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Non profit hospital go where the profit is? I'm shocked. Not the poor areas.

Big Nonprofit Hospitals Expand in Wealthier Areas, Shun Poorer Ones

Despite lucrative tax breaks for serving needy communities, many large systems focus growth on higher-income neighborhoods

Ascension, a large Catholic nonprofit system, spun off Saint Anthony Hospital in Chicago in 2009. Since being on its own, Saint Anthony has reported losses from caring for patients.

By Melanie Evans, Max Rust and Tom McGinty, WSJ

Dec. 26, 2022 11:20 am ET

Many of the nation’s largest nonprofit hospital systems, which give aid to poorer communities to earn tax breaks, have been leaving those areas and moving into wealthier ones as they have added and shed hospitals in the last two decades.

As nonprofits, these regional and national giants reap $8.8 billion from tax breaks annually, by one Johns Hopkins University researcher’s estimate. Among their obligations, they are expected to provide free medical care to those least able to afford it.

Many top nonprofits, however, avoid communities where more people are likely to need that aid, according to a Wall Street Journal analysis of nearly 470 transactions. As these systems grew, many were more likely to divest or close hospitals in low-income communities than to add them.

Since 2001, half the hospitals divested by CommonSpirit Health, a large Catholic system based in Chicago, were in communities where the poverty rate was above the medians for state hospital markets, compared with 30% of those it added.

At Bon Secours Mercy Health, formed by the 2018 merger of two growing regional nonprofits, about 42% of hospitals it divested were in areas with higher poverty, compared with 27% of hospitals it added.

Of hospitals divested or closed by St. Louis-based Ascension, about half were located in higher-poverty areas, compared with 40% of the Catholic system’s acquisitions.

Note: High insurance coverage and poverty rates are above states' median rates; low are at or below. Insurance coverage is ages 18-64 for 2012 data and 19-64 for 2020 data. Kaiser Permanente didn't divest hospitals during the period.

Sources: American Hospital Directory Inc.; Dartmouth Atlas of Health Care; Census Bureau; IPUMS NHGIS, University of Minnesota; nonprofit systems and their financial statements; ‘The Price Ain’t Right?’ 2019 Quarterly Journal of Economics; Rand Corp.

At the same time, many top nonprofits were moving more aggressively to add hospitals in more affluent areas.

At Mercy, a St. Louis-based hospital nonprofit, 56% of new hospitals were in places with lower poverty rates, compared with 25% of those it shed. About two-thirds of the hospitals it added were in markets where the share of households with incomes of at least $200,000 was above the state median. That compared with 25% of those the system shed.

Of hospitals acquired by Florida-based AdventHealth, nearly two-thirds were in low-poverty areas, compared with 40% of those they divested. And 59% had a larger share of higher-income households, compared with 40% of those they exited.

Private insurance

Many systems also grew where the share of privately insured people was higher than the state median, according to Census Bureau data. Private insurance typically pays hospitals the best rates. Hospitals are paid less for patients covered by government-funded Medicare and Medicaid and collect little from the uninsured.

For Bon Secours Mercy, well-insured areas accounted for 76% of acquisitions but half of divestitures since 2006, the earliest date in the analysis for which insurance data is available. At CommonSpirit, 67% of new hospitals were in areas with higher private insurance coverage, compared with 57% of places where it exited.

A CommonSpirit spokesman said the system has acquired hospitals that would struggle otherwise and about one-quarter of the system’s hospital services are paid for by Medicaid insurance. When it divests hospitals, CommonSpirit looks for new owners who have other local operations and who will keep offering services, he said.

Bon Secours Mercy has had a new strategy for hospital deals since 2018, when it was formed, a spokeswoman said. It looks for deals that will create scale and help those in need. She declined to comment on deals prior to 2018.

AdventHealth considers how transactions will advance the system’s priorities, such as healthcare quality and time before a deal will financially benefit the system, a spokeswoman said.

A Mercy spokeswoman said the system seeks to care for as many as possible and considers how busy hospitals are and whether money spent on hospitals with very few patients could be better spent where more people need care.

An Ascension spokesman said Ascension’s deal-making analysis includes whether an acquisition enhances Ascension’s ability to meet community needs, to strengthen Catholic healthcare and to make continued investments. Community income levels don’t drive transaction decisions, he said. Its hospitals in wealthier areas care for low-income patients, he said.

