Rehabilitating Health Charities

Nortin HadlerFall is when I attend to charitable contributions. It is the season for writing all those checks in a timely fashion so that I’ll receive the paperwork needed to garner tax credits. My wife and I want to do what we can to soften the hardships of those whose ability to do for themselves is compromised. It is a moral obligation, explicit in the Old Testament: The giving of charity is a duty for the advantaged and the receiving of charity a right, even an obligation according to Maimonides, of the needy. Alms-giving is one of the Five Pillars of Islam. Pope Francis embodies the Christian tradition.

For decades, the list of charities has grown, year by year. Solicitations keep coming, often from new charities. Sometimes the solicitations contain gimmicks such as stamps to put on the return envelope or the gift of coins as inducement. We respond to many of these solicitations with “token” donations but for some the donations require budgeting, particularly early on when our incomes and our family obligations seemed to grow apace. By the turn of the century my cynicism was growing more quickly than charities were proliferating. Today, our donations to charity are few in number, but substantial.

There are entire categories of charity that cause us to pause, none of which I would have predicted years ago, and many of which bear some imprimatur to suggest the charity was committed to the promotion of someone’s “health.” My concern relates less to the definition of “health” than to whose benefit they had in mind. This concern has an educated foundation.

The Disabled, the Disallowed, the Disaffected and the Disavowed

The fashion in which the charge to care for the needy has been served in the industrialized world has been a focus of my research career. My interest in “the illness of work incapacity” has resulted in well over 100 papers and many books written for the professional audience. Stabbed in the Back, which was written for the general audience, offers an overview .

For the first half of the 20th Century, the plight of the individual was the focus of much charitable giving. Religious orders were at the forefront. Labor organizations were developing limited benefit schemes. New public hospitals were opened and old public hospitals expanded. The American Medical Association sanctioned a “sliding” fee scale and physicians volunteered their time in ward services and charity clinics. The settlement house movement fin de siècle played an important role, and some, such as the Hudson Guild, continue to do so to this day. These tend to be lean organizations overwhelmed by the needs of the community they serve. Dollars are too precious to be misspent for long.

Europe overlaid this hit-or-miss approach to charity with social legislation early in the 20th C. Following Prussian precedent, national health insurance, old-age pension schemes, and various disability programs became the rule across the industrialized world but not in America. We accepted Workers’ Compensation, with important modifications, but little else. Old-age pension was legislated during the Roosevelt administration. Medicare waited for LBJ and Medicaid had only a brief run as a national program before reverting to the states.

With Medicare as the cornerstone, America entered into an era of altruism. But this was in the 1970s, and the entry was not rapid, elegant, or without unintended consequences . Some of what begged charity a century ago is now the legislated purview of so-called “entitlement programs”. More must remain judging from the persistence of the precedent patchwork of charities and the ever-expanding cadres of new ones. How many are necessary because they are effective and how many exist because they can?

Non-Profit Tax Legislation

For much of the first half of the 20th Century, the world was embroiled either in war or economic depression. Survival was the rallying cry. America emerged as a “tough love” nation despite growing wealth and influence. The nation’s heart and largesse went out to our heroic veterans, but otherwise we remained a 2-tier society – and the have-nots had little to turn to but what Herbert Hoover termed “voluntary organizations for altruistic purposes.” These included endowments such as Rockefeller and Carnegie Foundations as well as service and trade organization such as Kiwanis and Rotary Clubs. Many of these entities escaped taxation by tradition, particularly the religious orders. But the notion of a “nonprofit sector” appears in the 1950s and enters the IRS Tax Code in the 1970s . Over 90% of the currently active “nonprofit organizations” were established since. Many that were grandfathered into the nonprofit club and many a “new boy” have grown well beyond a collection of devoted, altruistic volunteers. The nonprofit sector is a large industrial sector, termed the “third sector” by Peter Drucker. It waves the banner of altruism to justify the scope of the enterprise and the distance it must maintain between many/most of its activities and its beneficiaries. Despite layer after regulatory layer, new and old and major and minor “501c” enterprises manage to mismanage both their funds and their missions often enough to offer lots of fodder for the print and broadcast media.

The Nonprofit Health Sector

That brings me back to the cynicism that afflicts me in the fall when I look at our folder of charity solicitations. Staring out at me are the multiple solicitations from my almae matres (alma maters in English.) I am forever grateful to have been advantaged by undergraduate and medical educations at 2 of the most elite institutions in the world, and 2 of the most heavily endowed. Each sees an annual endowment income of >$5 Billion! Each receives great gobs of money each year from fabulously wealthy alumni who care about the institution and often want their name emblazoned somewhere as evidence. And each competes very successfully for merit-based funding from government and nonprofits alike. Wouldn’t my pittance of a donation seem more appropriate for the local food kitchen, and have far more utility. I’m a very active alumnus for both these institutions and thus am very familiar with all the counter-arguments. Pshaw. Maybe this year I will demur from putting my money where their mouth is. Maybe not.

