Why Many Nonprofit (Wink, Wink) Hospitals Are Rolling in Money

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One owns a for-profit insurer, a venture capital company, and for-profit hospitals in Italy and Kazakhstan; it has just acquired its fourth for-profit hospital in Ireland. Another owns one of the largest for-profit hospitals in London, is partnering to build a massive training facility for a professional basketball team, and has launched and financed 80 for-profit start-ups. Another partners with a wellness spa where rooms cost $4,000 a night and co-invests with “leading private equity firms.”

Do these sound like charities?

These diversified businesses are, in fact, some of the country’s largest nonprofit hospital systems. And they have somehow managed to keep myriad for-profit enterprises under their nonprofit umbrella — a status that means they pay little or no taxes, float bonds at preferred rates, and gain numerous other financial advantages.

Through legal maneuvering, regulatory neglect, and a large dollop of lobbying, they have remained tax-exempt charities, classified as 501(c)(3)s.

“Hospitals are some of the biggest businesses in the U.S. — nonprofit in name only,” said Martin Gaynor, an economics and public policy professor at Carnegie Mellon University. “They realized they could own for-profit businesses and keep their not-for-profit status. So the parking lot is for-profit; the laundry service is for-profit; they open up for-profit entities in other countries that are expressly for making money. Great work if you can get it.”

Many universities’ most robust income streams come from their technically nonprofit hospitals. At Stanford University, 62% of operating revenue in fiscal 2023 was from health services; at the University of Chicago, patient services brought in 49% of operating revenue in fiscal 2022.

To be sure, many hospitals’ major source of income is still likely to be pricey patient care. Because they are nonprofit and therefore, by definition, can’t show that thing called “profit,” excess earnings are called “operating surpluses.” Meanwhile, some nonprofit hospitals, particularly in rural areas and inner cities, struggle to stay afloat because they depend heavily on lower payments from Medicaid and Medicare and have no alternative income streams.

But investments are making “a bigger and bigger difference” in the bottom line of many big systems, said Ge Bai, a professor of health care accounting at the Johns Hopkins University Bloomberg School of Public Health. Investment income helped Cleveland Clinic overcome the deficit incurred during the pandemic.

When many U.S. hospitals were founded over the past two centuries, mostly by religious groups, they were accorded nonprofit status for doling out free care during an era in which fewer people had insurance and bills were modest. The institutions operated on razor-thin margins. But as more Americans gained insurance and medical treatments became more effective — and more expensive — there was money to be made.

Not-for-profit hospitals merged with one another, pursuing economies of scale, like joint purchasing of linens and surgical supplies. Then, in this century, they also began acquiring parts of the health care systems that had long been for-profit, such as doctors’ groups, as well as imaging and surgery centers. That raised some legal eyebrows — how could a nonprofit simply acquire a for-profit? — but regulators and the IRS let it ride.

And in recent years, partnerships with, and ownership of, profit-making ventures have strayed further and further afield from the purported charitable health care mission in their community.

“When I first encountered it, I was dumbfounded — I said, ‘This not charitable,’” said Michael West, an attorney and senior vice president of the New York Council of Nonprofits. “I’ve long questioned why these institutions get away with it. I just don’t see how it’s compliant with the IRS tax code.” West also pointed out that they don’t act like charities: “I mean, everyone knows someone with an outstanding $15,000 bill they can’t pay.”

Hospitals get their tax breaks for providing “charity care and community benefit.” But how much charity care is enough and, more important, what sort of activities count as “community benefit” and how to value them? IRS guidance released this year remains fuzzy on the issue.

Academics who study the subject have consistently found the value of many hospitals’ good work pales in comparison with the value of their tax breaks. Studies have shown that generally nonprofit and for-profit hospitals spend about the same portion of their expenses on the charity care component.

Here are some things listed as “community benefit” on hospital systems’ 990 tax forms: creating jobs; building energy-efficient facilities; hiring minority- or women-owned contractors; upgrading parks with lighting and comfortable seating; creating healing gardens and spas for patients.

All good works, to be sure, but health care?

What’s more, to justify engaging in for-profit business while maintaining their not-for-profit status, hospitals must connect the business revenue to that mission. Otherwise, they pay an unrelated business income tax.

“Their CEOs — many from the corporate world — spout drivel and turn somersaults to make the case,” said Lawton Burns, a management professor at the University of Pennsylvania’s Wharton School. “They do a lot of profitable stuff — they’re very clever and entrepreneurial.”

