Because a typical big hospital probably has tens of millions of dollars of actual revenue. They can't do much to mess around with their revenue because it is actual payments coming in from the government and private insurance companies. I don't think they book revenue from their billings. The book it from their receipts.ken_sylvania wrote: ↑Tue Aug 03, 2021 8:56 pmNo sir, I'm not missing that pricing variety at all.Ken wrote: ↑Tue Aug 03, 2021 8:33 pmWhat you are missing is that most hospitals have a wide variety of prices for the same service.ken_sylvania wrote: ↑Tue Aug 03, 2021 7:14 pm
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.
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.
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.
The only thing they can really do to reduce their tax bills is increase their costs. Some of those like labor, utilities, equipment, etc. are pretty fixed. The one place they can really get creative is in how they calculate the value of the charitable care that they do (and write off).
What I am saying is happening is that a hospital issues a $100,000 bill for services to an indigent patient who pays zero. The hospital books ZERO revenue from that bill because they did not get paid. But they credit themselves as having given $100,000 worth of indigent or charity care that they write-off.
Sure the hospital could have issued a $10,000 bill for the same service. Perhaps that is what Medicaid would have paid for that service. In this case the patient isn't going to pay either way no matter how big or little the bill is. But then when they write off the bill as charity care they only get a $10,000 write off.
There is no price regulation in medicine. Hospitals are free to charge whatever they want for for this sort of care. I'm saying that the tax code gives them a powerful incentive to inflate the value of the charity care that they do write-off if we are talking about a for-profit hospital.