Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 15, 1992 TAG: 9203150240
SECTION: HORIZON PAGE: F-1 EDITION: METRO
SOURCE: CHARLES HITE MEDICAL WRITER
DATELINE: LENGTH: Long
It's the subject of not paying taxes that really gets Miller fired up.
As president of Lewis-Gale Hospital, a for-profit company, Miller questions the fairness of having to compete with two tax-exempt hospitals in Roanoke owned by Carilion Health System.
"I don't mind competing," Miller says. "I think competition is healthy. But if we pay millions in taxes and Roanoke Memorial and Community hospitals don't pay taxes and don't give an equal amount away, then it's unfair."
Thomas Robertson, Carilion's president, says Roanoke Memorial and Community provide more than enough free care and other community services to justify their tax-exempt status.
"I think we deserve our tax-exempt status," Robertson says. "Perhaps we need to do a better job of communicating what we are doing."
Because they are non-profit, Roanoke Memorial and Community avoid $8.2 million in federal, state and local taxes. But Carilion estimates the two hospitals give more than $18 million to the community in indigent care and by subsidizing medical services and educational programs.
Lewis-Gale provides $1.3 million in free care. Like Roanoke Memorial and Community, it also writes off the bills of many patients who are too poor to pay. Hospital officials say these write-offs are, in effect, charity care. For 1990, Lewis-Gale had $2.3 million in bad debts.
By the measure of tax revenues, Lewis-Gale's 1990 contribution of $2.7 million far exceeds Community and Roanoke Memorial, which paid $445,000 in taxes on property, real estate and operations that were not tax-exempt. For 1991, Lewis-Gale estimates it will pay nearly $5 million in taxes.
In the area of indigent care and subsidized services, however, the two non-profit hospitals clearly outdistance their cross-town competitor.
Miller charges that non-profit hospitals have turned their backs on their historic mission as charitable institutions for the poor.
"In trying to protect its bottom line, the non-profit hospital has become a for-profit hospital," Miller says. "That means their emphasis is more on making a profit than community service."
As an example, Miller points to a story that made front-page headlines early this year, noting that a large area of Northwest Roanoke with no physicians met state criteria as a medically underserved area.
On the outskirts of the area, Miller adds, Carilion announced plans to build a medical office complex that would be leased by several primary-care doctors in the area.
"When a sector of the community cries out for health-care services and there is no response from charitable health-care organizations and yet they do build a primary care center in a more affluent area, people have to ask, `Is that their mission?' " Miller says.
Robertson counters that Carilion "has done a lot in Northwest Roanoke." It was Carilion that helped recruit two black physicians - a husband and wife - to the area in 1984 and provided them office space. It has continued to work with community leaders and is trying to recruit more physicians, Robertson says.
The office complex scheduled to be built nearby in Roanoke County should help attract and keep primary-care physicians in the area, he adds.
Non-profit hospitals such as Roanoke Memorial and Community provide services to indigent patients that for-profit hospitals won't even consider, Robertson says.
For example, the hospitals operate 38 outpatient clinics where more than 40,000 patients are treated each year. More than 70 percent of those patients don't pay. The clinics range from the highly specialized - such as a program for women with high-risk pregnancies - to basic general medical clinics.
Roanoke's non-profit hospitals also subsidize a neonatal care unit for newborn babies with critical health problems and trauma programs for seriously injured accident victims. "Trauma is a big one," Robertson says. "It's a black hole" in draining hospital resources.
Roanoke Memorial and Community also offer training and educational programs for 110 residents and 60 medical students.
"These are expensive programs," Robertson says, noting that 40 faculty members are required to run them. The hospitals estimate they spend more than $5.5 million annually to subsidize their medical-education programs.
Most of the students and faculty are involved in running the outpatient clinics and other services to indigent patients. The programs "are evidence of our commitment to quality care and providing resources to the needy of the community."
Lewis-Gale's Miller, however, believes that making money has overshadowed the community service missions of Roanoke Memorial and Community. In 1990, the two had combined profits of more than $13.7 million.
"I think they need to re-evaluate their priorities," Miller says. "When you have profits flowing as you do at Carilion, if I were a trustee there, I would have to truly look at what is best for the community."
Miller said he is not unsympathetic to the profit-making motives of the tax-exempt hospitals. Payments under Medicare and Medicaid - federal programs for the elderly and poor - are not adequately covering hospitals costs, he says.
"I think the non-profit hospitals have been driven to that point because the federal government won't pay its fair share and the state government won't pay its share," Miller says. "They expect the money to fall like manna from heaven."
Robertson says the profits of Roanoke Memorial and Community are not unreasonable. The profits are about 4 percent to 5 percent of the net revenues of each hospital - an amount necessary to assure that services are maintained and that outdated equipment and buildings are replaced, he says.
Good examples of why non-profits need surplus funds, Robertson says, are the state's two non-profit, university-based teaching hospitals - the Medical College of Virginia and the University of Virginia Health Sciences Center.
Both hospitals had to replace outdated facilities in recent years, he says, and both have generated substantial profits to help do so. UVa reported last year a profit of nearly $21 million; MCV had $12.4 million in profits.
"It's the same situation at Roanoke Memorial," Robertson says. "We're replacing parts of some buildings that were constructed in the 1920s."
All major decisions at Roanoke Memorial, Community and other Carilion hospitals are reviewed by boards made up of a cross-section of community and business leaders, Robertson says. In many instances, board members come from companies that have seen health care costs skyrocket, Robertson says. They aren't about to approve hospital plans that needlessly drive up costs, he adds.
Robertson understands why local governments will be looking to non-profit hospitals as a new source of revenue. "People are questioning all kinds of tax exemptions," he says. "People are asking these institutions if they are paying their fair share."
Over the past several years, Robertson and other Carilion officials have met with City Council members to explain plans and point out the services their hospitals provide the community.
City Manager Bob Herbert says an administration "revenue-enhancement team" looked at the possibility last year of a business license tax on non-profit hospitals but did not explore the idea in depth because of a two-year moratorium that expires in 1993.
But the business-license tax will "stay on the list" of possible new sources of revenue for future budgets, Herbert adds. It's his obligation to present such alternatives to council, he says.
"Whether it's a good idea to tax hospitals or whether they are paying their fair share, that's more of a political decision," Herbert says.
Councilman Bev Fitzpatrick says the city needs to consider a tax policy for all non-profit organizations, not just hospitals.
The council recently showed that it expects some return from tax-exempt organizations in exchange for services the city provides to these organizations. Early this year, council passed a policy requiring new organizations that receive a real estate tax exemption to pay 20 percent of what would be their tax burden to cover the cost of police, fire, refuse collection and other basic services.
"You have to be careful not to look at this as a one-way street," Fitzpatrick says of any new tax policy. "You have to look at the broader picture."
For example, on paper it looks like the city loses money in subsidizing the operation of its civic center, Fitzpatrick says. When revenues generated by sales taxes from the civic center are considered, it's clear the city makes money, he says.
Medical care is the biggest employer in the Roanoke Valley and the city reaps many benefits from the presence of the non-profit hospitals, Fitzpatrick says.
"You can't automatically assume these institutions are taking more than they are giving," he says. "I'm not saying a tax assessment wouldn't be fair. It may be. But you've got to look at an organization's contributions to the community."
by CNB