Bacon's Rebellion

Democracy Thrives in Sunlight

Virginia’s Remarkably Profitable Nonprofit Hospitals

—

by

James A. Bacon
in

by James C. Sherlock

Moody’s Investor Service, which follows hospital finances and bond issues, has reported[1] that the nationwide nonprofit hospital median operating margin reached 1.7% in FY 2018. The same report defined sustainability operating margins at 2.5% and stated:

Revenue growth remained a major hurdle as hospitals faced ongoing reimbursement challenges and weak inpatient volume growth relative to outpatient visits. … Reimbursement difficulties were underscored by a reported decline in commercial revenue as a percent of gross revenue, while reliance on less lucrative Medicare increased.

Sounds dire and is, but not here. Virginia hospitals never had it as good as they did in 2018. Compared to the rest of the country, Virginia’s nonprofit hospitals constituted  an enormous statistical outlier, something north of four standard deviations from the mean.

I list below the 2018 operating margins of Virginia’s not-for-profit (not-for-tax) and government hospital systems from highest to lowest. These figures are calculated by dividing the 2018 operating income by the same year operating revenue[2] of all of the acute and critical access hospitals in each system.

  • VCU Health System – 13.2% – 2 hospitals (Richmond)
  • Augusta Health – 12.6% – 1 hospital (*Staunton/Waynesboro)
  • Children’s Health System (CHKD) – 10.3% – 1 hospital (* Norfolk – only pediatric hospital in Eastern Region)
  • Inova Health System – 9.6% – 5 hospitals (*Northern Virginia)
  • Sentara Health System – 8.8% – 11 Virginia hospitals (*Hampton Roads)
  • Centra Health, Inc. – 8.4% – 3 hospitals (*Lynchburg)
  • Ballad Health – 7.4% – 6 Virginia hospitals (*SW Virginia)
  • Valley Health System – 7.2% – 4 hospitals* (*Eastern Shenandoah Valley)
  • Riverside Healthcare Association – 6.9% – 5 hospitals (*Northern Neck and Eastern Shore)
  • Mary Washington Healthcare – 5.6% – 2 hospitals (Fredericksburg/Stafford)
  • University of Virginia Health – 5.3% – 1 hospital
  • Bon Secours Mercy Health – 5% – 8 (now 11 in 2020) Virginia hospitals (in both Richmond and Hampton Roads areas)
  • Carilion Clinic – 4.5% – 6 hospitals (*Roanoke area)
  • Chesapeake Regional Healthcare – 3% – 1 Virginia hospital
  • Sustainability operating margin – 2.5%
  • National median nonprofit operating margin – 1.7%
  • Novant Health – 1.2% – 3 Virginia Hospitals (Manassas/Haymarket/Culpeper)
  • Virginia Hospital Center – 0.6% – 1 hospital (Arlington)
    • regional monopoly

I will share just a single observation here and follow up with dedicated columns on many of these “nonprofit” systems, but we will start at the top, the scandalous profits that the VCU Health System, a state hospital authority, extracts from its patients and which are largely unreported in the press.

Consider how the VCU Health System Authority is defined in the Code of Virginia. “The Virginia Commonwealth University Health System Authority is established as a public body corporate, public instrumentality, and political subdivision of the Commonwealth“ directed to “operate and manage general hospital and other health care facilities, engaging in specialized management and operational practices to remain economically viable”[3].

To begin, the VCU Health System Authority receives an annual appropriation of over $27.6 million[4] from the state budget to support 238 instructional and administrative faculty positions. You will wonder why when you read the rest of this.

The combined operating margins of VCU Health hospitals in 2018 and 2017 were 13.2% and 14.7% respectively compared to a national sustainability operating margin of 2.5%. Operating income exceeded $475 million for the two years. If the services of VCU hospitals had been priced to achieve economic viability (sustainability) margins, their combined operating income in those two years would have been slightly over $85 million.

The Medical College of Virginia Foundation, a 501(c)3 nonprofit public charity, has a mission “to inspire and steward philanthropy throughout the MCV campus of Virginia Commonwealth University”. In other words, it manages and dispenses the accumulated reserves. Its net assets or fund balances at the end of 2017 were almost $557 million.5]. One of the foundation’s board members, an employee of the staffing agency used by the foundation, was paid $755,438. Another was a member of the investment firm used by the foundation. He was paid $706,469. The Foundation granted $24 million dollars to VCU-Medical College of Virginia in 2017.