Ascension was the most active deal maker in the Journal’s review. Through deals involving 93 hospitals over the past 20 years, Ascension has grown into one of the largest U.S. systems, with $28 billion in revenue and $19.5 billion in cash reserves in its most recent fiscal year, ended June 30.

Among the hospitals Ascension pruned as it grew were those serving some of the poorest neighborhoods of Washington, D.C., and Chicago.

Local elected officials said that when a system exits a market, it can be difficult for remaining facilities to serve the community.

“We have a healthcare desert starting at North Capitol street,” District of Columbia Councilman Vincent Gray said in a 2018 public hearing on Ascension’s move to close Providence Hospital there. “This is only going to further exacerbate that situation.”

Ascension said the District had enough hospital beds and could care for Providence hospital’s patients after it closed. But elected officials and area healthcare executives said most hospitals in the District are located elsewhere. Those closest to Providence would face new strain, they said.

Nearby Howard University Hospital and MedStar Washington Hospital Center saw demand spike after Ascension shut obstetrics and psychiatric care ahead of closing Providence, Howard and MedStar executives said.

Howard diverted money from other projects to add labor and delivery and neonatal intensive care space, said Hugh Mighty, Howard University’s senior vice president of health affairs. MedStar’s nearby hospital added more emergency room and psychiatric staff to meet rising demand as Providence closed, its president said.

The Journal has been examining the business practices of the nation’s nonprofit hospitals, which account for half the $1 trillion sector. These systems are part of the U.S. safety net under tax rules, which gives them local, state and federal tax breaks in exchange for providing charity and benefiting communities.

The investigation has found that overall, nonprofits are less generous in providing aid than their for-profit rivals. When patients do qualify for aid, nonprofits often put up obstacles. And many deploy a lucrative drug discount more often in wealthier communities, where the discounts can mean higher margins, over the low-income communities the program was meant to benefit.

The latest analysis used public and private data sets, mapping software and financial disclosures to track when and where nonprofits shed or added majority-owned acute-care hospitals. The analysis included the 11 largest systems by number of hospitals as of November, with two systems tied for 10th largest, according to the American Hospital Directory Inc. The Journal used data from the Dartmouth Atlas of Health Care and Census Bureau to map community information on poverty, income and private health insurance.

Results of the Journal’s latest analysis raise questions about the extent to which consolidation by nonprofit healthcare giants has put financial strength ahead of their operation as charities, said healthcare finance and economics experts.

Who benefits?

“It’s a fair question to ask: What communities are benefiting from those activities?” said Amanda Starc, a health economist at Northwestern University. Targeting tax breaks to charities that benefit wealthier communities ultimately makes well-to-do areas better off at the expense of poorer ones, she said.

Transactions have in many cases strengthened the nonprofit systems’ finances, bolstering balance sheets that have amassed billions of dollars in cash reserves, a review of financial statements and credit agency reports show.

Many of the top systems boast strong bond ratings, which allows them to borrow and grow cheaply. Ascension and AdventHealth hold Aa2 ratings from Moody’s Investors Service, among the highest ratings it awards.

Bon Secours Mercy holds leading or near-leading market share in eight of its markets, a factor in its strong credit rating, Fitch Ratings analysts noted in September.

Moving aggressively into markets with higher rates of private insurance can be lucrative. Consolidation gives hospitals greater leverage in negotiations with private insurers. Prices rise after mergers, research shows.

At the same time, shedding hospitals in markets with more low-income and Medicaid patients can boost systems’ finances. Even small differences in the amount of care paid for by Medicaid can matter to hospital system profits, said hospital finance experts. Hospitals often report losing money on Medicaid patients.

Sources: the company (Ascension cash on hand, operating margin); Moody's (median)

Moody’s analysts have praised Ascension for the system’s willingness to leave underperforming hospitals. Those included hospitals that depend heavily on government aid to support a large number of low-income and uninsured patients, known as Disproportionate Share payments.

As hospitals in needier communities trade hands, they can see capital investment in medical technology and building maintenance drop, according to annual hospital financial reports to Medicare.

In 2016, Ascension announced a deal to sell hospitals in Washington and Idaho to a hospital chain backed by asset-management firm Apollo Global Management Inc.’s private-equity funds.

With the sales, which closed in 2017 and 2018, Ascension left communities that had private insurance coverage below the median of other Washington and Idaho hospital markets.