The truth is that a number of not-for-profit hospitals have become wealthy diversified business organizations. The most visible manifestation of that is outsize executive compensation at many of the country’s big health systems. Seven of the 10 most highly paid nonprofit CEOs in the United States run hospitals and are paid millions, sometimes tens of millions, of dollars annually. The CEOs of the Gates and Ford foundations make far less, just a bit over $1 million.

When challenged about the generous pay packages — as they often are — hospitals respond that running a hospital is a complicated business, that pharmaceutical and insurance execs make much more. Also, board compensation committees determine the payout, considering salaries at comparable institutions as well as the hospital’s financial performance.

One obvious reason for the regulatory tolerance is that hospital systems are major employers — the largest in many states (including Massachusetts, Pennsylvania, Minnesota, Arizona, and Delaware). They are big-time lobbying forces and major donors in Washington and in state capitals.

But some patients have had enough: In a suit brought by a local school board, a judge last year declared that four Pennsylvania hospitals in the Tower Health system had to pay property taxes because its executive pay was “eye popping” and it demonstrated “profit motives through actions such as charging management fees from its hospitals.”

A 2020 Government Accountability Office report chided the IRS for its lack of vigilance in reviewing nonprofit hospitals’ community benefit and recommended ways to “improve IRS oversight.” A follow-up GAO report to Congress in 2023 said, “IRS officials told us that the agency had not revoked a hospital’s tax-exempt status for failing to provide sufficient community benefits in the previous 10 years” and recommended that Congress lay out more specific standards. The IRS declined to comment for this column.

Attorneys general, who regulate charity at the state level, could also get involved. But, in practice, “there is zero accountability,” West said. “Most nonprofits live in fear of the AG. Not hospitals.”

Today’s big hospital systems do miraculous, lifesaving stuff. But they are not channeling Mother Teresa. Maybe it’s time to end the community benefit charade for those that exploit it, and have these big businesses pay at least some tax. Communities could then use those dollars in ways that directly benefit residents’ health.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

Subscribe to KFF Health News’ free Morning Briefing.

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  • Love Sense – by Dr. Sue Johnson

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    Let’s quickly fact-check the subtitle:

    • Is it revolutionary? It has a small element of controversy, but mostly no
    • Is it new? No, it is based on science from the 70s that was expanded in the 80s and 90s and has been, at most, tweaked a little since.
    • Is it science? Yes! It is so much science. This book comes with about a thousand references to scientific studies.

    What’s the controversy, you ask? Dr. Johnson asserts, based on our (as a species) oxytocin responsiveness, that we are biologically hardwired for monogamy. This is in contrast to the prevailing scientific consensus that we are not.

    Aside from that, though, the book is everything you could expect from an expert on attachment theory with more than 35 years of peer-reviewed clinical research, often specifically for Emotionally Focused Therapy (EFT), which is her thing.

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  • Green Coffee Bean Extract: Coffee Benefits Without The Coffee?

    10almonds is reader-supported. We may, at no cost to you, receive a portion of sales if you purchase a product through a link in this article.

    Coffee is, on balance, very good for the health in moderation. We wrote about it here:

    The Bitter Truth About Coffee (or is it?)

    Some quick facts before moving on:

    Those are some compelling statistics!

    But what about the caffeine content?

    Assuming one doesn’t have a caffeine sensitivity, caffeine is also healthy in moderation—but it is easy to accidentally become dependent on it, so it can be good to take a “tolerance break” once in a while, and then reintroduce it with more modest moderation:

    Caffeine: Cognitive Enhancer Or Brain-Wrecker?

    We also, for that matter, have discussed its impact on the gut:

    Coffee & Your Gut ← surprise, it’s a positive impact

    What if I don’t like coffee?

    We suspect that, having seen the title of this article, you know what the answer’s going to be here:

    Green coffee bean extract is the extract from green (i.e. unroasted) coffee beans. It has one or two advantages over drinking coffee:

    1. For those who do not like drinking coffee, this supplement sidesteps that neatly
    2. Roasting coffee beans destroys a lot (sometimes almost all; it depends on the temperature and duration) of their chlorogenic acid, a highly beneficial polyphenol; using unroasted (i.e. green) coffee beans avoids that

    See: Role of roasting conditions in the level of chlorogenic acid content in coffee beans

    All about GCE and CGA

    That’s “green coffee extract” and “chlorogenic acid”, respectively, bearing in mind that the latter is found generously in the former.

