Mission Hospital’s Laguna Beach campus is part of state regulators’ ongoing research into whether nonprofit hospitals should be required to deliver specific levels of free healthcare or other “community benefits” to qualify for tax-exempt status.
Mission Laguna was selected by state auditors as an example of a nonprofit hospital that was recently bought by another.
Orange-based St. Joseph Health, which operates three other hospitals in OC, acquired South Coast Medical Center for $36 million and converted it to Mission Laguna in 2009.
“They wanted to confirm the impact on the community health and charity care,” Chief Financial Officer Eileen Haubl said of the state regulators.
“Comfortable”
“We have a philosophy of being transparent,” Haubl added, and are “comfortable” with being audited.
State regulators are looking at how nonprofit hospitals calculate and report the cost of healthcare services provided without payment, often referred to as “charity care.”
Regulators also included in the audit three hospitals in northern California—San Leandro Hospital in San Leandro, El Camino Hospital in Los Gatos and the St. Luke’s campus of San Francisco’s California Pacific Medical Center.
State Senate Majority Leader Ellen Corbett, D-San Leandro, requested the audit of charity care. The auditor’s office recommended that the California Legislature amend the uncompensated care law and give the Office of Health Planning the authority to penalize hospitals that don’t provide specific levels of charity care.
No action has been taken yet on the regulators’ recommendation, Corbett spokesman Andrew LaMar said.
Mission Laguna is no stranger to regulatory scrutiny, since hospital acquisitions among non-profit operators typically require approvals from the California Attorney General.
The go-ahead in the case of St. Joseph buying South Coast Medical Center came with requirements on charity care.
Mission Laguna provided $11.4 million in uncompensated care in the 12 months ended June 2010, according to the auditor. That compares with $61.8 million in net patient revenue over the period.
“The levels we did see at the Laguna Beach campus have exceeded the attorney general’s requirements,” Haubl said.
The subject of charity care by nonprofit hospitals in California has flared up in recent months. Concerns have been heightened in part by media reports showing that providing healthcare for uninsured or underinsured patients primarily falls on financially strained public hospitals in some parts of the state.
Any new standard for charity care by non-profit hospitals would hold the potential to have a significant effect in OC. Most of the hospitals here are non-profit, including many of the largest (see related story, “CHOC’s New Capability,” page 1).
Orange County is one of three in the state that does not have a county-run, public hospital. The county’s Medical Services for the Indigent program pays for care for the indigent or otherwise needy at a number of area hospitals.
Mission Laguna was the only hospital in the audit that reported lower uncompensated care costs in 2010, according to the auditor’s report. It found that the hospital reported a $6 million decrease in unreimbursed costs from the publicly subsidized Medi-Cal program for the needy between 2008 and 2010.
Mission Laguna executives said the decline likely owed to a decision by the hospital’s prior owner, Adventist Health, to discontinue labor and delivery services at the hospital in 2008 and close a skilled nursing unit in early 2009. The attorney general’s office didn’t require those units to be reopened at the Laguna Beach campus as a condition of the later sale to St. Joseph.
Mission Hospital provides maternity services and additional charity care at its main campus in Mission Viejo.
“Just by the nature of the types of services that are on our Mission Viejo campus, with it being a trauma facility, it will tend to have greater levels of charity care,” Haubl said.
Parent St. Joseph Health invested a total of $319 million in community benefits during a 12-month period through June 2011, including $162 million in unreimbursed Medicaid and other programs. That number includes St. Joseph’s hospitals here and in Northern California, Texas and New Mexico.
Flashpoint
The auditor’s report became another flashpoint in the ongoing sniping between the California Hospital Association and the California Nurses Association after its mid-August release. The nursing union told lawmakers at a state Senate special committee hearing that nonprofit hospitals should be required to use 8% of their combined operating and non-operating revenue for charity care.
Hospital association representatives said that more flexibility is needed and that charity care is just one of the community benefits nonprofit hospitals provide.
For example, Mission Laguna’s community benefits include programs to fight childhood obesity, alcohol prevention and providing healthcare to homeless populations.
The results of the state audit and pending recommendation to the Legislature come as St. Joseph plans to join with Newport Beach-based Hoag Memorial Hospital Presbyterian to form a new company that would oversee an integrated regional healthcare network.
