Where’s the Charity? 

For thousands of low-income people, IHC’s nonprofit status is one of the state’s best-kept secrets.

Patti Hainline works as a seasonal employee at Ogden’s Internal Revenue Service office. With her husband, who washes trucks for a living, she supports four children on an income of about $15,000 a year. She is diabetic, uninsured and owes McKay-Dee Hospital, which is owned by Salt Lake City-based Intermountain HealthCare (IHC), more than $4,000.

Gloria Garcia, an uninsured single mother of three children, was earning about $25,000 a year in 1999 when she had to take her daughter and son to an IHC clinic in Ogden. She, too, was unable to pay and owes the health care organization thousands of dollars.

Joe and Teresa Jacquez, another Ogden family, declared bankruptcy after medical bills from the health care company reached $33,000.

When these patients could not pay, Intermountain HealthCare did what many companies do: It took them to court.

IHC is a nonprofit organization that gets tax exemptions in exchange for providing free care for people who cannot afford to pay. Yet, as City Weekly discovered during a four-month investigation of IHC’s business practices, these Ogden families are among thousands of patients who have found IHC to not be very charitable.

Unfortunately for Hainline and the others, they have been caught up in a national drive to make government, churches and nonprofits more businesslike. IHC is just one of hundreds of companies—profit and nonprofit—that have found you don’t build the bottom line by playing Mr. Niceguy.

For IHC and its subsidiaries, it has meant more than $143 million in profits last year. Its top-earning physician, a Bountiful heart surgeon, is the highest-paid person in the company at more than $1 million annually, with senior executives earning more than half a million dollars a year each.

And its net patient revenue makes IHC one of the 50 largest health-care systems in the country, according to Modern Healthcare, an industry trade magazine.

There is no embarrassment of riches among IHC’s executives. They say they use their large size in the best interests of the communities the health care giant serves. IHC claims to have provided $32 million in charity care in more than 95,000 cases statewide during the past year. Since 1998, they also filed nearly 20,000 lawsuits against patients and their families, who are pursued by attorneys working for IHC.

Is this legal? Yes. This is not your father’s generation of nonprofits.

Far from laboring in obscure basement offices with unpaid volunteers like some nonprofits, IHC has ascended to become one of the most successful integrated health-care providers in the brave new world of managed care. IHC is part of a new breed of nonprofits that more closely resembles General Motors than the Salvation Army. But patients aren’t the only ones questioning IHC’s business dealings. Several of the hospital’s competitors complain they could bleed to death if the state continues to subsidize IHC and its aggressive business practices.

As one for-profit hospital official asked, “Shouldn’t we spend the money IHC gets in tax breaks on schools? Shouldn’t taxpayers decide if paying for additional teachers’ salaries is a better use of tax money than funding the growth of IHC?”

Critics say IHC has too much power, not just in deciding who gets free medical care, but in everything from setting how much physicians are paid for their services to determining where hospitals, clinics and other health-care centers are built.

“Their modus operandi has been to use their market dominance to intimidate physicians,” Ogden neurosurgeon Bryson Smith said after he and 14 other Ogden-area doctors left their IHC contracts to protest the rates at which IHC reimbursed them.

To say the monolithic health-care organization is the largest nonprofit group in the state would be akin to depicting the Rocky Mountain West as hilly. Formed as a nonprofit in 1975 when LDS church leaders donated 15 church-owned hospitals to the community, IHC has evolved into an empire of hospitals, clinics, contracted physicians and health-insurance plans unparalleled in the region. It is the state’s largest private employer, providing jobs for 23,000 people—nearly two of every 100 working Utahns. And those who are not on its $800-million-plus payroll likely have visited one of 22 IHC hospitals in Utah and Idaho or are covered by one of the company’s many health insurance plans, which the Utah Department of Insurance estimates account for 28 percent of the state’s health insurance market.

A City Weekly computer analysis of Utah’s 1,000 nonprofits shows the total combined assets of Intermountain HealthCare and its subsidiaries exceed $1.8 billion, dwarfing the next largest group by more than $1.7 billion. Westminster College, the nonprofit with the second largest holdings, had end-of-year assets of $94 million in 2000.

Among nonprofit health-care organizations, the contrast is even more stark. The second largest medical-oriented group is Valley Mental Health with assets of $44 million last year.

Many for-profit companies would envy IHC’s financial statements. IHC’s revenue last year topped $1.7 billion, and the organization netted more than $143 million after expenses in 1999. Its investment portfolio exceeds $1 billion; IHC in 2000 made twice as much from those investments as from its core business.

IHC looks so much like a corporation, the nonprofit company has its own nonprofit foundation, not unlike the Ford Foundation created by gifts from the Ford Motor Co. IHC’s foundation funnels money to other Utah nonprofit groups such as the Travelers Aid Society.

