.Fatal System Error

Private nonprofit hospitals, which benefit from huge tax breaks, fail to care for the East Bay's poorest residents — and now one public hospital is on the verge of collapse.

Booker Williams III hadn’t missed a day of work for two years. So when the 34-year-old San Quentin State Prison correctional officer got a call on the morning of August 20, 2014 that his father was going to the hospital, he decided not to break his streak. Plus, his 62-year-old father, Booker Williams II, a lifelong Richmond resident, had been relatively healthy in recent years.

But when Williams III started getting more calls from family members about his father, he realized it could be serious. His aunt sounded worried. And an ambulance had taken the elder Williams to a different hospital than usual. In emergencies, Williams II, like most Richmond residents, would typically go to Doctors Medical Center (DMC) in San Pablo, a public hospital that serves West Contra Costa County. But thirteen days earlier, because of an ongoing financial crisis at the hospital, county public health officials and DMC executives had agreed to stop sending local ambulances to the facility.

For Williams II, a retired assembly line worker for mattress manufacturer Sealy, the trouble began at a routine appointment that morning at his primary physician’s office in Hercules, just north of DMC. His doctor told him his breathing was off and his heart rate was well over one hundred beats per minute. “The doctor said he could have a heart attack in his office,” recalled Betty Crater, Williams II’s sister. He needed to get to an emergency room immediately. So they called 911 and an ambulance soon arrived.

But the paramedics had bad news. They weren’t allowed to take him to DMC, which has a special cardiac unit and is only about seven miles away from the physician’s office. He could either go to Alta Bates Summit Medical Center in Berkeley (about seventeen miles away) or Contra Costa Regional Medical Center in Martinez (about eleven miles away). Williams II, who had received a kidney transplant a decade ago, told the ambulance to take him to Berkeley, because he thought Alta Bates might have his medical records, Crater said.

Crater said it took about thirty minutes for her brother to get to Alta Bates — about twice as long as it would’ve taken to get to DMC. Once at Alta Bates, which is part of Sutter Health, a large nonprofit healthcare system, the hospital was crowded and the wait for Williams II was agonizingly long. Crater estimated that her brother lay in pain on a gurney, essentially in the doorway of the ER, for roughly ninety minutes with little support from hospital staffers.

By early afternoon, the younger Williams had decided to skip work after all. When he arrived to Alta Bates at 2 p.m. and saw his father, he knew something was very wrong. “He called me over and said he couldn’t breathe,” Williams III said. “He was huffing like a fish out of water.” His father was sweating profusely, so Williams III began wiping his dad’s face with a towel, locking eyes with him for what felt like a very long time. “We were staring at each other eye to eye, like we were connected.”

Then the nurse shouted, “‘Code blue, code blue!'” Williams III recalled. His father was going into cardiac arrest, and the staff didn’t seem to be mobilizing fast enough. Doctors repeatedly tried to resuscitate the elder Williams, but just before 4 p.m., a physician told the family that, while doctors were doing everything they could to save him, it might be their final opportunity to say any last words. The family — more than 25 relatives had arrived at that point — prayed over his body.

At 4:19 p.m., Booker Williams II was pronounced dead.

It’s unclear what exactly went wrong that day (Alta Bates representatives declined to comment about the patient, citing privacy policies), but Williams II’s family and doctors suspect that if he had gotten help quicker, and if he had received care at DMC, his neighborhood hospital, things might have turned out differently. Crater is certain that with faster treatment, her brother would’ve pulled through. “He was a healthy man.” Given DMC’s ongoing financial struggles, Crater said she wasn’t even sure if that hospital would have had the resources to save him. “But he would’ve had a chance,” she said.

The Williams family’s tragedy sheds light on what health experts say is a growing crisis in the East Bay — one that reflects a profoundly flawed healthcare system that is failing the region’s low-income residents. While DMC’s situation is extreme — the hospital nearly closed altogether last summer due to budget problems — the facility’s financial predicament exemplifies deeply ingrained inequities in healthcare delivery. According to health advocates, public hospitals, like DMC, shoulder the burden of caring for the poorest and sickest patients while private, nonprofit hospitals fail to contribute their fair share of treatment of patients who can’t afford to pay their medical bills.