At the former Ascension hospital in Lewiston, Idaho—St. Joseph Regional Medical Center—the new owner hasn’t invested enough to replace aging infrastructure, the hospital financial reports to Medicare show.

Apollo-backed LifePoint Health Inc. and ScionHealth have spent about 67 cents for each $1 of wear and tear at St. Joseph Regional, according to the Medicare reports since the acquisition through June 30, 2021.

Hospitals typically need to invest more than $1 to replace each dollar of outdated equipment in order to account for inflation and product improvement, said Nancy Kane, a hospital finance expert at Harvard University.

ScionHealth was created in December 2021 to spin off some LifePoint acquisitions, including St. Joseph Regional. Since then, the company has invested or pledged to spend $10 million, a spokesman said. Investments include equipment for cancer care and surgery.

LifePoint invested more than $16 million for renovations, upgrades and new equipment in the three years it owned St. Joseph, a LifePoint spokeswoman said.

Apollo declined to comment on capital investment at St. Joseph.

Some employees of St. Joseph Regional said its for-profit owner has repeatedly put off needed spending, in one case waiting to replace an outdated ultrasound used by surgical teams until it no longer worked.

“It finally just died,” said Shari Johnson, a registered nurse in St. Joseph Regional’s surgical recovery unit.

For about a month, the hospital’s busy surgery department and emergency room scrambled to swap a single machine until a new device arrived, she said.

“Like most hospitals, St. Joe’s has faced supply chain issues that have delayed the delivery and installation of certain new replacement equipment,” the ScionHealth spokesman said.

Burst pipes in Chicago

Ascension spun off Saint Anthony Hospital in Chicago in 2009. It gave Saint Anthony about $23 million in cash, its CEO said, earmarked for capital investment. The hospital was more than a century old.

The hospital’s CEO has worked since then to replace the facility, he said, acquiring land for the project. The project includes other development alongside the new hospital, with an estimated cost of $600 million. In the meantime, burst pipes have forced Saint Anthony to close rooms. The hospital can’t afford $1 million to replace the ceiling of its psychiatric unit, which has metal rods that safety surveyors say patients could use to harm themselves or someone else, hospital executives said. It has deployed extra staff to monitor the unit.

A new facility is still years away, said CEO Guy Medaglia.


The CEO of Saint Anthony Hospital, Guy Medaglia, in the Chicago hospital's more than 100-year-old building.

“If I would have gotten more money to build a hospital from Ascension, the community would have been a lot better, a lot sooner,” he said.

Saint Anthony officials fought Ascension’s initial plans for its closure, arguing a shutdown would leave some of the city’s poorest neighborhoods without a longstanding safety net, said Peter Fazio Jr., a board member during the talks.

Saint Anthony operated at a loss and needed upgrades to its aging building and outdated equipment, said Mr. Medaglia, whom Ascension hired to run Saint Anthony as the system sought to divest or close the hospital, he said.

Ascension spun off Saint Anthony with financial support in response to local hospital officials’ wish to break from the system, the Ascension spokesman said.

Since being on its own, Saint Anthony has reported losses from caring for patients. It has prioritized critical repairs as it seeks funding to complete its new hospital development, said executives.

After exiting Saint Anthony, Ascension acquired other Chicago-area hospitals, including a 2012 deal for a system in wealthy Chicago suburbs, the Journal’s analysis and city data show.

In 2018, Ascension acquired Presence Health Network, the Chicago area’s second-largest hospital system. Ascension’s growing Illinois network now included a hospital nestled along Lake Michigan and well-to-do Chicago neighborhoods Lincoln Park and Lake View, which includes a unit to treat migraines by a private practice that doesn’t accept Medicaid insurance, according to its website.

In the first year, the new hospitals helped boost Ascension’s revenue by $1.45 billion, about 6%, according to S&P Global Ratings.

Ascension acquired Presence and other Catholic health systems in the last 20 years to preserve access to Catholic healthcare, a spokesman said. Presence hospitals have lost money since the acquisition, he said.

Ascension has divested money-losing hospitals it acquired in other transactions with Catholic systems, including hospitals it acquired in 2002. Ascension largely pruned the hospitals in transactions with for-profit companies, including Tenet Healthcare Corp. and Apollo’s private-equity backed chain.

In Chicago, Ascension said it is pouring money into its newly acquired hospitals, with planned upgrades that are expected to cost $585 million.

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