News: CJ Exclusives

WakeMed, Rex Spar Over Level of Charity Care

WakeMed officials claim state-owned Rex is not doing its fair share

UPDATE, 12:50 p.m. The Committee on State-Owned Assets chose not to take up the sale of Rex during this year’s short session. The sale may be addressed during the General Assembly’s 2013 long session.

RALEIGH — No matter how you calculate it, WakeMed Health and Hospitals is doing the lion’s share of charity care in Wake County. The private, not-for-profit hospital system complains its quasi-governmental competitor Rex Hospital should do more to ease the burden.

The argument by WakeMed officials that Rex Healthcare doesn’t do its “fair share” of charity care is only one of several grudges WakeMed has against the state-owned hospital. WakeMed officials allege Rex is being subsidized with state tax dollars through its parent entity, UNC Health Care, and complain that the hospital benefits from higher Medicaid reimbursements for its doctors.

To put an end to what they sees as unfair competition, WakeMed board members have offered to purchase Rex for $750 million. State lawmakers are considering the offer in the Select House Committee on State-Owned Assets, which meets today at 10 a.m.

In addition to other advantages, WakeMed officials say Rex’s low level of charity care gives it a competitive edge over WakeMed. The money Rex isn’t spending on the indigent is money it can spend on expanding more profitable services, like cardiology, WakeMed officials argue.

Rex officials counter that the hospital’s location prevents it from providing more charity care for the poor, it does as much community outreach as it can, and because WakeMed started as a county hospital it is obligated to continue its original mission of providing for the county’s needy.

The numbers

There are several ways to calculate how much charity care a hospital provides, and the hospitals classify differing activities as “charity.”

Both Rex and WakeMed voluntarily submit “community benefit” reports to the North Carolina Hospital Association. The data in the reports are self-reported (not validated) and reflect various types of community benefit including: costs that are not reimbursed for treating uninsured, Medicaid, and Medicare patients; community outreach; health professions education; and research costs.

Rex’s report shows a total community benefit of $82.1 million for fiscal year 2010, while WakeMed reported a total community benefit of $179.5 million.

Rex’s total includes $26.2 million the hospital says it spent treating the uninsured, while WakeMed’s report says it lost $67.3 million treating the uninsured.

However, Rex spokeswoman Lisa Schiller argued that Rex’s $82 million versus WakeMed’s $180 million is not a fair comparison.

“The only equal way to evaluate uncompensated care for Wake County providers is to compare hospital systems, because WakeMed bundles WakeMed Cary under WakeMed Raleigh, and reports as a system,” Schiller said.

As a system, UNC Health Care and Rex reported nearly $250 million in community benefit in 2010, compared with WakeMed’s $180 million.

But as WakeMed officials note, UNC hospitals are located in Chapel Hill, not Wake County, so much of the $250 million UNC Health Care spends on uncompensated care benefits people outside of WakeMed’s geographic area.

The vast majority of charity care in Wake County is provided by the four hospitals in Wake County: WakeMed Raleigh, WakeMed Cary, Duke Raleigh, and Rex, respectively.

Schiller also notes that WakeMed, as a system, is more than twice as large as Rex. WakeMed Raleigh and WakeMed Cary together have 870 acute care beds, while Rex has 433.

WakeMed spokeswoman Debbie Laughery responded that even though the WakeMed system may be twice as large as Rex alone, WakeMed still provides more charity care per bed.

According to the hospitals’ reports, WakeMed spent roughly $77,400 per bed treating the uninsured, while Rex spent roughly $60,500 per bed. On community benefit as a whole, WakeMed spent $206,300 per bed, while Rex spent $189,600 per bed.

Laughery said an even better way to compare the hospitals’ charity care contributions is as a percentage of the hospitals’ total expenses. This is how the North Carolina Division of Medical Assistance ranks the state’s 109 acute care hospitals.

The DMA takes divides each hospital’s total costs by the amount it lost treating the uninsured and Medicaid patients. Laughery calls that the only true apples-to-apples comparison.

DMA’s most recent evaluation uses data from fiscal year 2008 Medicaid cost reports. It ranks WakeMed Raleigh as the 11th highest provider of uncompensated care, with its $67 million in Medicaid and uninsured losses representing 12 percent of the hospital’s total expenses.

Rex ranks 97th on the list, with its $18 million in uncompensated care representing less than 5 percent of its total costs. Meanwhile, WakeMed Cary ranks 38th and Duke Raleigh ranks 43rd.

Location, location, location

Schiller said Rex treats every patient who walks through its doors, regardless of the patient’s ability to pay. She said the hospital just happens to be located in a more affluent area than WakeMed.

“When Wake County government opened the WakeMed with funds from the federal Hill Burton Act, it was deliberately located in an underserved area of Wake County,” Schiller said. “A zip code analysis of household income shows that the area in which WakeMed Raleigh is located continues to average lower household incomes [than the area in which Rex is located].

In addition, hospitals with trauma centers and children’s hospitals tend to treat a higher percentage of patients who cannot afford care, Schiller said.

Emergency room visits to WakeMed accounted for 82 percent of all emergency room visits in the county in 2010. Rex and Duke Raleigh each received 9 percent of the county’s emergency room visits.

“An emergency department is a portal for many uninsured who use it for primary care,” Schiller said.

Even though the indigent don’t tend to travel to Rex, Schiller said Rex does its best to travel to them. For example, the hospital has two mobile mammography units that travel all around the region providing free mammograms to women who cannot afford them.

Rex also operates a clinic in southeast Raleigh, 2.8 miles from WakeMed, that loses almost $1 million a year caring for the uninsured and underinsured in that area.

Furthermore, Schiller said WakeMed, by virtue of its origin as a county hospital, has an obligation to provide high levels of charity care.

“When Wake County government gave the hospital to WakeMed [the nonprofit paid the county $125 million for the hospital in 1997], it did so with the requirement that WakeMed would continue to provide a significant amount of uninsured care in the county, and report back to county leaders each year to ensure compliance,” Schiller added.

WakeMed officials argue they have more than fulfilled that promise, and its time for Rex to lighten the load.

An expert on health care finance, Harvard Business School professor Regina Herzlinger said nonprofit hospitals, like WakeMed, are expected to provide a significant amount of charity care.

“It’s sort of a quid pro quo,” Herzlinger said. “You don’t pay taxes, so in exchange you take care of the indigent.”

But government hospitals are expected to provide even more indigent care, she said.

“A government hospital has some advantages over a private hospital in that it can receive tax funding,” Herzlinger said. “But it also is typically the place where the uninsured are treated. County hospitals usually are located where there are a lot of indigent people. They tend to be trauma centers. Trauma is not well compensated. So although they have financial advantages, they also have financial responsiblities.”

Whether Rex is a government hospital remains unclear. While technically it is a private nonprofit, Rex has been classified “governmental” for certain purposes. For example, the hospital is exempt from filing the IRS form 990, because it is owned and operated by the state’s university system.

Either way, Herzlinger said, WakeMed has “a legitimate complaint.”

Sara Burrows is an associate editor of Carolina Journal.