Noting these huge surpluses and the needs to their south, I wrote a letter to the CEO of VCU Health in June of 2019 recommending the acquisition from Community Health Systems of its three failing hospitals south of Richmond in an area of very poor public health, poverty and the highest concentration of African American citizens in Virginia. I never received a reply. Thankfully Bon Secours, a Catholic charity in a far weaker financial position in Virginia than state-controlled VCU Health, stepped in to take on this challenge.

It is fair to ask Dr. Michael Rao, Ph.D., President of VCU and VCU Health System and Chairman the VCU Health System Authority Board of Directors, what was done with the extra $390 million management charged patients in 2017 and 2018 and why that was more important than lowering prices. It is also fair to ask him his concept of the mission of VCU health.

Finally, the Governor and the General Assembly may wish to ask why, given the ongoing violation of the state charter of the VCU Health System Authority, Dr. Rao remains in his post.

James C. Sherlock, a Virginia Beach resident, is a retired Navy Captain and a certified enterprise architect. As a private citizen, he has researched and written about the business of healthcare in Virginia. 

Update: Pamela Lepley, vice president for university relations at Virginia Commonwealth University, responds here.

Update: Margaret Ann Bollmeier, president of the Medical College of Virginia Foundation, responds here.

[1]

Not-for-profit and public healthcare – US: Preliminary medians – Profitability holds steady as revenues and expenses converge; Moodys Investor Services; 2019

[2] vhi.org

[3] § 23.1-2401. Authority established; powers, purposes, and duties

[4] Budget Bill – SB30, Office of Education, Item 217, State Health Services (43000)

[5] IRS Form 990, Return of Organization Exempt from Income Tax, 2017

Share this article

ADVERTISEMENT

(comments below)

ADVERTISEMENT

(comments below)

Comments

48 responses to “Virginia’s Remarkably Profitable Nonprofit Hospitals”

  1. Steve Haner Avatar
    Steve Haner

    So, 2018 – before the expansion of Medicaid coverage and the big increases in provider payments. Imagine what 2020 will look like….

    1. sherlockj Avatar
      sherlockj

      Spot on Steve. Hospital prices, backed by the near ubiquitiousness of regional monopolies, created and protected in turn by COPN, are the reason that in 2018 we had the highest commercial health insurance rates in the country. I will write a column soon about my experiences dealing with the Virginia Department of Health. It has showed itself to be a wholly owned subsidiary of the Virginia Hospital and Healthcare Association. Jim

  2. LarrytheG Avatar
    LarrytheG

    and I also see this: https://annualreports.vcu.edu/vcuhealth/facts-and-figures.html

  3. LarrytheG Avatar
    LarrytheG

    I think that’s what I did and this was the link:

    http://vhi.org/VCU%20Medical%20Center.html?tab=&?=h1009/

    is this what you are using?

    you need to show what data you are accessing if you want others to follow your analysis…

  4. sherlockj Avatar
    sherlockj

    If you did what I recommended, then check the downloads in your browser for the spreadsheet.

  5. sherlockj Avatar
    sherlockj

    As a general comment, Larry, I have been doing research into the business of healthcare in Virginia for 13 years and have compiled 40 gb worth of stored research in preparation for writing a book. As you have seen, I will footnote my essays. Readers are welcome to challenge me on any point which they doubt, as you have done. If the research is still available, I will cite it. Some, like the vhi.org hospital financial spreadsheets for the years prior to 2018, are no longer available to you.

    1. LarrytheG Avatar
      LarrytheG

      @sherlockj – I do appreciate your efforts. Financials are a conundrum for a lot of entities including hospitals and what we often see is disagreement over the numbers and how they are calculated.

      My impression has been that operating margins for most hospitals are razor thin – more like the operating margins for grocery stores than say autos or other goods.

      In fact many hospitals end up going broke in rural areas.

      But even if a given hospital does better than others – I wonder about two things:

      1. – where do their “excess” profits actually go?

