Foundation Board FAQs
- One reason some people state for being hesitant about charitable giving to health care is its high cost. Why does health care cost so much?
- Don’t health care providers get paid adequately to keep up with these costs? Why does SHNM need philanthropy?
- Why don’t you charge more for care so you can get more income?
- Maybe you can cut some costs to gain more income?
- How can some towns smaller than Bemidji build new hospitals and health care facilities? Aren’t they financially challenged too?
- Is my philanthropy used for operating expenses?
- SHNM is designated as a “not for profit” organization. What does that mean? What community benefit does SHNM provide compared to the taxes it does not pay as a not for profit organization?
One reason some people state for being hesitant about charitable giving to health care is its high cost. Why does health care cost so much?
It is important to recognize that rising health care costs is a national issue with multiple causes. There
is no one easy solution to this growing crisis. Main reasons for rising health care costs include:
- Innovation – Consumer demand, technological advances, and competition have driven the rate of revolutionary health care discoveries from one per year to nearly one per week! This innovation rate and advances new frontiers in genetic engineering, pharmacology, and biomedical science pose both ethical and economic issues into the future.
- Demographics – U.S. per capita health care spending for citizens over age 65 is double its closest first world competitor. At the same time, a large population of well-educated baby boomers is willing to spend out-of-pocket resources for health services not covered by traditional health care insurance.
- Competition and Duplication – Challenged financial status of health care providers, coupled with increased consumerism and demand, have given rise to duplication of profitable health services among a variety of providers other than hospitals. Loss of profitable business lines is particularly harmful to hospital economics given the hospital’s high costs of regulatory requirements, service to all persons regardless of ability to pay, and operating hours 7 days a week, 24 hours a day, 365 days a year.
- Work Force Shortages – Increases competition for a shrinking health care workforce has increased compensation expectations for health care workers.
- Excessive Regulation – Health care is a highly regulated industry. American Hospital Association studies indicate that an emergency department nurse spends one hour doing paperwork for every one hour of patient care delivered.
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Don’t health care providers get paid adequately to keep up with these costs? Why does SHNM need philanthropy?
Payment shortfalls, largely under the government programs of Medicare and Medicaid, result in our being paid approximately 55% of our charges for providing its various services. Over the past decade, we have averaged less than a nickel operating income for every dollar billed after paying its expenses of employees, supplies, and other costs of providing services. The routine equipment replacement and upkeep budget of over $3 million annually is increasingly difficult to support from payment received for providing health care services. Larger required investments, such as facility projects or major equipment requirements, require the organization to borrow money. Philanthropy reduces the amount of debt required for projects and the need to use cash resources that must be maintained to ensure financial stability and borrowing capacity for these needed projects.
Why don’t you charge more for care so you can get more income?
Sanford Health of Northern Minnesota's payment for a majority of insurers is “fixed,” regardless of the costs, and often is less than the organization’s costs. Our hospital charges are consistently less than State norms, according to a recent Minnesota Hospital Association survey. SHNM chooses to not inflate its hospital charges because it would cause an undue co-pay and overall out-of-pocket burden for self-pay patients with little benefit to SHNM due to its “fixed” insurer payments. This philosophy is consistent with our mission, vision, and values.
Maybe you can cut some costs to gain more income?
While Sanford Health of Northern Minnesota and all organizations can and should focus on efficiency, we have consistently demonstrated a competitive cost position compared to our peers, according to studies conducted by the Minnesota Hospital Association and other industry benchmarking groups. We are currently participating in productivity studies to maintain our comparative status with these benchmarks.
How can some towns smaller than Bemidji build new hospitals and health care facilities? Aren’t they financially challenged too?
Most health care organizations are economically challenged to update their facilities to meet growing community needs. Some smaller hospitals, known as “critical access hospitals” have a federal government payment advantage over Sanford Health in that they get paid a markup on their costs for serving Medicare and Medicaid patients. By contrast, SHNM receives “fixed” payment from these payers regardless of its cost of care. For its hospital component, SHNM is paid approximately 80% of its costs of care for Medicare and Medicaid patients, and has an annual payment shortfall under these programs of approximately $3.3 million. Economically speaking, SHNM could be coined a “tweener” organization – too large to be categorized as a critical access hospital and gain favored treatment under the Medicare and Medicaid programs, yet too small in many cases to adopt the more profitable services of larger hospitals.
Is my philanthropy used for operating expenses?
The Foundation's policy dictates that at least 95% of philanthropic gifts go to the project intended by the donor. Only 5% of a donor’s designated gift may go toward operating expenses.
SHNM is designated as a “not for profit” organization. What does that mean? What community benefit does SHNM provide compared to the taxes it does not pay as a not for profit organization?
Sanford Health of Northern Minnesota is a not-for-profit organization under Section 501 (c)(3) of the U.S. tax code. Any excess revenues after expenses retained aren’t paid out to stockholders, but instead are reinvested in the organization. SHNM’s not-for-profit mission also focuses on the diverse needs of the communities it services and isn’t directed toward stockholder returns on an investment.
In fiscal year 2009, SHNM provided approximately $21 million in community benefit in the form of unpaid costs of Medicare, Medicaid, and other public programs; case and in-kind donations; traditional charity care; non-billed community service; etc. While SHNM doesn’t pay sales tax on its purchases, it does pay property tax on its senior living apartments and facilities not currently in use. SHNM’s $21 million in documented community benefits FAR exceeds any estimate of potential property tax liability.
If you have further questions about community benefit, philanthropy, or other subjects of interest regarding the Sanford Health Foundation of Northern Minnesota , please contact Penny Echternach, Foundation Executive Director at (218) 333-5515.