And private nonprofit hospitals don’t just reap financial benefits derived from serving most of the region’s privately insured patients. They also profit from massive tax breaks they receive each year because of their status as tax-exempt organizations. As a result, advocates say the nonprofits are failing to meet their ethical obligation to provide both care for the poor and uninsured and meaningful benefits to the community in exchange for the tax breaks they reap.

An Express analysis of hospital data in Alameda County and Contra Costa County — an examination of where low-income patients receive care and how different hospitals devote resources to low-income patients — backs up the arguments made by healthcare advocates: Tax-exempt nonprofit hospitals serve comparatively low numbers of uninsured patients and low-income residents covered by government programs like Medi-Cal and Medicare. The hospitals also regularly promote community benefit programs that actually do little to help vulnerable populations.

Nonprofit hospitals in California received $3.27 billion in total government subsidies and benefits in 2010, while only providing $1.43 billion in charity care (meaning free or discounted health services to low-income patients), according to the Institute for Health and Socio-Economic Policy, the research arm of the California Nurses Association. By some measures, nonprofit hospitals aren’t doing much more for low-income communities than for-profit hospitals that don’t receive the same tax benefits. Many of these nonprofits, which operate more like profit-driven corporations with massive annual incomes, also avoid meaningful scrutiny because of a lack of clear governmental standards and reporting requirements. The worst offender in the East Bay is the nonprofit healthcare giant Kaiser Permanente, both in terms of its hospitals’ questionable records of charitable care and its broader lack of transparency.

Simply put, the private nonprofits aren’t doing their job, and the public is paying the price. The public hospitals that primarily treat low-income and uninsured people — while caring for very few privately insured residents — are struggling under the weight of the community’s health problems. And in areas like West Contra Costa County, that struggle can have fatal consequences.

There are three main types of hospitals that provide emergency care and broader patient services in the East Bay and throughout California. There are public hospitals, which include county hospitals and district hospitals, the latter of which are run by publicly elected boards and cover specific geographical regions, known as healthcare districts. The nonprofit hospital systems, by contrast, are privately run organizations that are exempt from paying corporate income and property taxes, because they classify themselves as mission-driven charities. And the third main category is for-profit hospitals — corporations that pay shareholders and taxes, just like any other business.

In California, there are 79 public hospitals (including 8 University of California hospitals), 226 nonprofit hospitals, and 138 for-profit hospitals, according to 2013 statistics from the Office of Statewide Health Planning and Development (OSHPD), which collects hospital data. (Some hospital systems report as a single entity, so the total number of facilities in the state is higher.)

In Alameda County and Contra Costa County, nonprofit hospitals dominate. There are two county-run hospital systems — Alameda Health System (which includes Highland Hospital in Oakland as its main facility) and Contra Costa Regional Medical Center in Martinez. And there are also two publicly run district hospitals in the East Bay — Doctors Medical Center in San Pablo and Washington Hospital in Fremont. And in terms of full-service hospitals with emergency departments, there’s only one for-profit in the East Bay — San Ramon Regional Medical Center.

In the nonprofit sector in the two East Bay counties, there are a total of seventeen hospitals, a majority of which are affiliated with three different nonprofit health systems: Kaiser Foundation Hospitals, Sutter Health, and John Muir Health.

While public hospitals get direct taxpayer support through municipal budgets or property tax revenues, the nonprofits receive public subsidies in the form of large annual tax breaks — a major benefit that comes with broad legal responsibilities.

“One doesn’t often think of nonprofits hospitals as making money, but they do,” said Contra Costa County Supervisor John Gioia, who represents West County, where DMC is located. “Some do very well. The issue here really is about earning your nonprofit status and earning the tax break.”

