Plain People and Healthcare Economics

[Josh]

The thing that I think would make the biggest change is if more conservative people were doctors, nurses, or in the scientific fields.

I don’t see why we should pursue these fields (although I’m technically in a scientific field, if you consider “data science” to be “science”)... we don’t consider it worthwhile to pursue careers and professions to be “highly esteemed”.

If you want to pursue those worldly, highly esteemed professions, go right ahead. Doing such is part of what it means to be “fancy” as opposed to “plain Anabaptist”. In essence, structuring our lives and culture and church around trying to produce doctors, lawyers, and politicians is the antithesis of what we think we should be doing.

[Sliceitup]

The thing that I think would make the biggest change is if more conservative people were doctors, nurses, or in the scientific fields.

I don’t see why we should pursue these fields (although I’m technically in a scientific field, if you consider “data science” to be “science”)... we don’t consider it worthwhile to pursue careers and professions to be “highly esteemed”.

If you want to pursue those worldly, highly esteemed professions, go right ahead. Doing such is part of what it means to be “fancy” as opposed to “plain Anabaptist”. In essence, structuring our lives and culture and church around trying to produce doctors, lawyers, and politicians is the antithesis of what we think we should be doing.

You put some pretty harsh assumptions on the reasons why someone would enter the medical or professional fields, but you do you.

[ken_sylvania]

If the hospital doesn't expect to get paid either way, which will their accountants prefer when it comes to tax time? A write-off off $100,000 or a write-off of $2 million. I'm guessing the latter. Which is why I suspect a lot of hospital pricing really has to do with inflating their write-offs rather than extracting blood from a turnip.

How does one benefit them more than the other?

[RZehr]

If the hospital doesn't expect to get paid either way, which will their accountants prefer when it comes to tax time? A write-off off $100,000 or a write-off of $2 million. I'm guessing the latter. Which is why I suspect a lot of hospital pricing really has to do with inflating their write-offs rather than extracting blood from a turnip.

How does one benefit them more than the other?

I wonder the same.

[Sliceitup]

If the hospital doesn't expect to get paid either way, which will their accountants prefer when it comes to tax time? A write-off off $100,000 or a write-off of $2 million. I'm guessing the latter. Which is why I suspect a lot of hospital pricing really has to do with inflating their write-offs rather than extracting blood from a turnip.

How does one benefit them more than the other?

I may be wrong, but I think what he’s saying is if someone can’t pay, regardless of price, then the hospital can write that off as a loss, reducing their tax liabilities. So if you write off a million, it’s much better for your taxes than a hundred grand.

[Ken]

If the hospital doesn't expect to get paid either way, which will their accountants prefer when it comes to tax time? A write-off off $100,000 or a write-off of $2 million. I'm guessing the latter. Which is why I suspect a lot of hospital pricing really has to do with inflating their write-offs rather than extracting blood from a turnip.

How does one benefit them more than the other?

I may be wrong, but I think what he’s saying is if someone can’t pay, regardless of price, then the hospital can write that off as a loss, reducing their tax liabilities. So if you write off a million, it’s much better for your taxes than a hundred grand.

Exactly. I think hospitals also get credit for the amount of “charity” care that they do. Which they basically characterize as service they provide for free. So if you can claim $2 million of charity care by inflating prices that is better on paper than $100,000 of charity care. Even if it is the same exact care.

The point is that they have a financial incentive to inflate hospital bills that they know will never get paid.

[ken_sylvania]

If the hospital doesn't expect to get paid either way, which will their accountants prefer when it comes to tax time? A write-off off $100,000 or a write-off of $2 million. I'm guessing the latter. Which is why I suspect a lot of hospital pricing really has to do with inflating their write-offs rather than extracting blood from a turnip.

How does one benefit them more than the other?

I may be wrong, but I think what he’s saying is if someone can’t pay, regardless of price, then the hospital can write that off as a loss, reducing their tax liabilities. So if you write off a million, it’s much better for your taxes than a hundred grand.

Maybe I'm a bit dense, but it seems to me that whether a million dollar write off is better all depends on the starting point. If they are charging a higher price to begin with, then the initial income is higher. So that it takes a larger write-off just to get down to the same place.

For instance, say hospital A charges $100,000 for a surgery, has direct costs of $40,000 and overhead of $35,000. That leaves them with a profit of $25,000 to pay taxes on.
If hospital B charges $500,000 for that same surgery, has the same direct costs of $40,000 and overhead of $35,000, but then writes off a $400,000 self-pay discount, they have the exact same $25,000 of profit to pay taxes on.

How is that a financial incentive?

I'm not saying there might not be other social reasons to do this, but I'm asking about the specific statement that was made - that this is probably better financially for tax reasons.

[RZehr]

I’m clearly no expert here. But I think it isn’t for tax reasons. I think it is “good” for a nonprofit to be able to show the contributions it is making to society. So I think maybe if a nonprofit hospital can show that it forgave $1M, that is better than showing that they forgave $100k.

It may help legitimize or help retain their nonprofit status - even though they are showing a net annual profit.

[Ken]

How does one benefit them more than the other?

I may be wrong, but I think what he’s saying is if someone can’t pay, regardless of price, then the hospital can write that off as a loss, reducing their tax liabilities. So if you write off a million, it’s much better for your taxes than a hundred grand.

Maybe I'm a bit dense, but it seems to me that whether a million dollar write off is better all depends on the starting point. If they are charging a higher price to begin with, then the initial income is higher. So that it takes a larger write-off just to get down to the same place.