And under federal tax code, like other nonprofits, IHC can legally operate for-profit subsidiaries and accumulate net income as long as it doesn’t distribute it as dividends or stock. Nonprofits must pay taxes on income from commercial subsidiaries but those activities can’t overshadow their exempt mission.

So as owner of for-profit apartment complexes, IHC finds itself as a landlord, once again going to court to evict delinquent renters. Part of this success is thanks to you, the taxpayer. In Salt Lake County alone, the company receives annual property tax exemptions of nearly $4 million. According to City Weekly’s analysis of IHC tax returns, it is exempt from more than $37 million in state, corporate, sales and real estate taxes. And that calculation does not include other taxes such as federal taxes and a capital gains tax on any investments IHC sold.

In addition, Salt Lake County taxpayers are helping fund the growth of the IHC empire with tax-free bonds that will be used to finance the construction of a new multimillion-dollar hospital in Murray. But unlike corporations that must earn a profit or die, IHC not only gets tax breaks, but also receives nearly $5 million a year in charitable contributions.

IHC executives say the organization easily meets its charity mission. Besides the $32 million in charity care for more than 95,000 cases statewide, it owns four clinics for low-income and homeless residents and provides more than $100,000 a year in financial support to several Utah community health centers.

Every year, IHC executives appear before county leaders charged with approving tax exemptions to defend their charitable practices. “We’re subject to public scrutiny,” IHC’s Gary Pearson said at the May meeting of the Salt Lake County Board of Equalization. “Is it comfortable? No. Is it fun? No. But it is necessary.”

The giant hospital chain’s glossy annual report features photographs of patients who receive charitable care. Company officials also bring recipients of free medical treatment before county commissions to reaffirm IHC’s tax-exempt status.

But political leaders and tax officials will never see a photograph of Patti Hainline, Teresa and Joe Jacquez, or Gloria Garcia and her children in IHC’s pamphlets. Their names, however, are easily found in Ogden’s 2nd District Court as defendants in lawsuits brought by IHC.

Each of those families and many others insist IHC employees never mentioned the possibility of “charity” care. In 15 interviews, only two patients remembered being offered the possibility of free medical treatment, and neither of them heard about it from IHC. One learned about the charity care from a friend, the other from her doctor’s secretary.

For thousands of low-income people, IHC’s nonprofit status is one of the state’s best-kept secrets.

“They are a nonprofit?” asked Gloria Garcia. “That’s good to know. I’m going to bring that up in my court hearing.”

The Jacquezes, who both work for a small nonprofit group that advocates on behalf of the mentally disabled, were even more surprised. “We never heard anything about their being a nonprofit,” Teresa Jacquez said. “I never remember anyone saying anything about charitable care.”

Joe Jacquez, 52, suffered three heart attacks in 1999 and was out of work for months. The financial aftermath was nearly as bad as his illness. “It was just a nightmare,” Teresa Jacques said. “He didn’t have any money coming in and I was earning $6.50 an hour working part time. It was a bad time for us.”

Under the Jacquezes’ bankruptcy plan, the couple now is paying $325 a month to creditors, including IHC.

“It’s been hard trying to catch up,” Teresa Jacquez said. “After what happened to him, we’re always behind. We don’t have anything. It’s not like we go and waste our money on boats or expensive vacations, but we still don’t have anything.”

For Patti Hainline, IHC’s diligence translates into the loss of about a third of every paycheck. From a July paycheck, out of her gross earnings of $555, the hospital chain garnished $158.

IHC’s corporate officers say a few patients do fall through the cracks. “With more than 130,000 hospital admissions, 4 million outpatients and millions more patient encounters, are you going to find cases where this happens?” asked Douglas Hammer, IHC’s vice president. “Sure. But this is an anomaly.”

In fact, IHC spokesman Daron Cowley noted that none of the Ogden patients was denied care, that IHC hospitals display posters advertising free care, distribute brochures about IHC’s charitable work and include a statement about the organization’s nonprofit status on every billing statement. Although the Ogden families’ cases are in court and are public record, Cowley would not speak about specific patients without their notarized permission. He agreed to speak about Patti Hainline’s situation after she gave him permission in a telephone conversation.

Cowley said IHC had sent 80 bills to the Hainlines, attempted to call seven times and mailed a charity application.

Hainline remembers receiving the application. “When I got it, the lady on the phone said, ‘You’ve got to have all your tax returns, state and federal, and income information, and you have to have it tomorrow,” she recalls. “Then she said, ‘And you probably won’t qualify anyway.’ And I said, ‘So this is just a waste of time?’”

After all this time, Hainline says IHC is just now making an effort besides sending more bills and court notices.

“I talked to my mom and she said, ‘I wonder why they are calling you now and offering to help out. It couldn’t be because you are talking to a reporter.’”

