Commentary

Calling out Indiana’s venture capital hospitals

March 30, 2023 7:00 am
hospitals

Today, nearly every hospital corporation in Indiana is a not-for-profit and charged with “advancing the public good.” (Getty Images)

Indiana has long had not-for-profit statutes that permit firms to operate free of taxes. The legislative language on the purpose of a nonprofit is intentionally vague. The General Assembly wisely knew that there were too many different reasons for creating a not-for-profit entity, from youth sports and church daycare to hospitals. However, the best Indiana Law Review article on the subject makes clear that there is a “well established notion that nonprofits advance the public good.”  

Today, nearly every hospital corporation in Indiana is a not-for-profit. I’m pleased to report, that insofar as I can judge from the data, most are focused on that well established notion of ‘advancing the public good.’  

In fact, it would seem that only five or six of Indiana’s not-for-profit hospital firms have dispensed with any pretense of “advancing the public good.” Now, this doesn’t mean they aren’t doing good things that folks are willing to pay for. But, so do Walmart, J.P. Morgan Bank, Amazon, and McDonalds. One key difference is that we tax these for-profit firms.    

Readers might be interested in the relative profits of hospitals. Sadly, 2020 is the last year for easy comparison of IRS and SEC data. That year the nation’s largest for-profit hospital, HCA, reported a 7.3% profit in 2020, while Ascension Health in Indiana reported a 41% profit, up from 24% the year earlier. Community Health Network reported 23.3%, with IU health at 22% and Deaconess at 13.8%. This is flagrant misuse of the not-for-profit statutes. 

If these were for-profit firms, their investors would’ve had a windfall. Instead, they put that money in money market accounts, or offshore investments. That money should flow back into Hoosier communities instead of leaving the state. The losses are startling. Roughly 60% of all the economic growth in Muncie over the last decade was swallowed just by the profits of IU Health and Ball Memorial Hospital.  

The damage to the Muncie economy from IU Health’s monopoly is about twice as large as the economic losses that accompanied Ball Corporation Headquarters leaving for Colorado. Their annual profits are more than four times their total property tax liability if they were a for-profit entity. As shocking as that is, it is nothing like the worst thing the big five hospitals are doing to the state. 

Ascension and more

In early January, Ascension St. Vincent announced it was closing 11 clinics in Indiana. Now, I’m sure this was a random coincidence that had nothing to do with pending legislation aimed at their monopoly power. If reporting is true, most of these clinics were profitable. Of course, system-wide, Ascension is fabulously profitable. In the last year for which we have data, they reported making a profit of more than $308, 000 per employee, less than half of which was from healthcare services.  Ascension Health is today a financial services firm that claims heritage from Catholic charities, but now only dabbles in healthcare. 

The decision to close less profitable clinics would be a typical business decision of a venture capital firm. But, it is wholly incompatible with the “notion that nonprofits advance the public good.” Ascension is a ‘not-for-profit’ entity in name only. Its behavior is that of a large conglomerate. They are not alone. In 2020, IU Health reported a tad more than $4 billion in physical assets in Indiana. Their investment holdings were $7.8 billion. They also made $49,600 per worker in profits in 2020. 

In fact, all the whining that the hospitals and their lobbyists have been doing about recent financial woes is simply because their stock market holdings declined last year. Judged on their assets, these big ‘hospitals’ are really just large financial services firms, who own construction firms, physician offices, restaurants and yes, hospitals.     

Whatever legislation passes through the Indiana legislature this year, it is time to remove the nonprofit status for those systems who are behaving like venture capitalists. 

Pennsylvania just did so for one hospital, and there’s an active debate in Michigan over doing so as well. Removing the not-for-profit status would generate huge tax dollars for cities across Indiana, expose these hospitals to federal laws on non-compete and increase the probability of enforcement of anti-trust regulations.  On top of that it is the right thing to do. 

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Michael Hicks
Michael Hicks

Michael Hicks is the George and Frances Ball Distinguished Professor of Economics and Director of the Center for Business and Economic Research and at Ball State University. He has held faculty positions at the Air Force Institute of Technology, Marshall University and the University of Tennessee. His research has been reported in such places as the Economist, the Atlantic, Rolling Stone, Vanity Fair, Wall Street Journal, the New York Times, the Washington Post, NPR, CNN, CSPAN, CNBC, Fox Business and The Nightly Business Report.

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