    As to what it does:

    ❝CGA is an important and biologically active dietary polyphenol, playing several important and therapeutic roles such as antioxidant activity, antibacterial, hepatoprotective, cardioprotective, anti-inflammatory, antipyretic, neuroprotective, anti-obesity, antiviral, anti-microbial, anti-hypertension, free radicals scavenger and a central nervous system (CNS) stimulator. Furthermore, CGA causes hepatoprotective effects.❞

    👆 Those are the things we know for sure that it does. And it may do even more things:

    ❝In addition, it has been found that CGA could modulate lipid metabolism and glucose in both genetically and healthy metabolic related disorders. It is speculated that CGA can perform crucial roles in lipid and glucose metabolism regulation and thus help to treat many disorders such as hepatic steatosis, cardiovascular disease, diabetes, and obesity as well.❞

    Read in full: Chlorogenic acid (CGA): A pharmacological review and call for further research

    About lipid metabolism

    • Green coffee extract supplementation significantly reduces serum total cholesterol levels.
    • Green coffee extract supplementation significantly reduces serum LDL (“bad” cholesterol) levels.
    • Increases in HDL (“good” cholesterol) after green coffee bean extract consumption are significant in green coffee bean extract dosages ≥400mg/day.

    Source: The effects of green coffee bean extract supplementation on lipid profile in humans: A systematic review and meta-analysis of randomized controlled trials

    About blood glucose and insulin

    • Green coffee extract supplementation significantly improved fasting blood sugar levels
    • Green coffee extract supplementation at ≥400 mg/day significantly lowered postprandial insulin levels (that’s good)

    Source: The influence of green coffee bean extract supplementation on blood glucose levels: A systematic review and dose–response meta-analysis of randomized controlled trials

    Want to try some?

    We don’t sell it, but here for your convenience is an example product on Amazon 😎

    Enjoy!

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  • Sprout Your Seeds, Grains, Beans, Etc

    10almonds is reader-supported. We may, at no cost to you, receive a portion of sales if you purchase a product through a link in this article.

    Good Things Come In Small Packages

    “Sprouting” grains and seeds—that is, allowing them to germinate and begin to grow—enhances their nutritional qualities, boosting their available vitamins, minerals, amino acids, and even antioxidants.

    You may be thinking: surely whatever nutrients are in there, are in there already; how can it be increased?

    Well, the grand sweeping miracle of life itself is beyond the scope of what we have room to cover today, but in few words: there are processes that allow plants to transform stuff into other stuff, and that is part of what is happening.

    Additionally, in the cases of some nutrients, they were there already, but the sprouting process allows them to become more available to us. Think about the later example of how it’s easier to eat and digest a ripe fruit than an unripe one, and now scale that back to a seed and a sprouted seed.

    A third way that sprouting benefits us is by reducing“antinutrients”, such as phytic acid.

    Let’s drop a few examples of the “what”, before we press on to the “how”:

    Sounds great! How do we do it?

    First, take the seeds, grains, nuts, beans, etc that you’re going to sprout. Fine examples to try for a first sprouting session include:

    • Grains: buckwheat, brown rice, quinoa
    • Legumes: soy beans, black beans, kidney beans
    • Greens: broccoli, mustard greens, radish
    • Nuts/seeds: almonds, pumpkin seeds, chia seeds

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    • On the one hand, you’d be surprised how often “life finds a way” when it comes to sprouting ridiculous choices
    • On the other hand, it’s usually easier if you’re not trying to sprout blanched almonds, split lentils, rolled oats, or toasted hulled buckwheat.

    Second, you will need clean water, a jar with a lid, muslin cloth or similar, and a rubber band.

    Next, take an amount of the plants you’ll be sprouting. Let’s say beans of some kind. Try it with ¼ cup to start with; you can do bigger batches once you’re more confident of your setup and the process.

    Rinse and soak them for at least 24 hours. Take care to add more water than it looks like you’ll need, because those beans are thirsty, and sprouting is thirsty work.

    Drain, rinse, and put them in a clean glass jar, covering with just the muslin cloth in place of the lid, held in place by the rubber band. No extra water in it this time, and you’re going to be storing the jar upside down (with ventilation underneath, so for example on some sort of wire rack is ideal) in a dark moderately warm place (e.g. 80℉ / 25℃ is often ideal, but it doesn’t have to be exact, you have wiggle-room, and some things will enjoy a few degrees cooler or warmer than that)

    Each day, rinse and replace until you see that they are sprouting. When they’re sprouting, they’re ready to eat!

