Charity?
Nonprofit hospitals skimp on care for the poor

By A.C. Thompson

Cellulitis is a nasty affliction. The bacteria-borne disease can cause an array of unpleasant symptoms: painful skin rashes and swelling, fever, fatigue, chills, shaking, nausea, and vomiting. In particularly virulent cases, the disease can cause gangrene or even kill.

On a wet and dreary night in late November, John (not his real name) told me all about cellulitis. "I feel pretty bad," the 25-year-old said, shivering, his face pallid. A softball-size bump protruded from the back of his thigh. "I'm dizzy. I feel like vomiting. I'm in severe pain."

The Seattle native is at high risk for nasty infectious diseases: he lives in the bushes of Golden Gate Park and shoots heroin daily.

When I spoke to John, he was having trouble getting any help from the medical establishment. He said he sought treatment at the St. Mary's Medical Center E.R. and was told he'd have to undergo a "financial evaluation" before a doctor could see him. John claims hospital personnel encouraged him to get lost when he informed them of his indigent status.

"I said right out, 'Criminals get treated better than this," he recalled.

The hospital disputes John's allegations. "No one's turned away," said Wade Rose, vice president for public policy with St. Mary's parent corporation, Catholic Healthcare West. "Treatment is provided prior to the assessment of financial means."

But John's story isn't unique. Once the province of nuns and do-gooder docs, nonprofit hospitals like St. Mary's are increasingly taking their cues from the corporate world: they provide relatively little care for the poor, pay their execs massive salaries, and funnel their funds into secretive tax-free subsidiaries in the Caribbean.

Doctors have been offering free medical care to the impoverished since at least the Middle Ages. By the 1800s the American Medical Association formally endorsed the practice. "Professional services should always be freely accorded" to down-and-outers, the association's 1847 Code of Medical Ethics instructed.

Today the Internal Revenue Service grants nonprofit hospitals tax-exempt status as long as they provide "significant health care services to the indigent."

The question raised by cases like John's and by a recent San Francisco Department of Public Health study is whether Catholic Healthcare West and the Bay Area's other major nonprofit hospital chain, Sutter Health, are actually meeting that requirement.

Based in Sacramento, Sutter owns 25 hospitals scattered across California, as well as a hospital in Hawaii. The company gets huge tax breaks: according to the health department report, Sutter's four San Francisco facilities pocketed more than $62 million in state, local, and federal tax breaks during fiscal year 2001-02.

Yet the company's S.F. facilities – the three California Pacific Medical Center campuses and St. Luke's Hospital – doled out only $5.3 million in free care to the poor. And it wasn't as if the firm was hurting: internal CPMC documents obtained by the Bay Guardian show the local hospitals had a net income of $136 million during the same time period – essentially $136 million in profits if they were a for-profit business.

CPMC funneled $105 million of that back to Sutter headquarters.

Catholic Healthcare West also took in more in tax breaks than it gave out in care. The S.F.-based chain operates 41 hospitals and acute-care centers throughout the western United States and bills itself as the "official healthcare provider" for the San Francisco Giants baseball team.

According to the health department report, Catholic Healthcare West's two S.F. hospitals, St. Mary's and St. Francis Memorial Hospital, gave out around $3.2 million in free treatment during fiscal 2001-02. Meanwhile the hospitals reaped roughly $5.3 million in tax exemptions. And Catholic Healthcare West generated company-wide net revenues of more than $50 million.

By contrast, San Francisco General Hospital spent $58 million caring for uninsured patients and faced gargantuan budget cuts.

"Nonprofit hospitals are more and more difficult to distinguish from for-profit companies," Colleen Johnson, the health department's assistant director of policy and planning, told me. "People see hospitals as part of their community, and for them to not give back to the community isn't right."

Both nonprofit chains say they're committed to helping people of all income brackets. "During 2002, Sutter Health contributed $466 million to community benefit programs," Sutter spokesperson Karen Garner told me. "We're talking about charity care, prostate screening, public education."

