From research and education to subsidized health services and outreach programs, to the growing gap between the cost of caring for Medicaid patients and the reimbursements hospitals receive, Northeast Ohio’s health systems report that they are providing an increasing amount of community benefit to the region.

Every year, nonprofit hospitals must report to the Internal Revenue Service their community benefit, a tool that helps measure the value hospitals deliver as tax-exempt institutions.

“It’s important for us to let the community know what we are providing to them, as they are essentially forgoing tax revenues because we are tax-exempt,” said Kelly Linson, vice president and chief accounting officer at Southwest General Health Center. “So there’s definitely a value proposition there for the community, and it’s important for them to know, as well as important for us to tell them what we’re providing in community benefit.”

The available community benefit reports in the region show growth in that value proposition.

Cleveland Clinic’s overall community benefit, which includes its operations in Ohio, Nevada and Florida, reached $1.04 billion, a record high for the system. The growth is in part attributable to the system adding hospitals. University Hospitals’ benefit grew by 17.8% to a total of $383 million.

Akron Children’s Hospital’s community benefit grew by 25.6% to $167.1 million. Southwest General’s grew by 11.7% to $21.3 million. Summa Health and Lake Health have not yet released their 2018 reports. MetroHealth, because it is a public health system, is not required to report its community benefit totals, as the other nonprofit health systems are.

“There’s the legal requirement to the IRS to provide the 990 report each year, but I think primarily the overriding benefit is that this is a way hospitals are able to demonstrate their commitment of their mission within the communities they serve,” said Lisa Anderson, senior vice president at the Center for Health Affairs, a nonprofit advocate for Northeast Ohio hospitals.

Community benefit reports include several categories: charity care or financial assistance, Medicaid shortfall, research, education, subsidized health services and community health improvement.

Across the board, Medicaid shortfall accounts for the largest piece of each system’s benefit. With reimbursement rates below the amount it costs for hospitals to care for Medicaid patients — and inflation on costs widening that gap — hospitals spend a significant amount of money covering that shortfall.

“Rates have been relatively stagnant for Medicaid for years, but our cost structure continues to deal with inflation — inflation on supplies, pharmaceuticals, all of those items,” said Steven Glass, chief financial officer for the Clinic. “So when you have your reimbursement that’s flat but your inflation on cost continues to grow, even beyond the growth of services to that Medicaid population, just for those that we regularly serve, the shortfall is going to grow.”

At UH, the growth in Medicaid shortfall was a major driver in the system’s overall community benefit growth.

“About half of our community benefit is invested in the amount that we essentially provide care beyond the costs or the payments that Medicaid actually pays us for that care, so that continues to grow in our system,” said Heidi Gartland, vice president of government and community relations for UH.

Community benefit also includes charity care or financial assistance — free or discounted care. The Clinic provided $130.7 million in that category; UH provided $47 million.

When Ohio expanded Medicaid several years ago, hospitals saw a shift from charity care to Medicaid shortfall dollars.

“Since those volumes have leveled out years ago, we’ve continually seen a growth in the overall financial assistance and charity care,” Glass said. “And I think a lot of that just has to do with the economics of Northeast Ohio but also the challenges people feel out there from those individuals that are below the poverty level.”

Research and education are both key parts of the missions at UH and the Clinic, leaders say. The Clinic’s community benefit grew in both categories year over year. At UH, its education/training piece grew while its research piece remained flat. Though Gartland noted that its overall research grew between 2017 and 2018, but the system also brought in more grants, which don’t count toward the community benefit investment.

For some programs that run at a loss, such as behavioral health or obstetrics, hospitals subsidize those services, which is another piece of the community benefit. Also measured are outreach programs in the community, such as educating residents about their health.

Factors in the market can attribute to some of the annual shifts in community benefit. For instance, Linson, of Southwest General, noted that its maternity program is growing after other hospitals in the area opted to discontinue their maternity services. The increase in volumes and births between 2017 and 2018 contributed to the Medicaid shortfall growth.

Bernett L. Williams, vice president of external affairs at Akron Children’s Hospital, noted that the hospital has worked in recent years to more accurately capture all of its community benefit, training employees on what does and doesn’t count for the report.

“It’s not necessarily that we’re doing more in all of those areas — in some cases, we are — but what is the case is that we are doing a better job of tracking and reporting what we’re doing,” she said. “The message that we communicate to our workforce here is we’re never encouraging people to do more community benefit for sake of community benefit and reporting. We say we just need to capture the things that we’re doing.”

It’s important for all of the hospital’s stakeholders (families, funding partners, employees, health departments, governmental entities, etc.) to understand how the hospital is investing in the community, Williams said. In addition to an important metric in how hospitals are serving their surrounding communities, the community benefit is also a key way to demonstrate the value hospitals provide as nonprofit organizations.

“So in addition to making sure that we serve our communities, it’s also making sure that everybody understands the value we return to the community in return for being a not-for-profit organization,” Glass said.

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Medicaid shortfalls help drive community benefit growth – Crain’s Cleveland Business