Why Call It Charity Care?

When I mention to people I meet for the first time that I lead a nonprofit, I often get the look I sometimes display when introduced to a priest or naïve young person -- how nice for you to do good deeds, the rest of us have to work for a living. The disconnect in how the general public perceives nonprofits goes back to the earliest beginnings of the Republic (and obviously includes a serious mistake by the Wampanoag Indians who greeted the Pilgrims and helped them through the first winter and were virtually wiped out by the English in thanks). The collective charitable work in rural and small towns, where helping your neighbor when disaster struck or assisting them in raising a barn, are all deeply embedded in the popularized view of nonprofits. Soup kitchens, Meals on Wheels, the ASPCA, and similar agencies all still dominate the collective consciousness of what nonprofits do.

But the sector has been undergoing massive changes over the last 20 years. No other part of the developed world has a nonprofit sector like the United States. It has developed in a totally different way from the Non-Governmental Organizations (NGO's) of Europe and it has developed because of a unique political, economic, and cultural confluence of factors. It now employs an estimated 8.7 million people (as of 2007), nearly 6 percent of the American workforce. The question of whether these entities should be given special preference in the tax code, charitable deductibility, and what rights do the public -- which underwrites both directly and indirectly their existence -- have to regulate their operation is one I'm struggling with.

In New York City, an estimated 22 percent of the workforce is employed by nonprofits. This is due almost entirely to the health and education sectors in the city. The health sector is a great example of some of the problems that have begun to emerge with accountability and transparency. While nonprofit hospitals (there are no significant for-profit hospitals in New York City) are charitable institutions, paying no taxes and receiving contributions which allow donors to avoid substantial tax liability, they increasingly look like for-profits in the way they operate. Their pay structure for top management is on par with the private sector, they have the right to turn away patients who can't afford their fees, and their boards in no way reflect the racial and economic diversity of the city.

I served on the Board of the city's Health and Hospitals Corporation (HHC) for five years. HHC depends mostly on public funding; its hospitals serve everyone. On the other hand, nonprofit hospitals, which don't have to serve everyone, are private. I was appointed by Mayor Dinkins and had the privilege of being terminated by Mayor Giuliani on the exact day my term expired. In fairness to Mayor Giuliani, I had sued him over his effort to privatize public hospitals, using my position on the HHC Board to provide legal standing for advocates to bring their case. During my service on the HHC Board, some of the inequities that have crept into our nonprofit hospitals became obvious. For example, all hospitals are required to accept emergency room patients, but they are not required to provide care after a patient is "stabilized." (Mind you, the patient can be vigorously billed and even sued for this care.) That has led to patients showing up with gunshot wounds at a nonprofit hospital, being examined, bandaged, and told they should go quickly to a municipal (public) hospital. That's assuming they can find the emergency room. NYU's hospital is notorious for having the smallest sign for directions to its emergency room in the city. They plainly don't want "that" kind of patient.

A nationwide survey by the Internal Revenue Service of nearly 500 nonprofit hospitals revealed that the median nonprofit hospital spends less than 4 percent of its annual revenue on charity care. Nearly a quarter of these hospitals reported spending less than 1 percent of their revenue on charity care. In the meantime, earlier this year, the American Journal of Medicine reported that up to 62 percent of all personal bankruptcies have a medical cause -- most medical debt is obviously incurred in hospitals, where the big-ticket health expenditures are racked up. That same article noted that the increase in medical-related bankruptcies had increased by 50 percent between 2001 and 2007.

In response to the charity care crisis, Senator Charles Grassley (Rep.-Iowa) of the Senate Finance Committee floated a proposal that nonprofit hospitals allocate at least 5 percent of their operating expenses or revenues for charity care or lose their tax-exempt status. This brought howls of protest from the nonprofit hospital industry. Yet it was a very modest proposal considering that the federal government loses about $40 billion each year by offering nonprofit hospitals tax-exempt status to serve more than 48 million uninsured Americans. A 5 percent threshold of free medical care to qualify a nonprofit hospital for tax exemptions and public funding is not unreasonable. Or else, why call it charity care?