It's the company's philosophy, Garner maintained, "to treat all patients regardless of their ability to pay."

Sal Rosselli doesn't buy Sutter's $466 million figure, which includes money the company claims it loses on patients insured by Medi-Cal or Medicare. "It's a corporate shell game," said Rosselli, president of Service Employees International Union, Local 250, which represents frontline workers at Sutter and Catholic Healthcare West.

Execs at Catholic Healthcare West think the debate over what constitutes charity care is a distraction from bigger problems. Rose said, "From our perspective the real issue is the lack of universal health care in California and the country."

Why, precisely, the hospitals aren't seeing more poor folks is an open question. In the past the nonprofit chains have been dinged for failing to inform uninsured patients that they may qualify for free treatment; since 2001, San Francisco law has required the hospitals to notify patients who may be eligible.

What's verifiable is just how corporate the chains are becoming in terms of executive payouts and perks. Tax returns obtained by the Bay Guardian show Sutter CEO Van Johnson made $1.3 million in total compensation and had an expense account of more than $23,000 in 2002, the last year for which records are available.

During that time, Sutter paid at least six honchos more than $400,000 each.

"A certified nursing assistant would have to work for 40 years to make what Van Johnson makes in one year," SEIU's Rosselli said.

The Catholics – in contrast to their austere image – offered even sweeter executive compensation packages. Catholic Healthcare West, which is funded in part by private contributions from parishioners across the country, paid two execs more than a million bucks each and gave 14 others more than $400,000 apiece in fiscal 2000-01 (the most recent data available.)

But what's really astounding are the fringe bennies. Execs enjoy supersized expense accounts, often more than $100,000 a year, and the company kicks in as much as $185,000 per exec for "employee benefits," according to tax filings. For fiscal 2000-01, CFO Michael Blaszyk racked up $610,294 in expenses, while CEO Lloyd Dean spent $391,553.

Catholic Healthcare West said the hefty paychecks are necessary to hire talent in a cutthroat industry. "In order to attract the best people to manage a $5 billion company like ours, you have to pay them," Rose argued.

His reasoning is echoed by Garner at Sutter. "Sutter Health needs to set compensation at a competitive level so we can attract and retain the right individuals at all levels of business," she said.

Execs at both chains have diverted money into overseas spin-offs. Tax returns indicate Sutter and Catholic Healthcare West both maintain "self-insurance" companies in the Cayman Islands, a tax haven for many U.S. businesses. (Large corporations often establish self-insurance firms to underwrite themselves against workers' comp costs or liability.)

In recent years Catholic Healthcare West has shipped at least $17.3 million in insurance premiums to a Cayman Islands subsidiary, while Sutter maintains two self-insurance companies in the Caymans. From Sutter's tax forms, it's impossible to tell how much loot the company has moved overseas.

"Insurance in the Caymans is substantially unregulated, and the books are closed to outside inspection," said former U.S. Senate investigator Jack Blum, a nationally recognized expert on offshore banking and securities. "A charity should be an open book."

Some poor people have gotten excellent treatment from Sutter and Catholic Healthcare West. Like John, Frankie is a junk user and denizen of the streets. He's absolutely destitute. But Frankie, 26, said he's been well cared for at St. Mary's, where he's been treated for a host of heroin-related horrors: cellulitis, serious blood clots in the legs, and osteomyelitis (a gnarly infection of the bones).

Last year he spent two months at the hospital, undergoing reconstructive surgery on the ruined blood vessels in his legs. "They did a couple of surgeries. They put a filter up here," he says, pointing to his chest. "And put an artificial vein in my leg."

As far as Frankie's concerned, the docs and nurses "were cool."

Still, Johnson of the health department thinks the chains could do a lot more. "We need more care for the uninsured," she said. "These people are not getting the care they need."

Instead, Johnson said, they end up at General Hospital in droves, where "it puts a strain on our budget. Our hospital has run in deficit for years."

E-mail A.C. Thompson


January 7, 2004