Ohio-based hospital chain said to profiteer from massive charity-care program

Cincinnati-based Bon Secours Mercy Health describes itself as a “ministry” that seeks to serve “the poor, dying and underserved.” 

However, it’s one of two Ohio “nonprofit” hospital systems to face scrutiny from Congress over the huge amounts it’s raking in from a federal program meant to subsidize care for the poor. 

It’s using some of that money to pay lavish salaries and buy stadium-naming rights. Meanwhile, it is reportedly boosting the bottom line by serving wealthy communities and neglecting poorer ones — an outcome that, if true, would directly counter the program’s intent.

In April, the U.S. Senate Health, Labor and Pensions Committee released the results of a years-long investigation it made into a federal program that has exploded over the past 15 years. Among the committee’s concerns was that there appeared to be few — if any — controls on the way hospitals, clinics, and contract pharmacies spend the billions they receive from the program.

And it singled out two Ohio-based hospital chains for special focus — Cleveland Clinic and Bon Secours Mercy Health. 

“These hospitals were selected for this investigation as a result of media reports alleging abuse of the 340B Program, such as hospitals cutting services to underserved populations and expanding into affluent areas to increase reimbursement rates and subsequent revenue under the 340B Program,” the committee report said.

The committee’s findings about Cleveland Clinic, which received nearly $1 billion from the program over a 38-month period, are detailed here. 

Ohio’s Cleveland Clinic faces questions over booming subsidies

The report focused on Bon Secours Mercy Health because of media reports that it had gained 340B status from a hospital it owns in a poor, Black neighborhood in Richmond, Va. It steadily depleted resources at that hospital, while adding them at facilities in more affluent neighborhoods nearby, the reporting said.

Bon Secours Mercy Health didn’t respond to requests for comment. But observers said such conduct is likely happening elsewhere in the 50-hospital chain.

Explosive growth

Intended to subsidize care for the needy, the 340B program has grown from $5 billion a year in 2010 to nearly $67 billion in 2023, and analysts say that growth is only accelerating.

The program works by requiring drugmakers to give deep discounts off of list prices for drugs to qualifying hospitals, clinics, and the pharmacies with which they contract. Those entities are then allowed to charge insurers and uninsured customers the full list price and pocket the difference.

The idea behind 340B was to help providers with a large share of uninsured and Medicaid patients make ends meet while they shoulder the cost of uncompensated and under-compensated care.

Cleveland Clinic claimed last month that the program has no impact on taxpayers. But Antonio Ciaccia, a Columbus-based drug-pricing analyst, said the program creates billions in higher costs for insurers and ultimately consumers.

After Congress created the Medicaid Prescription Drug Rebate Program in 1990, it created 340B in 1992, requiring drugmakers to give discounts to qualifying hospitals and clinics that were equal to the Medicaid rebates.

The program grew relatively slowly until passage of the Affordable Care Act in 2010, when rules changes allowed a lot more entities to qualify. It’s since grown by leaps and bounds and is now the second-largest federal prescription-drug program, behind only Medicare Part D.

Growing numbers of hospital systems have joined the 340B program through seemingly giant loopholes.

Cleveland Clinic, for example, doesn’t admit enough Medicaid and uninsured patients to qualify under the original 340B rules. But under a quirk in the new rules, it was allowed in as a “rural-referral center” even though it’s headquartered in the middle of a big city.

Rural referral centers have lower barriers to qualify and are the fastest-growing type of 340B hospitals. Possibly indicating abuse, by 2022, 82% of so-called “rural referral centers” were located in urban areas, as were 77% of their patients, according to the Berkeley Research Group, a consulting firm.

Intended outcome?

Facilities owned by another Ohio-based group — Bon Secours Mercy Health — qualified another way. Its Richmond Community Hospital in Virginia is located in a low-income Black neighborhood in the city’s East End, where it qualifies as a federal “disproportionate share” hospital and thus for the 340B program.

However, the New York Times reported in 2022 Bon Secours Mercy Health hollowed out Richmond Community, closing its intensive care unit, its maternity ward, and other vital departments. 

