If Mary Washington Healthcare didn't pursue the collection of unpaid patient bills, there would be little wiggle room between what the organization takes in and pays out, claims a top MWH official.
"We're a not-for-profit, and our team works hard to scrape out a meager margin at the end of the year," said Eric Fletcher, a senior vice president. "Without the collections, there would be no margin."
Fletcher was responding to questions about MWH's financial practices after the Journal of the American Medical Association reported its aggressive strategies in collecting unpaid bills. Led by a researcher and surgeon at Johns Hopkins University in Baltimore, the study showed that Mary Washington Healthcare took more patients to court for unpaid bills than any other hospital in Virginia in 2017.
Fletcher cited 2018 figures to make the point about the slim profit margin. Mary Washington Hospital, Stafford Hospital and their 40 affiliates generated $624 million in revenue in 2018 while expenses totaled $610 million. That resulted in a profit margin of $14 million.
MWH also had $20 million in bad debt in 2018, Fletcher said. That's not bills written off because patients couldn't afford to pay them; that's debt by patients who "can pay and should pay," but don't, Fletcher said.
Through collection efforts, MWH recouped $18 million of the bad debt. Of that amount, $1.3 million was the result of lawsuits in which the court decided the patients had the means to pay and ordered their wages to be garnished, Fletcher said.
If MWH hadn't come out on the plus side, Fletcher said it wouldn't be able to invest in more health-related operations. That includes an upcoming $12 million expansion of Snowden at Fredericksburg as well as cutting-edge technology and practices that helped Mary Washington Hospital earn the designation as one of the top 50 cardiac hospitals in the nation this year.
"I know $15 million sounds like a lot of money," Fletcher said, as he rounded up the profit margin, "but it's approaching $2 million a day to run the health-care system. The margin represents about eight days worth of costs, and it's 2.4 percent of our total revenue. And 2.4 percent is a razor-thin margin in any industry."
Those familiar with MWH's penchant for lawsuits don't see it that way.
In 2017, the healthcare titan had assets worth more than $427 million and paid out $208 million in salaries, according to the organization's Form 990. CEO Michael McDermott, whose base pay and bonuses totaled $1.3 million that year, topped the list of salaries, but 27 other executives and physicians made between $193,175 and $884,171 that year, according to the Form 990.
Statewide, some of the garnishments against patients who didn't pay their bills in 2017 were as little as $25. Others topped $25,000, according to the JAMA report. At MWH, the garnishments made up 0.21 percent of MWH's total annual revenue, a "very small fraction," said Erin Fuse Brown, an associate law professor at George State University .
"It is hard to imagine the hospital's financial survival depends on going after patients for unpaid bills," she said. "There are better ways for a hospital to improve its finances without ruining the patients it's there to serve."
Brown's work focuses on healthcare costs, and she cited the harm to a person's financial and mental well-being from "being hounded" by hospital lawyers and taken to court. That harm included a damaged credit score, loss of job or home or bankruptcy.
It's enough to keep patients from seeking care, said Cynthia Fisher, CEO, entrepreneur and founder of Patient Rights Advocate, which focuses on transparency in healthcare prices.
"Patients at MWH in Fredericksburg and around the country are fearful to go to the doctor or the hospital because they are one visit away from financial ruin," Fisher said.
DEBT 'A BIG PROBLEM'
The JAMA study looked at hospitals' collection practices because it said one of every five American consumers had medical debt in collections in 2014. That debt has increased as patients are billed directly, insurance deductibles rise and more people are charged for out-of-network services, even if the facility is is in their network.
"Medical debt is a big problem in the United States," according to the National Bankruptcy Forum website. "For years, it’s been the No. 1 reason people file for bankruptcy" even though it's assumed that those struggling financially have overspent in other areas, as well.
The JAMA report looked at Virginia only when studying how hospitals respond to the mounting debt. Researchers chose the state because it has consolidated online court records and a "broad mix of income, political party constituents and metropolitan and rural areas."
Research indicated that five Virginia hospitals were responsible for half of the 20,054 lawsuits filed against patients—and four of the five were nonprofits like Mary Washington Healthcare.
In a National Press Radio story about the practice, Dr. Martin Makary, a Johns Hopkins surgeon and one of the JAMA study's authors, said many nonprofit hospitals were built by churches and designed to be safe havens for people, regardless of their ability to pay.
"Hospitals have a nonprofit status—most of them—for a reason. They're supposed to be community institutions," Makary said in the NPR article. He did not respond to repeated requests for comment from The Free Lance–Star.
The term "nonprofit" may conjure up images of businesses that give everything away and operate without ever making money, but "nonprofits can make a profit, and should try to have some level of positive revenue to build a reserve fund to ensure sustainability," according to the National Council of Nonprofits website.
However, they can't distribute profits to individuals or shareholders because they were formed to benefit public interests, not private ones.
TAXES VERSUS BENEFITS
The most obvious difference between not-for-profit and for-profit hospitals is tax status. MWH and the other 2,967 nonprofit hospitals in the United States don't pay federal, state and local taxes because they're supposed to channel the tax savings into benefits for their communities.
A February 2018 report by Johns Hopkins researchers looked into whether nonprofit hospitals were giving as many benefits as they were receiving. Researchers estimated that nonprofit hospitals got tax exemptions valued about $24.6 billion in 2011.
The research group then looked at new rules the hospitals had to follow in reporting community benefits and assessed those benefits at about $62.4 billion. While the benefits far exceeded the tax exemptions, researchers cautioned there were a lot of variations in how hospitals calculated their benefits.
While MWH notes the negative impact of bad debt, it also counts those losses as part of its community benefits.
"Charity care," or bills that are written off because patients are uninsured or meet the income criteria for financial assistance, also are considered a community benefit. So is the difference between what MWH charges and the reimbursements from Medicaid and Medicare.
"By assisting these patients and accepting the shortfalls in repayment, the organization is in fact relieving government burden and providing a significant community benefit to our service area," states MWH in its 2017 tax return, Form 990.
MWH's annual community benefits average about 10 percent a year, Fletcher said, slightly higher than the national average of 8.1 percent for nonprofit hospitals, according to Health Affairs.
The Affordable Care Act put in place more specific functions hospitals were supposed to provide, such as a needs assessment survey, but the annual average spending has stayed about the same, the Johns Hopkins report said.
LOOKING AT ITS PRACTICES
In wake of the JAMA report, Mary Washington Healthcare put on hold its lawsuits against patients while officials look at current practices. Fletcher said they want to be sure patients get every opportunity to learn about financial assistance, payment plans or any other means that might help.
Information about financial assistance is posted on bills and in treatment areas and billing offices. However, several patients who called The Free Lance–Star said they were never informed of assistance or asked if they qualified. Advocates, who started visiting Fredericksburg after research revealed the high number of court cases filed by MWH, said they heard the same.
That's why Fletcher said the team wanted to take another look.
However, MWH's own Form 990 suggests the message of financial assistance isn't being communicated effectively. Starting in 2011, MWH used a national search—sort of a detective service for healthcare organizations—to locate people who'd "fallen into bad debt."
The search revealed that about one of every four patients who weren't paying their bills couldn't afford to do so. They were eligible for free care or discounted care under MWH's financial assistance policy, according to the Form 990.