.
Medicare determines reimbursement rates to hospitals after reviewing comprehensive data about what procedures cost and factoring in overhead, salaries, insurance, equipment costs and regional variation.
"Medicare says it pays costs based on those of an economically and efficiently run hospital," said Bloomberg's Anderson. "The hospitals are not efficiently run if they can't make their ends meet with Medicare's."
Law professor Colombo would like to see communities adopt the principle that all hospitals are businesses, not charities.
"If a few convince us they really operate like a charity, fine," he said. "But this notion of community benefit has to change. Microsoft Corporation gives back to its community, and nobody thinks it should be tax-exempt."
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How much they make
A hospital's gross charges represent how much they bill or, as one CFO put it, "full retail price." Total revenues reflect how much they receive — usually about one-fourth of charges. Net income reflects the hospitals' profits after expenses, including salaries, overhead and all community benefits.
2010 Florida Hospital Orlando Health
** Amount reflects Orlando Health's 2010 990. Its 2009 990 — which covered fiscal year Oct. 1, 2009, to Sept. 30, 2010 — reported $5.7 billion and was used in the Becker's Hospital Review calculations.
12 top-grossing nonprofit hospitals in U.S.
Becker's Hospital Review ranks these nonprofit hospitals as the top-grossing in the United States based on gross charges. Every other hospital lies in a metro area larger than that of Orlando, which ranks 26th-largest, according to U.S. census figures.
Gross Charges(Rank in Metro Size)
1. University of Pittsburgh Medical Center Presbyterian: $10.19 billion (21)
2. The Cleveland Clinic: $9.86 billion (18)
3. New York-Presbyterian Hospital/Weill Cornell Medical Center (New York City): $8.06 billion (1)
4. Florida Hospital Orlando: $8.01 billion (26)
5. Cedars-Sinai Medical Center (Los Angeles): $7.99 billion (2)
6. Stanford (Calif.) Hospital: $6.71 billion (6)
7. Montefiore Medical Center-Moses Division Hospital (Bronx, N.Y.): $6.49 billion (1)
8. Hospital of the University of Pennsylvania (Philadelphia): $5.98 billion (7)
9. University of California San Francisco Medical Center at Parnassus: $5.95 billion (6)
10. Temple University Hospital (Philadelphia): $5.9 billion (7)
11. Orlando Regional Medical Center: $5.71 billion (26)
12. Massachusetts General Hospital (Boston): $5.64 billion (5)
What taxes they don't pay
Hospitals that are nonprofit don't pay:
Corporate income tax: 40% of net profits (about 35% federal and 5.5% state)
Sales tax: On items they rent or purchase
Property tax: On owned property used for nonprofit business
SOURCE: Thomas, Zurcher & White, Certified Public Accountants
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