At the same time, it created legal connections between the hospital and other clinics it owned in wealthier parts of town so that they could get 340B drug discounts. In those facilities it could reap a greater percentage of the 340B benefit because more patients are privately insured. That’s because transactions involving Medicaid patients aren’t eligible for the discount.

The paper reported on the perverse outcome of Bon Secours Mercy Health’s practices: It stripped its hospital in a poor neighborhood of resources while it used money meant for it to build and renovate lavish facilities where few poor people went.

“Bon Secours was basically laundering money through this poor hospital to its wealthy outposts,” Dr. Lucas English, who worked at Richmond Community until 2018, told the Times. “It was all about profits.”

For participating hospitals, the profits can be huge. 

Bon Secours Mercy Health collected $276 million in 340B benefits over a five-year period that ended in 2023, the Senate committee reported. That was just for the facilities that participate in 340B under Richmond Community’s designation — not those connected to any of the chain’s dozens of other hospitals that might separately be part of the 340B program.

Questionable spending

Some critics who want to see reform say there must be greater controls over how money collected under the program is spent. As it is, there don’t appear to be any.

Bon Secours Mercy Health and Cleveland Clinic told Senate investigators that they simply put the money into their general revenue and don’t specifically account for it after that.

As tens of billions more flow each year into hospitals, clinics, and pharmacies that participate in 340B, some are accused of spending on things that have nothing to do with health care — much less health care for the poor.

For example, how much New York University’s Langone Hospitals receive from the 340B program is not publicly available, but the number surely isn’t small. The system raised eyebrows when it spent an estimated $8 million advertising itself during the Super Bowl. 

Bon Secours paid more than $4 million for the naming rights of a Greenville, S.C. sports arena, claiming it would produce better health outcomes for the community.

“We’ve truly used this collaboration to expand our reach beyond hospital walls and live out our mission of building healthier communities, which is why we are very excited to extend this partnership and continue working together to make a difference in our community for many years to come,” Mark Caldwell, an executive with the 340B hospital, said in a written statement.

How the community would be made healthier by the arena’s food and beverage offerings isn’t obvious.

“The arena proudly offers Carolina Smoke BBQ, Well Pressed and Swamp Dog food stands, Reedy River Roost (our in house fried chicken shop!), GVL Pizza, Moe’s Southwest Grill, Pepsi products, and a nice selection of craft beer, domestic beer, and wine,” says the arena’s website, which has a picture of a bartender pouring gin into a cup.

Mercy Health also held the naming rights to the Lake Erie Crushers baseball stadium in Avon, Ohio, until last year. Mercy Health Lorain Hospital, 12 miles away, is a 340B facility.

Community benefit

Nonprofit hospitals receiving huge amounts from 340B aren’t just facing questions about whether they’re using those funds in the best interest of the poor and uninsured. Nonprofit hospitals generally have been coming under fire as analyses have shown that most are not providing community services that are commensurate with the huge tax breaks they enjoy.

Theoretically, institutions are given tax exemptions in exchange for providing community benefits, but in Ohio most nonprofit hospitals receive more than they give, according to a recent analysis. 

Nonprofit hospitals have an obligation to help their communities

The nonpartisan Lown Institute this year reported that Ohio’s nonprofit hospitals get $2.2 billion annually in tax breaks. Yet nearly three quarters (74%) of them provide less than that in community service, the report said. 

That creates a $1.3 billion annual “fair share” deficit — the second-highest of the 20 states studied, the report said. Cleveland Clinic was the biggest offender in the state, with a $207 million annual deficit. That also qualified as the fifth-highest among any hospital in the 20 states, the report said.

Some of these “nonprofit” hospitals are also paying their top brass huge salaries. In the case of Bon Secours Mercy Health, CEO John Starcher Jr. made $8.8 million in reportable compensation in 2023 and an estimated $3.5 million more in “other compensation from the organization and related organizations,” the nonprofit’s IRS Form 990 says. The resulting $12.3 million is 176 times the median household income in Ohio.

The Economic Research Institute in 2022 put Starcher among the 10 highest-paid nonprofit CEOs in the country. The average nonprofit CEO made much less — just $152,199, the report said.