In 1994, California enacted Senate Bill 697, requiring that, in exchange for tax breaks, all private nonprofit hospitals must “assume a social obligation to provide community benefits in the public interest.” The law mandates that hospitals conduct regular assessments of the healthcare needs in their communities and submit to the state an annual “community benefit plan” outlining their investments in direct care for the poor and broader public health programs.

The law doesn’t include any specific requirements for how much hospitals must spend on community benefits, or where those dollars must go, but does state that community benefits can include subsidized medical services for low-income people and the uninsured, programs that support vulnerable populations, health research, education, training programs, and outreach clinics.

At the federal level, the Affordable Care Act (Obamacare) also recently affirmed the community-benefit obligations of nonprofit hospitals, establishing specific rules for how hospitals should justify their tax breaks. Hospitals must publish community health needs reports and submit specific financial reports to the Internal Revenue Service, which regulates all charities. The IRS guidelines are generally similar to California’s rules, though state and federal policies don’t always align in terms of what hospitals are allowed to claim as community benefits.

In an area like the East Bay where the nonprofit health systems provide a large portion of all hospital services, robust community benefit initiatives can go a long way in helping the poor and uninsured access care. This is especially important in the most impoverished parts of the region, where the needs for community benefits are clear — and where public hospitals can only do so much to meet the demand.

For example, DMC’s service area, which includes Richmond and San Pablo, encompasses high concentrations of people living in poverty, and residents in these cities tend to have more health problems than those in the rest of Contra Costa County. Compared to countywide averages, West County has higher rates of obesity and asthma hospitalization, and residents of Richmond and San Pablo — the majority of whom are black and Latino — face higher risks of heart diseases, strokes, diabetes, and other health problems. Those cities also have disproportionately high rates of homicides, unemployment, and high school dropouts.

And although the Affordable Care Act is helping the poor get healthcare coverage, an estimated 3.1 to 4 million California residents will still be uninsured in 2019, according to a 2012 report by UC Berkeley and UCLA.

That means healthcare and hospital officials need to develop a financially sustainable way to care for the region’s poor and uninsured. “Everyone agrees that private nonprofit hospitals are essential for the future of healthcare,” said Alex Briscoe, director of Alameda County Health Care Services Agency, adding that he is grateful for the ongoing contributions of nonprofits. But the reality of the current system, he said, is that “a few hospitals see the vast majority of the underinsured.”

Those few hospitals, like DMC, are being pushed to the brink of extreme financial instability — and if they collapse, so will the critical safety net they provide for the entire region.

Federal law mandates that all hospitals treat and stabilize emergency patients who show up at their doors, regardless of the person’s ability to pay. However, privately run nonprofit hospitals can limit the extent of the care that they provide to uninsured and underinsured patients.

And in the East Bay, this is not uncommon. Dr. Richard Stern, a DMC cardiologist and the hospital’s former chief of staff, said that the San Pablo hospital regularly receives phone calls from Kaiser Richmond, the only other West County hospital, about patients that Kaiser staffers say are better suited for DMC. “There’s an uninsured patient at Kaiser, and they call us and they say, ‘Your patient is here.'” Stern said the calls aren’t generally that explicit, but that it seems clear that Kaiser staffers, in some cases, transfer patients to DMC largely because the patients lack private insurance.

“They’re uninsured so they’re just looking to move them on to somebody else,” said Dawn Gideon, interim CEO of DMC. “Anecdotally, we receive too many telephone calls about patients that turn out to be uninsured for there not to be some screening in place.”

Dr. Sharon Drager, a DMC vascular surgeon, added of Kaiser: “Our patient means anyone they don’t consider their patient.”

Regardless of why public hospitals end up seeing such a high rate of uninsured and underinsured patients, data show that DMC doctors’ frustrations are warranted. Private nonprofit hospitals, especially Kaiser facilities, provide significantly lower rates of care to low-income people than the public health systems.

In the East Bay, Kaiser has hospitals in Oakland, Richmond, San Leandro, Fremont, Walnut Creek, and Antioch. Kaiser Permanente — which is headquartered in Oakland and runs hospitals across the country — is also a health insurance provider through its Kaiser Foundation Health Plan, which currently has 9.5 million members. Kaiser offers an integrated model of healthcare, meaning members pay monthly premiums to the health plan as well as access services at Kaiser facilities. (Kaiser also has a for-profit arm, the Permanente Medical Group, which employs the physicians that staff the nonprofit hospitals).