      2.- if some hospitals are more “profitable” than others – does it
      really have much relationship to health care costs in general across the board – which includes other hospitals with much lower margins and others still that lose money?

      In other words – how relevant is the fact that a few hospitals that are profitable but not all – to the overall cost of healthcare for all of us?

      thanks and do appreciate your articles.

  6. LarrytheG Avatar
    LarrytheG

    I did … they’re showing different operating margins than yours , correct?

  7. sherlockj Avatar
    sherlockj

    No. What I reported on is the operating margins of each system, not each hospital. To do that requires grouping them by system, adding up the operating revenue and operating income of each of the system’s hospitals, and then dividing operating income by operating revenue to get system operating margin. It is a useful exercise, especially because the reporting on money-losing rural hospitals usually ignores the fact that almost all of them are owned by a regional system that makes money. In those cases, the small rural hospital treats only the simple cases, and transfers the more complex cases to the system’s hub hospital for treatment. It is the complex procedures where the profits lie, including for Medicaid and Medicare patients. So the system generally makes money net from the patients served by the money-losing hospital.

  8. James A. Bacon Avatar
    James A. Bacon

    Posted on behalf of Pam Lepley, Virginia Commonwealth University vice president for university relations:

    Moody’s Investor Service, which rates the VCU Health System’s bonds, reported for 2018 a median 3.2% operating margin median for the Aa category which is the category that VCU Health System is currently rated. In 2018, VCU Health System recorded a 3.7% total operating margin under governmental accounting standards and a 2.9% operating margin under the same guidelines that nongovernmental hospitals use, slightly below the 3.2% median reported by Moody’s. The VCU Health System’s operating margin in 2019 was 2.5% governmental and 1.7% nongovernmental.

    In utilizing limited data from Virginia Health Information (VHI), Mr. Sherlock incorrectly represents that hospitals are stand-alone facilities, when in fact they include and are supported by critical areas such as physician practices (VCU Health System employs all of its physicians), skilled nursing facilities, home health agencies, health plans and more. The VHI recognizes the need for a comprehensive health system financial reporting and has begun collecting data toward that end.

    It is important to understand that as the state’s largest safety net health system, operating margins are reinvested into the health system for the maintenance and modernization of facilities and to provide the highest quality patient care and service to all Virginians regardless of their financial abilities. Additionally, our margins are reinvested to maintain 24×7 standby capacity for services that uniquely serve citizens of the Commonwealth – services such as Level 1 trauma and burn care, transplant, and a unique pathogens unit for emerging diseases, such as coronavirus. The VCU Health System, with an academic health mission, also significantly invests in research and education.

    Finally, we are perplexed by the reference to the MCV Foundation, as it is a separate entity that does not have anything to do with health system finances.

    We would be happy to sit down with Mr. Sherlock and Mr. Bacon to explain health system financing in detail so that future reporting reflects the true picture of nonprofit health care in Virginia.

    1. James A. Bacon Avatar
      James A. Bacon

      Pam, Thanks for your response. I’m glad to hear that the VHI, after a couple of decades in operation, is bringing greater transparency to health system finances. I, for one, would be delighted to learn more about what those numbers mean.

  9. sherlockj Avatar
    sherlockj

    Thank you Pam. I reported the profits of your hospitals that your own accountants and auditors reported to vhi.org. I did not represent them as anything but hospitals. The financial accounting standards reported to and by vhi.org have been under the same rules for years. Unfortunately, VCU Health as a public entity does not file Forms 990, or we could match those with your vhi.org reports. One glimpse into VCU Health’s vertical integration, however, is available. MCV Associated Physicians, a 501c3, files Forms 990 and showed a 10% increase in net assets or fund balances between 2016 and 2017, the last year available online. Not exactly a charity case. You are informing us that the hospital margins support the rest of your system. Congratulations. That is true with every hospital system in America. And every hospital system invests in infrastructure and new and improved capabilities, not just VCU, that is where the concept of sustainability margins originates. Yet no other system in Virginia reports hospital margins as high as VCU Health. UVA Medical Center is rated the #1 academic medical center in Virginia and is rated a top 100 hospital in America every year. VCU Health is not. UVa also has the top rated medical school in Virginia. Yet the UVa system reported 5.3% hospital operating margins in 2018 under the same rules under which VCU Health reported 13.2%. Pretty much apples to apples, don’t you agree? Please explain. As for the MCV Foundation, where exactly did it get its more than half a billion dollars? As for the general fund paying for VCU Health staff, please justify. “Everybody does it” will not suffice. Finally, the insult at the end of your posting is noted. Not necessary, but noted. I await your response to my comments here.

