Md.'s hospitals don't need millions in state subsidies


LEGISLATORS are looking for ways to cut spending so they can balance Maryland's budget and preserve the last phase of a personal income-tax cut.

Here's one way: Stop giving millions in annual cash grants to Maryland's wealthy, coddled, tax-exempt hospitals.

Maryland hospitals collected $112 million more than they spent in the fiscal year that ended in October, according to the state - and that was a below-average result. Hospitals earned another $43 million from stocks, bonds and other nonoperations sources.

State regulators granted hospitals a nice 4 percent rate increase last year, which should boost future profits much higher. In recognition of their philanthropic deeds, hospitals do not pay the property and income taxes that other corporations pay - a subsidy worth tens of millions of dollars a year in Maryland.

So why, in a tight budget year, is the Assembly about to hand out $5 million to various hospitals around the state? Why does the Assembly do it in any year?

Several health care organizations in the Baltimore area are in line for what has become an annual $5 million taxpayer giveaway, organized and instigated by the Maryland Hospital Association.

Sinai Hospital is due to receive $500,000 to help renovate a psychiatric unit. Franklin Square Hospital Center will get $500,000 to partially pay for a cancer center. Bon Secours Baltimore Health System is getting $970,000 to help expand its emergency room.

Altogether, nine Maryland hospitals are sharing the $5 million this year.

Hold your letters and phone calls. These all may be wonderful, worthy endeavors. By many accounts Baltimore needs an upgrade in psychiatric hospital services, and maybe the Sinai project would contribute to that. Bon Secours serves lower-income West Baltimore and really does require a bigger emergency room.

But the relevant idea here is not that these projects were carefully chosen by some task force or that they will "help people."

As in any policy deliberation with a shred of intelligence, the important questions are: 1)Is this the best use of scarce public resources? 2)Can private-sector money meet the need?

You decide. The most recent year for which I could obtain complete, comparable information for the three Baltimore institutions was fiscal 2000.

That year, Franklin Square made a $14.7 million profit, thanks largely to gains on securities, and held $98.4 million in stocks and bonds. Sinai's profit was $560,000, and between it and its parent company, it owned about $36 million in stocks, bonds and cash.

Bon Secours booked a $1.7 million loss but is owned by a parent company that earned $45 million in profit and held millions more in investments.

Good arguments exist for spending government dollars on medicine. Of course public health is a public concern. But government already subsidizes Maryland's 50 or so hospitals - heavily - through tax exemption.

The only conceivable reason for additional, machine-like infusions of General Assembly grants into the hospital system is so legislators can get invited to the ribbon-cutting parties.

Society makes an explicit deal with nonprofit organizations. (They're so called because they pay no dividends to investors, not because they don't seek profits.) Society agrees not to bill the groups for their use of roads, national defense and other government benefits if, in return, the groups pursue charitable goals and spend the money they would have paid in taxes on their missions. Seems fair.

But Maryland hospitals want more.

They claim the existing giant subsidies and Maryland's health care reimbursement system are not enough to finance ER makeovers, new wings and so forth. They point to declining profits and claim that Maryland hospitals have a harder time tapping the bond market than those elsewhere.

It's true that Maryland hospital profit margins are down, and a substantial minority of hospitals is losing money before counting investment income.

But the recent rate increase will help fix that. Even if it doesn't solve the problem entirely, the proper remedy is further adjustments to rates, not ad hoc government grants outside the health care financing system.

Maryland is the only state where hospitals are regulated like electricity utilities, which improves their ability to issue bonds. Hospital prices are dictated by government bureaucrats, and indigent-care costs are built into everybody's rates, so it's more difficult for a hospital to run into financial distress here than anywhere else in the country.

If hospitals can't hack it in Maryland, maybe they should switch managers or go out of business.

Hospitals that poor mouth also might want to look at their executive salaries.

A quick survey of Internal Revenue Service filings suggests that $500,000 is not unusually high pay for hospital chiefs in the Baltimore area. Some pull in more than $700,000, and even vice presidents make money big enough to make you wonder what exactly is being subsidized here: patient care or mansions in Green Spring Valley?

These organizations have loyal donors and ample endowments. If they want to be in the philanthropy business, they should start acting like charities, not charity cases.

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