Cowley insisted that all the families knew charity care was available. “We were left with no other option but to go to court,” he said. And the 20,000 debt-collection cases in Utah courts represent only a tiny fraction of the nearly 20 million patients who went to IHC facilities since 1998, Cowley said.

But City Weekly’s analysis of state health department hospital data shows that the vast majority of IHC’s clients are paying patients who would not need to be taken to court in any case. In 1999, 68 percent either had insurance or paid out of pocket. Nearly all the rest—31 percent— were covered by a government program, usually either Medicaid or Medicare.

In contrast to Hainline, Garcia and the Jacquezes, IHC opened its arms and hospital doors to provide free medical care for at least a dozen wealthy Olympic officials and their families. In a letter to the International Olympic Committee, Nelson promised “discreet” free care for Olympic officials.

Political leaders in at least two counties are skeptical. This spring, Iron County Attorney Scott Burns wanted to yank IHC’s tax-exempt status, saying the organization was not serving the area well enough. Residents of Cedar City, the Iron County seat, must travel to St. George to receive cancer care, kidney dialysis and other services.

IHC executives, doctors, nurses and trustees jammed an Iron County Board of Equalization meeting to make their case for keeping a tax exemption. Utah’s former Republican senator-astronaut Jake Garn, who serves as an IHC trustee, even called Burns urging him not to revoke IHC’s tax-exempt status.

The Iron County Commission extended IHC’s exemption, but only after exacting a promise for a cancer center and dialysis unit, as well as hospital improvements.

Burns still isn’t convinced IHC provides more charity than it costs in property tax, and at his urging, county officials agreed to perform an audit, focusing on how IHC calculated its charitable “gift” to the community. In one instance, Burns said IHC figured that area residents volunteering at the hospital equaled $100,000 in charity care. IHC has been less than charitable in turning away people without insurance and going after others to pay hospital bills, Burns said. “There is story after story of people getting harassed for payment,” he said.

Salt Lake County also is auditing IHC’s charity care after Jim Bradley, a Salt Lake County Council member and longtime IHC critic, urged his colleagues at a May Board of Equalization meeting to look at the nonprofit’s books.

Bradley believes IHC has left many question unanswered. “I have nothing against IHC, but if they are acting like any other corporation, they should pay taxes,” Bradley said. “I have constituents who ask me if the tax exemption is not a form of an anti-competitive practice. They ask, ‘Isn’t IHC using the money they save by not paying taxes to put other people out of business?’”

That is what one of IHC’s largest for-profit competitors is asking. “We don’t want to be at a competitive disadvantage because they don’t pay taxes,” said MountainStar executive Steven Bateman. “We believe there should be a level playing field for health-care providers.”

MountainStar, with six hospitals and 857 beds, pays total taxes of $19.6 million or about 3.4 percent of the company’s gross revenue, Batemen said. IHC, with 18 Utah hospitals and 2,489 beds, paid about $4 million in taxes for its for-profit subsidiaries, a company spokesman said.

So how does IHC do it? Federal tax law changed in 1969, allowing nonprofit health care groups to operate under a new “community benefit” standard that replaced the earlier “charity care” yardstick but did not necessarily require a certain amount of free medical care. In Utah, the first state to require nonprofit hospitals to give out free treatment, hospitals must demonstrate to county officials that they are providing charity care equal or greater to the property taxes they would have to pay as a for-profit company.

Eleven states have enacted legislation requiring nonprofit hospitals to formulate plans on how to meet community needs in return for tax exemptions. A few, such as Texas and Pennsylvania, have established specific charity care expenditure thresholds.

IHC executives not only point to their charitable care, but also say their hospitals and clinics offer better deals than the competition. “Rates remained low in 2000, even though IHC is investing heavily in new construction and technology [and] our health plan premiums remain competitive during a time of cost pressure due to rising pharmacy costs, medical inflation and other factors,” the annual report states.

But the City Weekly analysis of state hospital data showed that IHC charges were comparable to similar-sized institutions, whether or not they were nonprofit or for-profit ventures. IHC public relations literature also touts the nonprofit’s ability to keep health care affordable, but at least one study suggests Utahns’ health care costs are above the national and regional averages.

There are still many small nonprofits, and large charitable organizations such as the Salvation Army, staffed by volunteers and low-paid workers that follow a traditional model of providing needed services to their communities—a path once followed by many church-funded hospitals.

IHC executive Gary Pearson reminded Salt Lake County leaders of IHC’s faith-based origins at Salt Lake County’s May meeting, retelling the story of the LDS church’s 1975 donation. “Our roots go back to the LDS church,” he said. “We have no affiliation with them in any official way. They don’t own us, they don’t run us, but as a church, they gave Intermountain HealthCare as a gift to the community.”

But some wonder if it is a gift that has kept on giving. “It doesn’t feel much like a gift to us,” Teresa Jacquez said.

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Shawn Foster

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