  10. LarrytheG Avatar
    LarrytheG

    I’d be interested in hearing the hospital’s side of it. There’s a lot of numbers involved and a lot of room for misunderstanding.

    I still say – that this is not the answer to the US higher health care costs.

    Hospitals are just 1/2 of the issue. Providers are the other half. Doctors, Nurses, Anesthesiologists, Xray readers, et.. When you get a hospital bill,
    a lot of it is the providers including the infamous 3rd party not in network types!

  11. LarrytheG Avatar
    LarrytheG

    Can you give the exact link you got your data from for VCU?

    I see this:

    http://vhi.org/VCU%20Medical%20Center.html?tab=&?=h1009/

    is this it?

  12. LarrytheG Avatar
    LarrytheG

    Can you give the exact link you got your data from for VCU?

    I see this:

    http://vhi.org/VCU%20Medical%20Center.html?tab=&?=h1009/

    is this it?

  13. Steve Haner Avatar
    Steve Haner

    So, 2018 – before the expansion of Medicaid coverage and the big increases in provider payments. Imagine what 2020 will look like….

    1. sherlockj Avatar
      sherlockj

      Spot on Steve. Hospital prices, backed by the near ubiquitiousness of regional monopolies, created and protected in turn by COPN, are the reason that in 2018 we had the highest commercial health insurance rates in the country. I will write a column soon about my experiences dealing with the Virginia Department of Health. It has showed itself to be a wholly owned subsidiary of the Virginia Hospital and Healthcare Association. Jim

  14. LarrytheG Avatar
    LarrytheG

    and I also see this: https://annualreports.vcu.edu/vcuhealth/facts-and-figures.html

  15. sherlockj Avatar
    sherlockj

    Larry, go to vhi.org, then hospitals, then any hospital, then financials, then “click here” for more information on operating and total margins. A spreadsheet will download. I have been working these for more than a decade, but you can get the latest available which is 2018. It was uploaded in December.

  16. sherlockj Avatar
    sherlockj

    Larry, go to vhi.org, then hospitals, then any hospital, then financials, then “click here” for more information on operating and total margins. A spreadsheet will download. I have been working these for more than a decade, but you can get the latest available which is 2018. It was uploaded in December.

  17. LarrytheG Avatar
    LarrytheG

    I think that’s what I did and this was the link:

    http://vhi.org/VCU%20Medical%20Center.html?tab=&?=h1009/

    is this what you are using?

    you need to show what data you are accessing if you want others to follow your analysis…

  18. sherlockj Avatar
    sherlockj

    If you did what I recommended, then check the downloads in your browser for the spreadsheet.

  19. sherlockj Avatar
    sherlockj

    As a general comment, Larry, I have been doing research into the business of healthcare in Virginia for 13 years and have compiled 40 gb worth of stored research in preparation for writing a book. As you have seen, I will footnote my essays. Readers are welcome to challenge me on any point which they doubt, as you have done. If the research is still available, I will cite it. Some, like the vhi.org hospital financial spreadsheets for the years prior to 2018, are no longer available to you.

    1. LarrytheG Avatar
      LarrytheG

      @sherlockj – I do appreciate your efforts. Financials are a conundrum for a lot of entities including hospitals and what we often see is disagreement over the numbers and how they are calculated.

      My impression has been that operating margins for most hospitals are razor thin – more like the operating margins for grocery stores than say autos or other goods.

      In fact many hospitals end up going broke in rural areas.

      But even if a given hospital does better than others – I wonder about two things:

      1. – where do their “excess” profits actually go?

      2.- if some hospitals are more “profitable” than others – does it
      really have much relationship to health care costs in general across the board – which includes other hospitals with much lower margins and others still that lose money?

      In other words – how relevant is the fact that a few hospitals that are profitable but not all – to the overall cost of healthcare for all of us?

      thanks and do appreciate your articles.