In 2013, Kaiser’s hospitals in Alameda and Contra Costa had a total of 61,991 discharges — meaning all those formally admitted into the hospital as inpatients (as opposed to outpatients who are typically treated and released in the same day). Of the patients discharged in 2013, only 996, or 1.6 percent, were uninsured, according to data from OSHPD. Roughly 41 percent were patients with Medicare (insurance for seniors and people with disabilities), Medi-Cal (coverage for low-income people), or other government insurance. And 57 percent of the inpatients had private insurance.

Kaiser was the only nonprofit hospital system in the East Bay to admit more privately insured patients than government-sponsored and uninsured ones (with a breakdown that was not far off from the population mix in the region’s sole for-profit hospital in San Ramon). Kaiser also had by far the lowest rate of uninsured care of any of the major hospital systems.

Further, while Kaiser’s hospitals were responsible for 26 percent of all inpatient care in both counties in 2013, they provided a disproportionately low amount of the uninsured care in the region — just 7.7 percent of all the discharges in both counties for people without insurance. In 2013, DMC admitted nearly twice as many uninsured patients as Kaiser Oakland and Kaiser Richmond combined — despite the fact that those two Kaiser hospitals admitted more than three times as many patients overall as DMC did. (Kaiser Oakland and Richmond share a license and report as one entity; Kaiser representatives declined to provide me with hospital-specific numbers).

On the flipside, while Kaiser provided roughly one-quarter of all inpatient services in the two counties, it captured a significantly higher rate of privately insured patients — 40 percent of all commercial patients admitted into hospitals in the East Bay. And Gideon, DMC’s CEO, estimates that Kaiser Health Plan likely provides healthcare coverage to as much as 60 percent of all privately insured people living in DMC’s service area, making it especially hard for the San Pablo hospital to attract commercial payers.

Health experts note that Kaiser’s model in some ways relies on other area institutions to provide the bulk of direct hospital care to government-sponsored patients. “Kaiser has a commitment to the health of everybody; there’s no question about it,” said Bert Lubin, CEO of Children’s Hospital Oakland, a safety-net nonprofit hospital. “But in order for them to run their model successfully, they have to limit the number of Medi-Cal [patients] that they serve.”

In fact, while all of Kaiser’s California hospitals provided 12 percent of the total inpatient care in the state in 2013, they only treated 2 percent of all Medi-Cal patients.

A broader data analysis shows that, while Kaiser appears to have the worst record of admitting low-income people into its hospitals, East Bay nonprofits in general do less than the public institutions.

Like DMC, Highland Hospital and Contra Costa Regional Medical Center (the two public county hospitals) have very high rates of low-income patients. Those three hospitals in 2013 had miniscule rates of privately insured patient discharges — 9.6 percent at DMC, 5.2 percent at Highland, and 5.8 percent at Contra Costa Regional.

Statewide discharge data shows that in 2013, those three public hospitals were responsible for roughly 46 percent of the total uninsured inpatient care in Alameda and Contra Costa counties, even though they accounted for just 13 percent of all patients admitted to hospitals in the two counties. And for Medi-Cal, those three hospitals provided 31 percent of total inpatient care — a significant burden considering that California has one of the lowest reimbursement rates in the country for Medicaid, the federal program to which Medi-Cal belongs.

The two other major nonprofit hospital systems in the East Bay do more charitable care than Kaiser, but still benefit significantly from wealthier, privately insured patients.

At Sutter Health’s East Bay hospitals — Alta Bates Summit Medical Center in Oakland and Berkeley, Eden Medical Center in Castro Valley, and Sutter Delta Medical Center in Antioch — 31 to 35 percent of the inpatients discharged in 2012 and 2013 had private insurance. About 5 percent were uninsured and the rest had government-sponsored insurance. Compared to Kaiser, however, Sutter treated a much larger share of patients outside of the commercial market. The Sutter hospitals combined had roughly 23 percent of the total number of East Bay inpatients and cared for a roughly proportionate share of the region’s total government-sponsored patients — 26 percent. And 17 to 21 percent of uninsured patients admitted to hospitals in the East Bay were treated at a Sutter facility.

