SEE REPORT: “Overcharged: North Carolina Hospitals Profit on Medicare” on the North Carolina State Health Plan’s website.
(Raleigh, N.C.) — State Treasurer Dale R. Folwell, CPA, and the State Health Plan released a new report today showing that the majority of North Carolina hospitals did not lose money on Medicare — they profited. The report found huge disparities between the Medicare losses claimed by hospital executives and the numbers that hospitals reported to the federal government. This raises serious concerns over hospitals’ commitment to their patients and their charitable mission, and the steep costs passed on to the nearly 740,000 members of the State Health Plan.
Hospital executives have justified their tax exemptions and their crushing price inflation by claiming to lose billions of dollars on Medicare patients. North Carolina hospital lobbyists claimed they lost $3.1 billion on Medicare in 2020 — the same year hospitals actually reaped a total of $87 million in Medicare profits. The questionable loss claim was 3,670% larger than hospitals’ self-reported Medicare profits.
Treasurer Folwell called for price relief from hospitals at a press conference on Tuesday, Oct. 25 at which he discussed the report. He invited researchers from the North Carolina State Health Plan and Rice University’s Baker Institute for Public Policy to analyze hospitals’ self-reported Medicare Cost Reports, Internal Revenue Service 990 tax filings, and community benefit reports. The report was then peer reviewed by the University of Southern California’s Price School of Public Policy.
“The hospital cartel is overcharging you because they can, not because they need to,” said Treasurer Folwell. “Hospital executives can’t keep hiding behind Medicare. They tried to claim huge losses to justify financially kneecapping their patients. But now we know that the majority of hospitals are actually profiting off Medicare.”
Health care costs are crippling North Carolinians’ upward mobility. North Carolina ranks as one of the most unaffordable and monopolistic states in the nation for health care. One in five families is in medical debt collections. The average worker now loses 20% of a paycheck to health care costs. State employees must work one week out of every month just to pay their family premium, and the State Health Plan is facing fiscal insolvency in less than three years unless costs are cut.
North Carolina hospital systems received more than an estimated $1.8 billion in tax exemptions in 2020. In return, nonprofit hospitals are supposed to provide community benefits, but past reports have exposed widespread failures in charity care that exposed impoverished patients to millions of dollars in medical debt.
“This is the Wild West,” Treasurer Folwell said. “Nobody’s watching it. Nobody’s holding them accountable. We need a commitment from the cartel to get back to their original mission and to stop putting profits over patients.”
This report relies on Medicare Cost Report data, which is widely considered to be one of the most reliable sources of hospital data. The picture shown by the Medicare Cost Reports is often wildly different from hospital community benefit reports, which rarely publish a transparent methodology, as well as hospitals’ tax filings to the Internal Revenue Service.
“When we tried to make health care more affordable for state employees and taxpayers, hospital executives claimed they had to overcharge our patients because of their supposed losses on Medicare,” said Treasurer Folwell. “At least bookies only keep two sets of books. The cartel keeps three.”
On average, North Carolina hospitals charge 280% of Medicare rates, which forces patients and employers to pay thousands of dollars more for medical care. The Treasurer is calling for price relief for patients, businesses and state employees.
“These findings confirm what many economists have suspected for a long time,” said Vivian Ho, James A. Baker III Institute Chair in Health Economics at Rice University. “The hospital prices paid by privately insured patients aren’t just covering the costs of caring for Medicare patients. These prices are much higher — high enough to generate a generous profit margin for many hospitals.”
"This report responds to our growing need for greater transparency,” said Glenn Melnick, professor at the University of Southern California’s Sol Price School of Public Policy. “We must know how we are spending our health care dollars and what factors are contributing to rising costs — including the importance and impact of the large health care systems that now dominate the U.S. health care system."
“While hospitals claim they are poor and take in secret profits off taxpayer money, the solvency of the State Health Plan is being put in danger,” said Ardis Watkins, executive director of the State Employees Association of North Carolina. “Without the price transparency Treasurer Folwell is seeking and hospitals are fighting against, we are likely to see Plan costs shifted to the backs of public employees in the next few years."
KEY TAKEAWAYS:
North Carolina was in the top 10 states with the highest average hospital Medicare profit margins for five years, according to Medicare Cost Report data.
- Only 15 hospitals consistently lost money on Medicare, while 35 hospitals posted profits over all six years in North Carolina, according to Medicare Cost Report data.
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A range of 55% to 66% of more than 100 hospitals profited off Medicare from 2015 through 2020, according to Medicare Cost Report data.
North Carolina hospitals’ own Medicare Cost Report data contradicts a long-standing narrative about cost shifting and tax exemptions.
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Even as hospital lobbyists claimed a $3.1 billion Medicare shortfall, North Carolina hospitals made a total of $87 million in Medicare and Medicare Advantage profits in 2020.
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These lobbyists attributed 52% of hospitals’ community benefit spending to Medicare losses in 2020. Novant Health claimed a Medicare loss that eclipsed all its other community benefit spending combined in 2019, including charity care and Medicaid losses.
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Atrium Health actually made a $119.2 million profit on Medicare and Medicare Advantage — while claiming to lose $640 million in 2019.
Similar discrepancies exist in many nonprofit hospitals’ tax filings.
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Sixty nonprofit hospitals claimed to lose a total of $863.8 million on Medicare in their federal tax filings. This claimed loss was 2,985% greater on hospitals’ 990 tax filings than on their Medicare Cost Reports.
For state employees covered by the State Health Plan and patients covered by private insurance, hospital bills are now drastically less affordable because of price inflation.
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North Carolina hospitals charged privately insured patients 280% of Medicare rates on average in 2020, according to the RAND Corporation.
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Worse, North Carolina was the 11th most expensive state in the nation for outpatient care in 2020, according to the RAND Corporation.
Taxpayers are not getting a meaningful return for billions of dollars in tax breaks given to nonprofit hospitals in North Carolina.
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The IRS cannot even demonstrate that it is consistently reviewing nonprofit hospitals’ community benefits, according to the U.S. Government Accountability Office.
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Without reform, nonprofit hospitals face little accountability or transparency to safeguard their commitment to their charitable mission.