  20. LarrytheG Avatar
    LarrytheG

    I did … they’re showing different operating margins than yours , correct?

  21. sherlockj Avatar
    sherlockj

    No. What I reported on is the operating margins of each system, not each hospital. To do that requires grouping them by system, adding up the operating revenue and operating income of each of the system’s hospitals, and then dividing operating income by operating revenue to get system operating margin. It is a useful exercise, especially because the reporting on money-losing rural hospitals usually ignores the fact that almost all of them are owned by a regional system that makes money. In those cases, the small rural hospital treats only the simple cases, and transfers the more complex cases to the system’s hub hospital for treatment. It is the complex procedures where the profits lie, including for Medicaid and Medicare patients. So the system generally makes money net from the patients served by the money-losing hospital.

  22. James A. Bacon Avatar
    James A. Bacon

    Posted on behalf of Pam Lepley, Virginia Commonwealth University vice president for university relations:

    Moody’s Investor Service, which rates the VCU Health System’s bonds, reported for 2018 a median 3.2% operating margin median for the Aa category which is the category that VCU Health System is currently rated. In 2018, VCU Health System recorded a 3.7% total operating margin under governmental accounting standards and a 2.9% operating margin under the same guidelines that nongovernmental hospitals use, slightly below the 3.2% median reported by Moody’s. The VCU Health System’s operating margin in 2019 was 2.5% governmental and 1.7% nongovernmental.

    In utilizing limited data from Virginia Health Information (VHI), Mr. Sherlock incorrectly represents that hospitals are stand-alone facilities, when in fact they include and are supported by critical areas such as physician practices (VCU Health System employs all of its physicians), skilled nursing facilities, home health agencies, health plans and more. The VHI recognizes the need for a comprehensive health system financial reporting and has begun collecting data toward that end.

    It is important to understand that as the state’s largest safety net health system, operating margins are reinvested into the health system for the maintenance and modernization of facilities and to provide the highest quality patient care and service to all Virginians regardless of their financial abilities. Additionally, our margins are reinvested to maintain 24×7 standby capacity for services that uniquely serve citizens of the Commonwealth – services such as Level 1 trauma and burn care, transplant, and a unique pathogens unit for emerging diseases, such as coronavirus. The VCU Health System, with an academic health mission, also significantly invests in research and education.

    Finally, we are perplexed by the reference to the MCV Foundation, as it is a separate entity that does not have anything to do with health system finances.

    We would be happy to sit down with Mr. Sherlock and Mr. Bacon to explain health system financing in detail so that future reporting reflects the true picture of nonprofit health care in Virginia.

    1. James A. Bacon Avatar
      James A. Bacon

      Pam, Thanks for your response. I’m glad to hear that the VHI, after a couple of decades in operation, is bringing greater transparency to health system finances. I, for one, would be delighted to learn more about what those numbers mean.

  23. sherlockj Avatar
    sherlockj

    Thank you Pam. I reported the profits of your hospitals that your own accountants and auditors reported to vhi.org. I did not represent them as anything but hospitals. The financial accounting standards reported to and by vhi.org have been under the same rules for years. Unfortunately, VCU Health as a public entity does not file Forms 990, or we could match those with your vhi.org reports. One glimpse into VCU Health’s vertical integration, however, is available. MCV Associated Physicians, a 501c3, files Forms 990 and showed a 10% increase in net assets or fund balances between 2016 and 2017, the last year available online. Not exactly a charity case. You are informing us that the hospital margins support the rest of your system. Congratulations. That is true with every hospital system in America. And every hospital system invests in infrastructure and new and improved capabilities, not just VCU, that is where the concept of sustainability margins originates. Yet no other system in Virginia reports hospital margins as high as VCU Health. UVA Medical Center is rated the #1 academic medical center in Virginia and is rated a top 100 hospital in America every year. VCU Health is not. UVa also has the top rated medical school in Virginia. Yet the UVa system reported 5.3% hospital operating margins in 2018 under the same rules under which VCU Health reported 13.2%. Pretty much apples to apples, don’t you agree? Please explain. As for the MCV Foundation, where exactly did it get its more than half a billion dollars? As for the general fund paying for VCU Health staff, please justify. “Everybody does it” will not suffice. Finally, the insult at the end of your posting is noted. Not necessary, but noted. I await your response to my comments here.