John Muir Health, which has campuses in Walnut Creek and Concord, falls in between Kaiser and Sutter in terms of its care for low-income people. In 2012 and 2013, roughly 42 percent of its hospitals’ inpatients had private insurance while about only 3.5 percent were uninsured (and the rest were government-sponsored). In those two years, John Muir’s hospitals treated about 13 percent of all East Bay inpatients — and an equivalent share of the counties’ total government-sponsored patients, also roughly 13 percent. About 8 to 9 percent of all uninsured patients in the area were admitted to John Muir hospitals during that time.

But the data, of course, only tell part of the story. It’s inside the hospital walls that you see the true impact of this inequitable system.

When an older Richmond resident had chest pain last month, his doctors decided to call an ambulance to take him to the hospital. The man was a dialysis patient and someone who Dr. David Weiland, a DMC cardiologist, had treated in the past. But because the hospital is now closed to ambulances, the patient ended up at Kaiser Richmond. According to Weiland, Kaiser soon transferred the patient to Kaiser San Francisco where doctors put multiple stents — small tubes that restore blood flow to narrow or blocked arteries — into his heart.

After the operation, the patient was in severe pain, according to Weiland, who subsequently spoke with the man’s relatives. “The family said, ‘He’s too sick to leave the hospital,'” Weiland said. But Kaiser allegedly told the family that if he stayed longer at the San Francisco hospital, the family would be financially responsible for the bill. Weiland said the patient had health insurance through Medi-Cal, which could have motivated Kaiser’s response, (although he said there’s no way to know for sure). Either way, the patient was discharged and the family drove him back to Richmond. As soon as they arrived, he started complaining again of severe pain, prompting the family to immediately drive him to DMC.

By the time he showed up at the San Pablo hospital, the patient was in shock, meaning he had suffered a serious complication from his procedure, according to Weiland, who attempted to stabilize him. It was too late. He died a day after he arrived to DMC.

In short, said Weiland, it appeared that the patient’s care at Kaiser was incomplete and that the San Francisco facility had pushed him out before it was safe to do so. “He was chronically sick,” said Weiland. “Very sick people need to be taken care of differently than a normal patient.”

Weiland declined to identify the patient, but said he called Kaiser representatives to get more information about the man’s care at the San Francisco hospital. A Kaiser spokesperson declined to comment on the case, citing patient privacy, but said that physicians only discharge patients when they feel it’s medically appropriate.

The incident sheds light on the potentially grave consequences of private nonprofit hospitals’ inadequate care of low-income patients. And the current health crisis in West County, with DMC closed off to ambulances, offers a preview of the disaster that would occur if the region were to fully lose this safety-net public hospital.

In addition to Booker Williams II and the recent Kaiser San Francisco case, Weiland told me of two other instances in which emergency patients died after ambulances couldn’t take them to DMC. In one fatal case, an ambulance ended up taking a West County heart attack patient to Kaiser Vallejo in Solano County — about thirty minutes north of San Pablo.

In another incident relayed by Weiland, a West County woman with congestive heart failure decided to have a friend drive her to DMC after paramedics told her that the hospital was closed to ambulances, but open to walk-ins. She went into cardiac arrest in the car.

While it’s impossible to know the role that the ambulance diversion played in these fatal cases, it’s clear that the reduction in services in the area can only hurt a patient’s chance of survival. For many more families in Richmond, San Pablo, and the surrounding municipalities, the impact of the downsizing has been less extreme, but still very problematic.