    Unless you want to grow a whole plant, in which case, go for it (we recommend looking for a gardening guide in that case).

    But watch out!

    That 80℉ / 25℃ temperature at which our sprouting seeds, beans, grains etc thrive? There are other things that thrive at that temperature too! Things like:

    • E. coli
    • Salmonella
    • Listeria

    …amongst others.

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    1. If it looks or smells bad, throw it out
    2. If in doubt, throw it out
    3. Even if it looks perfect, blanch it (by boiling it in water for 30 seconds, before rinsing it in cold water to take it back to a colder temperature) before eating it or refrigerating it for later.
    4. When you come back to get it from the fridge, see once again points 1 and 2 above.
    5. Ideally you should enjoy sprouted things within 5 days.

    Want to know more about sprouting?

    You’ll love this book that we reviewed recently:

    The Sprout Book – by Doug Evans

    Enjoy!

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    This book is written for what is called the “Highly Sensitive Person”, which makes it sound like a very rare snowflake condition, when in fact the diagnostic criteria (discussed early in the book) yield a population bell curve of 30:40:30, whereupon 30% are in the band of “high sensitivity”, 40% “normal sensitivity” and the remainder “low sensitivity”. You may note that “high” and “low” together outnumber “normal”, but statistics is like that.

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    In the category of criticism, the book does not usefully cover the benefit of psychological resilience. Resilience does not mean losing sensitivity, just, being able to also dry one’s tears and weather life’s slings and arrows when the world is harsher than one might like. But for the authors, they have stacked all their chips on “we must make the world a better place”. Which is a noble goal, if not always an immediately attainable one.

    Bottom line: if you are more sensitive than average and would like to use that to benefit yourself and those around you, then this is the book for you!

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  • The Science-Backed Anti-Inflammatory Diet for Beginners – by Dr. Yasmine Elamir & Dr. William Grist

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    We have written about how to eat to beat inflammation, but what we didn’t do is include 75 recipes and a plan for building up one’s culinary repertoire around those core dishes!

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  • Traveling To Die: The Latest Form of Medical Tourism

    10almonds is reader-supported. We may, at no cost to you, receive a portion of sales if you purchase a product through a link in this article.

    In the 18 months after Francine Milano was diagnosed with a recurrence of the ovarian cancer she thought she’d beaten 20 years ago, she traveled twice from her home in Pennsylvania to Vermont. She went not to ski, hike, or leaf-peep, but to arrange to die.

    “I really wanted to take control over how I left this world,” said the 61-year-old who lives in Lancaster. “I decided that this was an option for me.”

    Dying with medical assistance wasn’t an option when Milano learned in early 2023 that her disease was incurable. At that point, she would have had to travel to Switzerland — or live in the District of Columbia or one of the 10 states where medical aid in dying was legal.

    But Vermont lifted its residency requirement in May 2023, followed by Oregon two months later. (Montana effectively allows aid in dying through a 2009 court decision, but that ruling doesn’t spell out rules around residency. And though New York and California recently considered legislation that would allow out-of-staters to secure aid in dying, neither provision passed.)

    Despite the limited options and the challenges — such as finding doctors in a new state, figuring out where to die, and traveling when too sick to walk to the next room, let alone climb into a car — dozens have made the trek to the two states that have opened their doors to terminally ill nonresidents seeking aid in dying.

    At least 26 people have traveled to Vermont to die, representing nearly 25% of the reported assisted deaths in the state from May 2023 through this June, according to the Vermont Department of Health. In Oregon, 23 out-of-state residents died using medical assistance in 2023, just over 6% of the state total, according to the Oregon Health Authority.

    Oncologist Charles Blanke, whose clinic in Portland is devoted to end-of-life care, said he thinks that Oregon’s total is likely an undercount and he expects the numbers to grow. Over the past year, he said, he’s seen two to four out-of-state patients a week — about one-quarter of his practice — and fielded calls from across the U.S., including New York, the Carolinas, Florida, and “tons from Texas.” But just because patients are willing to travel doesn’t mean it’s easy or that they get their desired outcome.

    “The law is pretty strict about what has to be done,” Blanke said.