  24. sherlockj Avatar
    sherlockj

    The payments I mentioned are found in the Foundation’s IRS Form 990. The way the money is spent as you have just described “to support student scholarships, professorships, research and patient care programs at VCU and VCU Health” it makes it effectively a reserve fund.
    Under the existing reporting standards that are the same for every hospital, VCU’s two hospitals reported the highest system operating margin in the state. That margin was almost three times that of UVa Medical Center. Both are state owned academic medical centers and level 1 trauma centers. I find it scandalous that a public hospital makes the kinds of operating margins your accountants report.
    MCV Foundation gives VCU Health about $25 million annually, as does the Commonwealth. So VCU Health gets $50 million annually before a patient is treated.
    I offer a comparison of apples to apples – VCU Medical Center to UVa Medical Center – using the data each reported to the state for FY 2018:
    1. Each reported about $1.6 billion in net patient revenue – the money they actually realized net of contractual allowance, charity care and bad debt.
    2. VCU patient charges were the highest in the state (the data below are adjusted by the state for case mix and outpatient service revenue):
    – Net revenue per adjusted admission was the highest at $16,346.
    – Paid hours per adjusted admission was also the highest at 173.5.
    3. Overall, the difference in operating margins between UVa Medical Center and VCU Medical center is that VCU billed nine more hours per adjusted admission than UVa and UVa’s costs per adjusted admission were slightly higher. Nine additional paid hours per admission – traceable to procedure coding – on the kinds of complex cases these represent will drive the bottom line in – excuse the expression – a heartbeat.
    4. On the balance sheets, UVa reported $291 million in current assets, VCU almost $800 million. VCU Medical Center’s net worth was $2 billion; UVa Medical Center $1.6 billion. If there is a contest to determine which is richer, VCU wins. However, that is not the mission that the state has given the hospitals it has chartered and supports.
    I stand by my assessment that VCU Health has been billing its patients at higher rates than appropriate to its mission. VCU’s state hospital is getting rich from those practices. No other conclusion is available from an objective assessment of the data that VCU itself has submitted.

  25. LarrytheG Avatar
    LarrytheG

    I’d be interested in hearing the hospital’s side of it. There’s a lot of numbers involved and a lot of room for misunderstanding.

    I still say – that this is not the answer to the US higher health care costs.

    Hospitals are just 1/2 of the issue. Providers are the other half. Doctors, Nurses, Anesthesiologists, Xray readers, et.. When you get a hospital bill,
    a lot of it is the providers including the infamous 3rd party not in network types!

  26. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    James – I greatly admire your work here. You are onto something big here.

    1. sherlockj Avatar
      sherlockj

      Thanks, Reed. The organizations and their leaders that I am challenging are not used to being questioned. They submit their data to the state and IRS and figure no one will look at it. They are right generally, but I do. A lot of work, but kind of rewarding. At least no one is shooting at me. I had two wars worth of that. Jim

  27. James A. Bacon Avatar
    James A. Bacon

    Posted on behalf of Margaret Ann Bollmeier, president of the Medical College of Virginia Foundation:

    The MCV Foundation is an independent 501(c)3 charitable organization. We do not receive, manage or dispense reserves of VCU Health. Our assets are comprised of charitable contributions from donors and investment earnings. Contributions made to the foundation are directed by donors to support student scholarships, professorships, research and patient care programs at VCU and VCU Health. We do not provide any financial compensation to individual board members. We have comprehensive conflict of interest policies, which are managed closely.

    1. sherlockj Avatar
      sherlockj

      Margaret – can I call you Margaret? I am looking at the 2017 IRS Form 990 that you personally submitted. I refer you to Part IV, Business Transactions involving Interested Persons. You listed Keith Middleton, a Foundation board member, to whom you paid $755,438 in that year and David Lyons, another Foundation Board member, to whom you paid $706,469. Middleton was an employee of a staffing company used by the Foundation that you head, and Lyons was an employee of the Foundation’s investment firm. I don’t really care if you gave contracts to a Board members or recruited contractors to serve on your Board, neither of those strategies appears on any list of recommended approaches for 501c3’s. Perhaps you can point those activities out to the IRS and ask for a ruling.