“It’s ludicrous. We’ve got a hospital that’s open, but not accepting emergency vehicles,” said Matt Taylor, a 44-year-old Hercules resident who suffered a heart attack in November and ended up at Kaiser Vallejo, instead of DMC where Weiland, the cardiologist who had treated him in the past, was working. The ambulance took side streets once in Solano County, because Interstate 80 was jammed with traffic, he said. “If it were to happen again, I might roll the dice and have my wife drive me [to DMC].”

Chronically ill patients — whose regular doctors, and medical records, are located at DMC — are ending up at unfamiliar hospitals throughout the region, getting care from physicians who know nothing about them. “Patients used to coming here for everything call the ambulance and no one knows where they’re going to go,” said Drager, the DMC surgeon.

Some people who are sick enough to call 911 wind up having to make the stressful choice between a long journey to an unknown hospital or driving themselves to DMC. Every day, about 20 to 25 ambulances are diverted away from DMC to other emergency departments, though the ED still sees roughly eighty patients a day.

Chaos aside, the state of the public hospitals’ finances also shed light on the detrimental impacts of a system that depends so heavily on a few hospitals to take the toughest cases.

Given that DMC sees so few commercially insured patients, its net revenue per patient — meaning the average payment the hospital ultimately receives from the patient or insurer (like Medi-Cal) — is lower than all other hospitals, according to an analysis of OSHPD data that Gideon provided. The hospital receives an average of $2,682 for every day that a single patient spends at the facility, while John Muir’s Walnut Creek and Concord hospitals on average receive 215 percent and 184 percent times as much, respectively. Alta Bates Medical Center Summit on average receives 148 percent as much as DMC.

And because DMC’s patient population is largely impoverished and the payments the hospital receives are thus very low, its patient care expenses are far greater than the associated revenue. In 2013, the hospital lost an average of $893 per patient per day at the hospital, according to state data. As a result, the hospital on the whole lost more than $19 million in 2013. Meanwhile, John Muir’s three hospitals combined earned $344 per patient per day, because of their profits from privately insured patients. The total profit of those three hospitals combined in 2013 was $68 million.

Like DMC, Sutter’s East Bay hospitals lost more money than they earned on patient care — $440 per patient per day, about half the rate of DMC’s loss rate. While those hospitals reported a combined net loss, the Sutter Health network of 24 hospitals had a total income of $300 million at the end of 2013.

Further, while John Muir and Sutter’s hospitals spent an average of 3.3 percent of their operating expenses on charity care, the three public hospitals I reviewed spent an average of 16 percent of expenses on charity care (with the county hospitals spending significantly higher rates than DMC).

Because of its unique model, Kaiser is exempt from disclosing the annual hospital-specific fiscal data that all other nonprofits provide to the state.

When public hospitals carry such heavy financial burdens, more taxpayer dollars must go to hospitals and away from other critical services in the public health sector and beyond. In other words, when private nonprofits fail to do their job, the public is hit twice — both in lost taxes from the nonprofits and in lost revenue from county budgets or parcel taxes that get sucked into financially desperate hospitals.

In interviews, Sutter Health and John Muir representatives defended their charity care and community benefit programs, arguing that their hospitals are accessible to all and invest significantly in public health efforts that serve the poor. In 2013, Sutter Health’s East Bay hospitals reported a total of $252 million in community benefits (covering investments such as AIDS and HIV services, programs for asthma patients, and community clinic partnerships) while John Muir claimed a total of $105 million (which included funding for mobile health clinics, cancer screening, and school nurses).

In recent years, John Muir has also donated a total of $3 million to DMC to help keep it afloat, while Kaiser has given $20 million to the San Pablo hospital.

Representatives of Kaiser — which reported a 2013 net income of $2.7 billion for all of its nonprofit operations — declined to be interviewed for this story. In an email, spokesperson Marc Brown provided me with some charity care data and defended Kaiser’s record of caring for low-income people and the uninsured.

