Larger, Wealthy North Carolina Hospital Systems Enjoyed Record Profits During Pandemic Transferring More Wealth from Citizens to Themselves

Taxpayer-funded COVID relief gave a huge wealth transfer to wealthy hospital systems. Even as they complained of financial losses, wealthy hospital systems enjoyed record profits and a massive $7.1 billion growth in cash and investments during the pandemic. These systems boasted huge reserves, but they still took the bulk of the relief funds meant for struggling hospitals — and then failed to dedicate more than a fraction of their windfall to increasing charity care for their suffering patients.

State Treasurer Dale R. Folwell, CPA, is calling on these hospital systems to use their massive profits to lower costs for patients and to increase charity care to a level equal to or above their lucrative tax breaks — or to return the unnecessary, taxpayer-funded relief. He joins with other experts who fear that the disproportionate distribution of COVID relief dollars will fuel steep hospital price inflation and consolidation.

Those and other findings are included in a new, peer-reviewed report on hospital pandemic profitability that the Treasurer released on Wednesday, June 22, at a press conference at which he was joined by lawmakers, researchers and independent doctors. The report found that the state’s foremost hospital systems enjoyed a significant growth in cash and investments during the pandemic, while publicly claiming they were battling big hits to their budgets.

Treasurer Folwell invited National Academy for State Health Policy researchers, together with the North Carolina State Health Plan, to analyze the audited financial reports of Atrium, Novant, UNC, Duke, Vidant, Cone and WakeMed Health. The report was peer reviewed by Dr. Ge Bai, professor of health policy & management at the Johns Hopkins Bloomberg School of Public Health and professor of accounting at the Carey Business School.

The report concluded that the seven large hospital systems recorded $5.2 billion in net profits in 2021, along with the $7.1 billion growth in cash and investments from 2019 to 2021 — almost as much as the state appropriated for K-12 classroom instruction in 2020. While six of the hospitals boasted record net profits, Duke Health outpaced them all with a 41% net profit in 2021, a profit margin higher than tobacco and investment banking.

These hospital systems recorded those profits after taking $1.5 billion in taxpayer-funded COVID relief, as well as another $1.6 billion in Medicare Accelerated and Advance Payments. It is unclear why the large systems needed the relief. Atrium Health alone was sitting on $7 billion in cash and investments. Most systems had enough cash on hand to operate for more than half a year without any incoming revenue — or even 10 times as long as many rural hospitals. Treasurer Folwell said the research results were unsettling.

“Some things are worth getting mad about. The hospital cartel is using taxpayer dollars to help crush the middle class and rob lower-income families of upward mobility,” Treasurer Folwell said. “Wealthy hospitals took billions of taxpayer dollars meant to protect struggling hospitals — and then some billed poor families or even sued patients.”

Charity care spending fell across a third of hospitals in 2020 as people struggled with economic lockdowns, job losses and the spread of the coronavirus. Yet hospital executives advocated for forgiveness of relief loans and are pushing for still more taxpayer money, while hospital lobbyists deflect attention away from the mushrooming investment growth.

Despite evidence in the report to the contrary, the North Carolina Healthcare Association representing hospitals argued that criticizing hospitals for billing poor patients during the pandemic was “potentially dangerous,” writing that “hospitals are now spending needed reserves to fight the virus.”

“While health care workers suffered on the front lines, hospital executives made billions on Wall Street,” said Treasurer Folwell. “None of these nonprofit systems pay any property, income or sales taxes. Many failed to fully honor their charitable mission even when thousands of North Carolinians lost their businesses and their jobs during the pandemic.

“NASHP analysis has found that many health systems are in more prosperous positions now than before the pandemic,” said Marilyn Bartlett, CPA, senior policy fellow at the National Academy for State Health Policy. “Having access to and analyzing data to understand hospital charges, prices, costs, investments, and liabilities is critical.”

“The federal government channeled taxpayers’ money to profitable and powerful hospitals, which did not need the money in the first place,” Bai said. “These hospitals use these windfall profits to strengthen market power, so that they can squeeze higher prices from private payers and lobby for more government handouts. American taxpayers are hit by a double whammy.”

Treasurer Folwell is calling on hospital systems to either return the taxpayer dollars or to commit to reducing hospital price inflation. He supports the Medical Debt De-Weaponization Act to strengthen accountability, transparency and consumer protections on medical debt. Although they claim their charitable care is closely scrutinized by regulators, the truth is nonprofit hospitals currently face little oversight or accountability from the federal or state governments for their community benefits.

“Hospital executives made record profits off of the backs of sick people during the pandemic and decades before,” said Treasurer Folwell. “We have a duty to make health care affordable for North Carolina families. We have a duty to hold hospital executives accountable for wrecking the financial health of thousands of patients and transferring wealth from citizens to them.”

KEY TAKEAWAYS:

  • After taking taxpayer-funded COVID relief dollars, North Carolina’s seven large hospital systems reaped $7.1 billion of growth in cash and financial investments from 2019 to 2021.

            o  They recorded $5.2 billion in net profits in 2021, when six hospital systems enjoyed higher net profits than in the years before the pandemic.

                    o Duke Health made a 41% net profit margin of $1.8 billion in 2021. Its net profit margin was 11% in 2019.

                    o Atrium Health took the most taxpayer relief dollars, collecting $589 million in COVID relief and another $438 million in Medicare advance payments. Atrium Health then made a $1.7 billion net profit after its merger with Wake Forest Baptist Health in 2021. 

  •  Seven systems took $1.5 billion in taxpayer-funded coronavirus relief meant for struggling hospitals, as well as another $1.6 billion in Medicare Accelerated and Advance Payments from 2020-2021.

            These systems had vast resources compared to rural hospitals and independent physicians. Most had enough cash on hand to operate for more than half a year without any incoming revenue, as well as billions of dollars in cash and financial investments. 

            In contrast, many rural hospitals lacked the cash on hand to operate for a month before shutting their doors.

  • The dominant hospital systems did not share their profits with disadvantaged patients.

            Charity care spending fell across a third of 104 hospitals in 2020.

            Across 104 hospitals, charity care spending rose only $246.5 million from 2019 to 2020 — an increase that equals less than 8% of the seven systems’ $3.1 billion growth in cash and investments that year.

            Some hospitals increased billing of poor patients eligible for charity care, while Atrium Health sued hundreds of patients.

  • There is little accountability at the state or federal levels for nonprofit hospitals’ tax exemptions or community benefits.

            North Carolina does not require a minimum threshold for charity care spending.

            o The Internal Revenue Service cannot prove that it is consistently reviewing hospitals’ community benefits.

            o  Unless state lawmakers take action, the profits gained from the misdirection of taxpayer dollars are expected to fuel record levels of consolidation and price increases.

The SHP, a division of the N.C. Department of State Treasurer, provides health care coverage to nearly 750,000 teachers, current and former lawmakers, state university and community college personnel, active and retired state employees and their dependents. It is the largest purchaser of health care and prescription drugs in North Carolina. For more information, visit the SHP website.

Author: Mike Jackson