      1. James A. Bacon Avatar
        James A. Bacon

        Correction: It’s important to note that MCV Foundation did not pay Keith Middleton $755,000, but Middleton’s executive-staffing firm $755,000. Likewise, MCV Foundation did not pay David Lyons $706,000, but paid his investment advisory firm $706,000. That still leaves the question of whether it’s appropriate for a nonprofit foundation to have someone serving on the board whose firm is being paid by the board. That’s a reasonable question to ask, and the answer depends on the precise nature of the relationship and the payments.

  28. James A. Bacon Avatar
    James A. Bacon

    Posted on behalf of Margaret Ann Bollmeier, president of the Medical College of Virginia Foundation:

    The MCV Foundation is an independent 501(c)3 charitable organization. We do not receive, manage or dispense reserves of VCU Health. Our assets are comprised of charitable contributions from donors and investment earnings. Contributions made to the foundation are directed by donors to support student scholarships, professorships, research and patient care programs at VCU and VCU Health. We do not provide any financial compensation to individual board members. We have comprehensive conflict of interest policies, which are managed closely.

    1. sherlockj Avatar
      sherlockj

      Margaret – can I call you Margaret? I am looking at the 2017 IRS Form 990 that you personally submitted. I refer you to Part IV, Business Transactions involving Interested Persons. You listed Keith Middleton, a Foundation board member, to whom you paid $755,438 in that year and David Lyons, another Foundation Board member, to whom you paid $706,469. Middleton was an employee of a staffing company used by the Foundation that you head, and Lyons was an employee of the Foundation’s investment firm. I don’t really care if you gave contracts to a Board members or recruited contractors to serve on your Board, neither of those strategies appears on any list of recommended approaches for 501c3’s. Perhaps you can point those activities out to the IRS and ask for a ruling.

      1. James A. Bacon Avatar
        James A. Bacon

        Correction: It’s important to note that MCV Foundation did not pay Keith Middleton $755,000, but Middleton’s executive-staffing firm $755,000. Likewise, MCV Foundation did not pay David Lyons $706,000, but paid his investment advisory firm $706,000. That still leaves the question of whether it’s appropriate for a nonprofit foundation to have someone serving on the board whose firm is being paid by the board. That’s a reasonable question to ask, and the answer depends on the precise nature of the relationship and the payments.

  29. sherlockj Avatar
    sherlockj

    The payments I mentioned are found in the Foundation’s IRS Form 990. The way the money is spent as you have just described “to support student scholarships, professorships, research and patient care programs at VCU and VCU Health” it makes it effectively a reserve fund.
    Under the existing reporting standards that are the same for every hospital, VCU’s two hospitals reported the highest system operating margin in the state. That margin was almost three times that of UVa Medical Center. Both are state owned academic medical centers and level 1 trauma centers. I find it scandalous that a public hospital makes the kinds of operating margins your accountants report.
    MCV Foundation gives VCU Health about $25 million annually, as does the Commonwealth. So VCU Health gets $50 million annually before a patient is treated.
    I offer a comparison of apples to apples – VCU Medical Center to UVa Medical Center – using the data each reported to the state for FY 2018:
    1. Each reported about $1.6 billion in net patient revenue – the money they actually realized net of contractual allowance, charity care and bad debt.
    2. VCU patient charges were the highest in the state (the data below are adjusted by the state for case mix and outpatient service revenue):
    – Net revenue per adjusted admission was the highest at $16,346.
    – Paid hours per adjusted admission was also the highest at 173.5.
    3. Overall, the difference in operating margins between UVa Medical Center and VCU Medical center is that VCU billed nine more hours per adjusted admission than UVa and UVa’s costs per adjusted admission were slightly higher. Nine additional paid hours per admission – traceable to procedure coding – on the kinds of complex cases these represent will drive the bottom line in – excuse the expression – a heartbeat.
    4. On the balance sheets, UVa reported $291 million in current assets, VCU almost $800 million. VCU Medical Center’s net worth was $2 billion; UVa Medical Center $1.6 billion. If there is a contest to determine which is richer, VCU wins. However, that is not the mission that the state has given the hospitals it has chartered and supports.
    I stand by my assessment that VCU Health has been billing its patients at higher rates than appropriate to its mission. VCU’s state hospital is getting rich from those practices. No other conclusion is available from an objective assessment of the data that VCU itself has submitted.