He stated that roughly 250,000 people — 7 percent of Kaiser’s members in Northern California — receive charitable care and coverage through its various subsidized programs. Kaiser’s Medical Financial Assistance program, which helps cover care costs for low-income and uninsured patients, spent 43 percent of its 2013 funding on non-Kaiser members, he stated. And in 2013 in Northern California, Kaiser provided $639 million worth of uncompensated care, meaning costs that patients or third-party insurers didn’t pay, which Kaiser then covered, he added. Kaiser covered those costs through its hospitals and its health plan, he stated. Of that total, Kaiser spent $13 million in Richmond and $12 million in Oakland, he stated.

Brown also argued that Kaiser emergency departments are open to all patients, and stated that from January through September of 2014, 39 percent of Kaiser Richmond emergency patients and 15 percent of Kaiser Oakland emergency patients were non-Kaiser members. Brown further urged against a comparison between Kaiser and other hospitals, arguing that Kaiser’s model supports ongoing care outside of the emergency department that state data don’t reflect. “Through charitable care and coverage, Kaiser Permanente is subsidizing the full range of care for patients and families, inside and outside the hospital,” he wrote.

Healthcare advocates say that nonprofit hospitals across the state could do a better job of treating the neediest patients, and activists and lawmakers have repeatedly proposed solutions that they say could go a long way in creating a more balanced system.

In California, a number of studies on the investments of nonprofit hospitals have driven legislative proposals aimed at increasing transparency around how hospitals report their charitable activities. A 2007 report from the State Auditor’s Office found that the charity care investments of the state’s nonprofit hospitals and for-profit hospitals were virtually the same — uncompensated-care costs averaged 3.6 percent of net patient revenues for nonprofits and 3.5 percent for for-profits.

And a 2012 report by the research arm of the California Nurses Association, found that cities and counties in the state lose more than $1 billion each year due to the tax breaks they give nonprofit hospitals and the payments these municipalities make to hospitals to provide care for the poor.

The Greenlining Institute, a Berkeley-based public policy group, has done some of the most in-depth research on the topic — analyzing not only charity care, but also broader community benefit investments of nonprofit hospitals. The group released a report in 2013 that examined California’s seven largest nonprofit hospital systems, including Kaiser and Sutter, finding that they spent an average of 7.2 percent of their operating budgets on community benefits.

Greenlining’s investigation found that Kaiser hospitals’ total community benefit spending, as a percent of operating expenses, was one of the lowest of the seven hospital systems it studied — 5.3 percent in 2010 and 4.8 percent in 2011. That’s despite the fact that Kaiser is the largest hospital system in the state.

And in terms of its upstream community benefit spending — meaning investments in public health efforts outside of direct hospital care — Kaiser hospitals spent three times more on research and education (which can include residency programs) than they did on community benefit programs that directly support vulnerable populations, Greenlining reported.

Sutter Health, the state’s third largest nonprofit system, spent 6.1 percent of operating expenses on community benefits in 2010 and 10.3 percent in 2011, the report found.

Carla Saporta, Greenlining’s health policy director and an author of the study, said it was very difficult to assess if community benefit dollars were actually reaching people in need, adding, “When you can see what decisions are being made, it appears it’s about the bottom line of the hospital and not actually about community health needs.”

The IRS allows nonprofit hospitals to claim that healthcare grants they receive can count toward their community benefit requirements, enabling nonprofits to count money — such as a National Institutes of Health award — as a public benefit investment, according to Saporta. Another loophole allows hospitals to use the “education” category as a way to claim community benefits for spending that is primarily for marketing purposes, such as mailers that may have some educational value, but are largely promotional, she said.

Greenlining and the California Nurses Association have twice pushed for legislation that would beef up reporting requirements for nonprofit hospitals. The hope is that clearer or stricter standards would make hospitals’ budgets and spending decisions more accessible to the public — and would ultimately pressure them to do a better job. In 2013, Assemblymembers Bob Wieckowski (D-Fremont) and Rob Bonta (D-Oakland) introduced Assembly Bill 975, which would have required hospitals with operating revenues that exceed 10 percent of operating expenses to publicly justify their tax exemptions.

Last year, after that bill failed, the two lawmakers floated AB 503, a milder proposal that would have established clearer charity care and community benefit definitions. The legislation, which also did not pass, would have required that a minimum of 25 percent of community benefit dollars go toward underserved and vulnerable communities.