    As in other states that allow what some call physician-assisted death or assisted suicide, Oregon and Vermont require patients to be assessed by two doctors. Patients must have less than six months to live, be mentally and cognitively sound, and be physically able to ingest the drugs to end their lives. Charts and records must be reviewed in the state; neglecting to do so constitutes practicing medicine out of state, which violates medical licensing requirements. For the same reason, the patients must be in the state for the initial exam, when they request the drugs, and when they ingest them.

    State legislatures impose those restrictions as safeguards — to balance the rights of patients seeking aid in dying with a legislative imperative not to pass laws that are harmful to anyone, said Peg Sandeen, CEO of the group Death With Dignity. Like many aid-in-dying advocates, however, she said such rules create undue burdens for people who are already suffering.

    Diana Barnard, a Vermont palliative care physician, said some patients cannot even come for their appointments. “They end up being sick or not feeling like traveling, so there’s rescheduling involved,” she said. “It’s asking people to use a significant part of their energy to come here when they really deserve to have the option closer to home.”

    Those opposed to aid in dying include religious groups that say taking a life is immoral, and medical practitioners who argue their job is to make people more comfortable at the end of life, not to end the life itself.

    Anthropologist Anita Hannig, who interviewed dozens of terminally ill patients while researching her 2022 book, “The Day I Die: The Untold Story of Assisted Dying in America,” said she doesn’t expect federal legislation to settle the issue anytime soon. As the Supreme Court did with abortion in 2022, it ruled assisted dying to be a states’ rights issue in 1997.

    During the 2023-24 legislative sessions, 19 states (including Milano’s home state of Pennsylvania) considered aid-in-dying legislation, according to the advocacy group Compassion & Choices. Delaware was the sole state to pass it, but the governor has yet to act on it.

    Sandeen said that many states initially pass restrictive laws — requiring 21-day wait times and psychiatric evaluations, for instance — only to eventually repeal provisions that prove unduly onerous. That makes her optimistic that more states will eventually follow Vermont and Oregon, she said.

    Milano would have preferred to travel to neighboring New Jersey, where aid in dying has been legal since 2019, but its residency requirement made that a nonstarter. And though Oregon has more providers than the largely rural state of Vermont, Milano opted for the nine-hour car ride to Burlington because it was less physically and financially draining than a cross-country trip.

    The logistics were key because Milano knew she’d have to return. When she traveled to Vermont in May 2023 with her husband and her brother, she wasn’t near death. She figured that the next time she was in Vermont, it would be to request the medication. Then she’d have to wait 15 days to receive it.

    The waiting period is standard to ensure that a person has what Barnard calls “thoughtful time to contemplate the decision,” although she said most have done that long before. Some states have shortened the period or, like Oregon, have a waiver option.

    That waiting period can be hard on patients, on top of being away from their health care team, home, and family. Blanke said he has seen as many as 25 relatives attend the death of an Oregon resident, but out-of-staters usually bring only one person. And while finding a place to die can be a problem for Oregonians who are in care homes or hospitals that prohibit aid in dying, it’s especially challenging for nonresidents.

    When Oregon lifted its residency requirement, Blanke advertised on Craigslist and used the results to compile a list of short-term accommodations, including Airbnbs, willing to allow patients to die there. Nonprofits in states with aid-in-dying laws also maintain such lists, Sandeen said.

    Milano hasn’t gotten to the point where she needs to find a place to take the meds and end her life. In fact, because she had a relatively healthy year after her first trip to Vermont, she let her six-month approval period lapse.

    In June, though, she headed back to open another six-month window. This time, she went with a girlfriend who has a camper van. They drove six hours to cross the state border, stopping at a playground and gift shop before sitting in a parking lot where Milano had a Zoom appointment with her doctors rather than driving three more hours to Burlington to meet in person.

    “I don’t know if they do GPS tracking or IP address kind of stuff, but I would have been afraid not to be honest,” she said.

    That’s not all that scares her. She worries she’ll be too sick to return to Vermont when she is ready to die. And, even if she can get there, she wonders whether she’ll have the courage to take the medication. About one-third of people approved for assisted death don’t follow through, Blanke said. For them, it’s often enough to know they have the meds — the control — to end their lives when they want.

    Milano said she is grateful she has that power now while she’s still healthy enough to travel and enjoy life. “I just wish more people had the option,” she said.

    KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

    Subscribe to KFF Health News’ free Morning Briefing.

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