For instance, say hospital A charges $100,000 for a surgery, has direct costs of $40,000 and overhead of $35,000. That leaves them with a profit of $25,000 to pay taxes on.
If hospital B charges $500,000 for that same surgery, has the same direct costs of $40,000 and overhead of $35,000, but then writes off a $400,000 self-pay discount, they have the exact same $25,000 of profit to pay taxes on.

How is that a financial incentive?

I'm not saying there might not be other social reasons to do this, but I'm asking about the specific statement that was made - that this is probably better financially for tax reasons.

What you are missing is that most hospitals have a wide variety of prices for the same service.

Their paying customers (which are mostly Medicare/Medicaid and insurance companies) pay negotiated discounted prices for all hospital costs such as surgeries, labs, etc. So their profits are based on the large volume of paying customers. That is their income stream. They can't charge more because the government and insurance companies aren't going to pay more.

Their non-paying customers are mostly the uninsured. These are the people who get the enormous "retail-price" bills. Which the hospitals rarely ever collect on and mostly just write-off. I think that is why you hear stories like those upstream where Menno and Amish folks have sat down to negotiate payment and have gotten large discounts. I suspect the hospitals in question realize that "hey...this is actually a paying customer so we might as well get what we can get rather than writing off the bill like we were planning to do" and they negotiate discounts.

Why else would a hospital charge 10x more to say an indigent uninsured undocumented immigrant than they charge to Medicaid for a Medicaid patient? They know from experience they aren't likely to get paid either way. So might as well inflate the write-off as much as they can.

People do the same exact thing when they make charitable donations to Good Will. You drop off a box of old clothes at Good Will and they hand you a blank receipt that you can put down whatever value you chose to use for the tax deduction. So people will put down $500 for a box of clothes that isn't worth $50. I think hospitals are doing the same exact thing on a MUCH MUCH more massive scale with they play around with pricing on bills that they know aren't going to ever be paid. And it is all legal because there are really no price controls in health care.

Here is an article that discusses this very issue: https://www.taxpolicycenter.org/taxvox/ ... ls-do-more

They conclude that for-profit hospitals actually provide more charity care than non-profit hospitals and that many non-profit hospitals do not really provide enough community benefits to justify their tax-exempt status. Although they don't actually come out and say it. I expect this price inflation I'm talking about is part of an effort by for-profit hospitals to generate tax write-offs and for non-profit hospitals to justify their tax-exempt status.

[ken_sylvania]

I may be wrong, but I think what he’s saying is if someone can’t pay, regardless of price, then the hospital can write that off as a loss, reducing their tax liabilities. So if you write off a million, it’s much better for your taxes than a hundred grand.

Maybe I'm a bit dense, but it seems to me that whether a million dollar write off is better all depends on the starting point. If they are charging a higher price to begin with, then the initial income is higher. So that it takes a larger write-off just to get down to the same place.

For instance, say hospital A charges $100,000 for a surgery, has direct costs of $40,000 and overhead of $35,000. That leaves them with a profit of $25,000 to pay taxes on.
If hospital B charges $500,000 for that same surgery, has the same direct costs of $40,000 and overhead of $35,000, but then writes off a $400,000 self-pay discount, they have the exact same $25,000 of profit to pay taxes on.

How is that a financial incentive?

I'm not saying there might not be other social reasons to do this, but I'm asking about the specific statement that was made - that this is probably better financially for tax reasons.

What you are missing is that most hospitals have a wide variety of prices for the same service.

Their paying customers (which are mostly Medicare/Medicaid and insurance companies) pay negotiated discounted prices for all hospital costs such as surgeries, labs, etc. So their profits are based on the large volume of paying customers. That is their income stream. They can't charge more because the government and insurance companies aren't going to pay more.

Their non-paying customers are mostly the uninsured. These are the people who get the enormous "retail-price" bills. Which the hospitals rarely ever collect on and mostly just write-off. I think that is why you hear stories like those upstream where Menno and Amish folks have sat down to negotiate payment and have gotten large discounts. I suspect the hospitals in question realize that "hey...this is actually a paying customer so we might as well get what we can get rather than writing off the bill like we were planning to do" and they negotiate discounts.

Why else would a hospital charge 10x more to say an indigent uninsured undocumented immigrant than they charge to Medicaid for a Medicaid patient? They know from experience they aren't likely to get paid either way. So might as well inflate the write-off as much as they can.

People do the same exact thing when they make charitable donations to Good Will. You drop off a box of old clothes at Good Will and they hand you a blank receipt that you can put down whatever value you chose to use for the tax deduction. So people will put down $500 for a box of clothes that isn't worth $50. I think hospitals are doing the same exact thing on a MUCH MUCH more massive scale with they play around with pricing on bills that they know aren't going to ever be paid. And it is all legal because there are really no price controls in health care.

No sir, I'm not missing that pricing variety at all.

So tell me again - if I record revenue of $100,000 and then a charitable donation of $90,000, how exactly is that better than if I just record revenue of $10,000? In order for a $100,000 medical bill to exist, the hospital has to book a revenue of $100,000. They can't book a revenue of $10,000, send the customer an invoice for $100,000, then forgive $90,000 of that bill and take a tax deduction for it. There are plenty of games that can be played legally with tax accounting, but that isn't one of them.

Claiming a $500 tax deduction for donating $50 worth of clothes to Goodwill is tax fraud, but people get away with it because (1) most people don't get audited, and (2) it's awfully hard to prove a value for a box of clothes that isn't around to inspect any more. And if by some stroke of luck you happened to have bought a particular limited edition brand of sneakers 20 years ago for $10 that has now appreciated to $1,000 - well, there are special rules that apply that allow you that windfall of a deduction for donating them. And there are special rules allowing extra deductions for charitable donation of inventory. But those rules don't apply for medical services.