My cynicism leaves me little such ambivalence about the solicitations from the disease charities. Many diseases now have NIH institutes thanks to the advocacy of the disease charities. And many more aspire to that banner. Nonprofits of this ilk attract the generosity of the afflicted and their communities, and also the purveyors of whatever is said to be salutary – from pharmaceuticals to devices to non-licensed potions. The larger nonprofits of this ilk own property and have large staffing commitments to burden fund raising and accounting not to mention relationships with “providers”, legislators, regulators and industry. They are a set-up for conflicts of interest and many have succumbed at the local and the national level. Some of this has surfaced in various public scandals; I have discussed several of the more egregious examples elsewhere3. I don’t have the time to explore whether these nonprofits have seen the error in their ways, or whether others are on the cusp of similar ignominy. For my money, diseases don’t need charities; it’s people who are needy. Many of these nonprofits were founded with that as the principle, often by laymen and professionals who were doing the caring. If they didn’t treat that caring tradition as a “loss leader”, they might get my money again.

The other gorilla in the nonprofit health sector is so-called hospitals and clinics. These were the institutions that were supported by the public purse, religious orders, and philanthropies prior to the flowering of employer-based health insurance and Medicare, both in the 1960s. When I joined the attending staff of North Carolina Memorial Hospital in 1973, it had 400 beds, an intimacy among the staff, and a sign at the entrance proclaiming “Built for and by the People of North Carolina.” Today, North Carolina Memorial Hospital has been absorbed into UNC Hospitals, a massive edifice with twice the beds, teeming with all sorts of “care givers” and staff, and totally lacking in charm, let alone intimacy. The sign is now a small brass plaque, which is difficult to spot in the expansive marble entry hall. Hospitals like this, and the similarly bloated clinics, have marketing departments and personnel devoted to consideration of market stakes and expansion. They have “war chests” so that they can build or purchase outlying clinics and hospitals. At one point, UNC Hospitals admitted to a $500 Million war chest when competing with another public hospital for purchase of a nonprofit hospital in a neighboring city.

The overhead of the American health care system averages 5-fold that of our resource-advantaged sister nations. UNC Hospitals is one of the more profitable nonprofits in the medical entrepreneurial firmament. It is envied for such, but it is far from unique. Similarly commonplace is the hospital that, for various reasons, is economically non-viable and sold off to a private-sector conglomerate. Some, such as Georgetown University Hospital, suffered this fate despite its Jesuit roots.

The nonprofit medical centers house enormous bureaucracies notable for hefty salaries, usually topping 7 figures for the most senior suits. These salaries are multiples of the salary of the Governor; they can approach that of a successful football coach. Recently the Milbank Memorial Fund underwrote a report on the chaotic administration of the Medicaid program in most states . The author’s conclusion was that the Directorships of Medicaid programs went to individuals who accepted the position despite salaries that paled next to those garnered by senior health administrators in nonprofits whose purview entailed budgets similar to the state Medicaid programs. It is suggested that higher salaries would appeal to talent that would be a match for the challenges of administering Medicaid programs. Really? I would suggest that the chaos in the Medicaid programs reflects competing, powerful political agendas that needed to be addressed before administration was feasible at any salary. Furthermore, I’d suggest that the inflated salaries of “health” sector administrators elsewhere were reprehensible.

These are the nonprofits that turn to tax exempt bond issues and aggressive billing to underwrite the cost of expansion and to grow the bureaucracy they determine to be necessary. These are the nonprofits that hold fund raisers for their children’s services, or gerontology services, or whatever. It is like the many states with “education lotteries” that take advantage of this income to divert moneys that otherwise would go to education.

I’m not sure anything is rotten in Denmark. As for the USA….

The Moral Dilemma

Donating to a nonprofit is not just an act of personal altruism; it carries a considerable element of communal responsibility. After all, the gift is tax deductible, which means that one is forcing all citizens to participate in the giving since taxation must compensate for the loss in tax revenue.

Likewise, the nonprofit recipient is taking advantage of the communal grace in accepting income without a tax liability. For both the giver and the recipient this is a moral moment.

It is fall and my wife and I are parsing the charitable solicitations. We try to assure that our gifts are monetizing altruism. It is a national reproach that we can’t assume as much.

Nortin Hadler, MD, is a professor of Medicine and Microbiology at the University of North Carolina – Chapel Hill.

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  1. …” profitable nonprofits “…
    Gotta love that. Seems quite profitable being a nonprofit.