North Carolina hospitals cry poor at tax time but rake in millions billed to taxpayers

(The Center Square) – Most North Carolina hospitals are overcharging patients and reaping millions in Medicare profits, while claiming losses in tax filings to minimize charity care required as nonprofits, according to a new report.

North Carolina Treasurer Dale Folwell held a press conference on Tuesday to unveil “Overcharged: North Carolina Hospitals Profit on Medicare,” which was produced by the North Carolina State Health Plan in concert with Rice University’s Baker Institute for Public Policy. The report was peer reviewed by the University of Southern California’s Sol Price School of Public Policy.

Researchers analyzed hospitals’ Internal Revenue Service 990 tax filings, community benefit reports, and self-reported Medicare Cost Reports and found a majority in North Carolina profited off Medicare patients between 2015 and 2020, despite claiming billions in losses.

North Carolina hospitals claimed a total of $3.1 billion in Medicare losses in 2020, while actually profiting $87 million, which means the claimed loss was 3,670% larger than hospitals’ self-reported Medicare profits.

“Atrium Health profited on Medicare, yet its community benefit report advertised losses greater than half a billion dollars in 2019,” according to the report. “Such glaring disparities are common on both hospitals’ IRS 990 tax filings and on their community benefit reports. Hospitals’ self-reported Medicare profits are especially troubling in light of other failures in their charitable mission.”

Atrium is headquartered in Charlotte, and spans 40 hospitals and 1,400 care locations across the Carolinas, Georgia and Alabama.

“It’s impossible to tell why their numbers are so different,” said Vivian Ho, a health economics expert at Rice University who worked on the report. “Not only are employers and the state paying too much, they’re also scaling back on services for the poor.”

On average, North Carolina hospitals charged privately insured patients and businesses 280% of Medicare rates in 2020, a practice hospital lobbyists claim is necessary to offset Medicare losses.

North Carolina’s nonprofit hospitals received more than an estimated $1.8 billion in tax exemptions in 2020, but the majority of large systems failed to equal their tax exemptions with charity care, instead offsetting much of that obligation with Medicare losses.

“Sixty hospitals claimed to lose a total of $863.8 million on Medicare. These hospitals claimed Medicare margins as low as -41% or as high as 41% in 2019,” according to the report. “Among these 60 hospitals, claimed Medicare losses were 2,985% greater on hospitals’ 990 tax filings than on their Medicare Cost Reports.”

The report said, “These 60 hospitals reported losses of only $23 million on Medicare and $5 million on Medicare Advantage in 2019, according to the Medicare Cost Reports.”

Atrium, for example, claimed $640 million in losses, while actually profiting $119.2 million.

“Fewer than 25 hospitals equaled the value of more than $1.8 billion in tax breaks with charity care spending in 2020,” according to the report. “At the same time, some North Carolina hospitals billed more than $149 million to poor patients who should have received charity care.”

The situation is made possible by a lack of fiscal transparency and cooperation from hospital executives, and results in North Carolina ranked as the 11th-most expensive state in the nation for outpatient care in 2020, Folwell said.

“So much of this stuff is hidden from us as taxpayers and consumers,” said Glenn Melnick, University of Southern California health professor who peer reviewed the report. “It takes a tremendous amount of effort to shine a light on this.”

“This is a moral issue,” Folwell said, “when people can’t see themselves past their poverty and make ends meet.”

It also has a direct impact on the sustainability of the State Health Plan and the roughly 740,000 North Carolinians who work one week out of every four to pay for premiums. The plan faces fiscal insolvency in less than three years without price cuts, Folwell said.

“We’re facing a crisis in the State Health Plan as a shortfall of billions of dollars,” he said.

The solution, Folwell contends, is to require more financial transparency, expose secret contracts, align charity care with tax benefits, and focus on patients over profits.

“This is literally a problem for all North Carolinians,” said Ardis Watkins, executive director of the State Employees Association of North Carolina. “Providing health care shouldn’t be a way to make quick, secret money.”