“Uniformity and accountability would be the first step,” Bonta said in an interview. He argued that a better reporting system would allow for side-by-side comparisons and potentially some kind of ranking of hospitals’ charitable care and community benefits. “No hospital is going to want to be on the bottom.” And Bonta said that if a more transparent system revealed truly “egregious actors,” lawmakers could subsequently consider ways to hold hospitals accountable through fines or other penalties.

A concrete methodology for calculating benefits would also create a fairer system for hospitals and would help health officials identify some of the best practices, Wieckowski said.

The reforms could shine a light on the nonprofit hospitals that do a good job, advocates noted. Children’s Hospital Oakland, for example, is a major safety-net nonprofit institution in Alameda County that primarily serves government-sponsored patients. In 2013, when Lucile Packard Children’s Hospital, part of Stanford Medicine, opened up a clinic in Emeryville, Children’s Hospital Oakland grew concerned that the new facility could siphon off its few privately insured patients. Unlike the Oakland hospital, the majority of Packard’s patients are privately insured.

And unlike the other hospital executives I interviewed, Lubin, the Children’s Oakland CEO, said he would welcome more clarity in community benefit definitions, because he feels confident about his nonprofit’s investments in public benefits and charitable care. Plus, he said, “It’s going to make others give more.”

But even modest reforms seem unlikely, given the strong opposition from nonprofit hospital lobbyists. The California Hospital Association, which represents nonprofit systems, has vigorously opposed efforts to reform community benefit standards, arguing that stricter requirements would do more harm than good by limiting hospitals’ abilities to tailor their community benefit efforts to the specific needs of the areas they serve. Jan Emerson-Shea, spokesperson for the association, said in an interview that AB 503, if enacted, would have threatened existing community benefit programs, though she couldn’t cite any specific examples.

After she repeatedly dismissed the criticisms of nonprofit hospitals as misleading political attacks spearheaded solely by the nurse’s union, I pointed out that many DMC doctors had also told me they were frustrated that other hospitals don’t do enough to care for the poor. She responded: “Doctors don’t understand hospital finance.”

Emerson-Shea further said that it’s unfair to blame hospitals for the mix of privately insured and uninsured patients they treat, arguing that regional demographics determine those ratios. She also downplayed the social obligations of nonprofit hospitals, noting that a hospital’s status as a tax-exempt entity is not contingent on whether it’s serving low-income patients, and instead simply means the institution is investing its profits back into the organization.

All of the efforts to reform community benefits, Emerson-Shea added, have been a “solution in search of a problem.”

The problems at Doctors Medical Center aren’t going away anytime soon. The board that runs the district hospital recently unveiled a plan to bring the hospital back to life later this year and sustain it for at least five years, but its survival depends on financial support from many different entities. The proposal calls for money from county debt forgiveness, a new parcel tax, Richmond-based oil giant Chevron as part of its community benefits package with the City of Richmond — and new financial support from the region’s private nonprofit hospitals.

However, since DMC’s board unveiled its proposal in November, none of the private nonprofit hospital systems have pledged to provide any new money.

When I asked spokespeople for Kaiser, Sutter, and John Muir if they planned to offer financial help moving forward, they declined to make any commitments and noted that these conversations are just beginning.

Betty Crater, sister of the late Booker Williams II, said she doesn’t care if DMC as an institution survives, but said that West County residents, including those who don’t have Kaiser insurance, deserve a fully functioning, well-staffed community hospital — not one that is perpetually hanging on by a thread.

“We are taxpayers in this county, and there are a lot of homeowners that do not have Kaiser,” she said. “There are people that have worked all their lives and have put money into the system and can’t get adequate care at a nearby hospital.”

Dr. Denise Ricker, a DMC kidney specialist, said she was devastated when she heard about the death of Williams II, a longtime patient of hers. “It will happen to more patients,” she said, adding that she has reached out to nearly twenty elected officials begging them to find a way to save the hospital. “How many more will it need to happen to before they start listening?” 


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