  30. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    James – I greatly admire your work here. You are onto something big here.

    1. sherlockj Avatar
      sherlockj

      Thanks, Reed. The organizations and their leaders that I am challenging are not used to being questioned. They submit their data to the state and IRS and figure no one will look at it. They are right generally, but I do. A lot of work, but kind of rewarding. At least no one is shooting at me. I had two wars worth of that. Jim

  31. yutopyan Avatar
    yutopyan

    This is interesting:
    https://www.nytimes.com/2020/02/20/opinion/nonprofit-hospitals.html

    A number of communities that think nonprofit hospitals take more than they give back have started to sue. The University of Pittsburgh Medical Center fought off one lawsuit from the city’s mayor to revoke its tax-exempt status. It faces another from the Pennsylvania attorney general, alleging that the medical center, valued at $20 billion, “is not fulfilling its obligation as a public charity.”

    Morristown Hospital in New Jersey lost most of its property-tax exemption because it was found to be behaving as a for-profit institution. The judge in the case wrote that if all nonprofit hospitals operated like this, then “modern nonprofit hospitals are essentially legal fictions.”

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Great comment, yutopyan.

      Non-profit monsters are going out of control rogue in America, particularly in health care and higher education. The thieves and scalawags running many of these rogue monsters are stealing America’s middle class blind, gobbling up their income while piling up their debt, and destroying their education and often their health, while amassing vast profits off all the damage they cause.

      Look who invented then fueled and milked the nation’s opioid epidemic. Look who is driving the mental and emotional health of America’s middle class youth into the ditch.

      America needs to hold these modern day robber baron to account, reign them in, and break them and their power up.

  32. yutopyan Avatar
    yutopyan

    This is interesting:
    https://www.nytimes.com/2020/02/20/opinion/nonprofit-hospitals.html

    A number of communities that think nonprofit hospitals take more than they give back have started to sue. The University of Pittsburgh Medical Center fought off one lawsuit from the city’s mayor to revoke its tax-exempt status. It faces another from the Pennsylvania attorney general, alleging that the medical center, valued at $20 billion, “is not fulfilling its obligation as a public charity.”

    Morristown Hospital in New Jersey lost most of its property-tax exemption because it was found to be behaving as a for-profit institution. The judge in the case wrote that if all nonprofit hospitals operated like this, then “modern nonprofit hospitals are essentially legal fictions.”

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Great comment, yutopyan.

      Non-profit monsters are going out of control rogue in America, particularly in health care and higher education. The thieves and scalawags running many of these rogue monsters are stealing America’s middle class blind, gobbling up their income while piling up their debt, and destroying their education and often their health, while amassing vast profits off all the damage they cause.

      Look who invented then fueled and milked the nation’s opioid epidemic. Look who is driving the mental and emotional health of America’s middle class youth into the ditch.

      America needs to hold these modern day robber baron to account, reign them in, and break them and their power up.

  33. Izzo Avatar
    Izzo

    James,

    It may seem like you Sisyphus pushing a ball up the hill, but keep up the good work and produce the analysis we unfortunately don’t see elsewhere. You are on to something important. What we primarily hear in media is reporting on candidate health care plans that have no chance of getting through the U.S. Senate unless there are changes there. There are many areas of healthcare costs that the state can and should address. Hospital concentration is certainly one. You (and Steve Haner re: Energy/Dominion) have been shining a light.

  34. Izzo Avatar
    Izzo

    James,

    It may seem like you Sisyphus pushing a ball up the hill, but keep up the good work and produce the analysis we unfortunately don’t see elsewhere. You are on to something important. What we primarily hear in media is reporting on candidate health care plans that have no chance of getting through the U.S. Senate unless there are changes there. There are many areas of healthcare costs that the state can and should address. Hospital concentration is certainly one. You (and Steve Haner re: Energy/Dominion) have been shining a light.

Leave a Reply

Read More