Report: North Carolina hospitals pocketed billions in COVID relief funds

By Theresa Opeka

Raleigh, NC – A report released Wednesday by N.C. State Treasurer Dale Folwell shows how seven of the largest hospital systems in North Carolina profited from billions of COVID relief funds and Medicare payments.

photo by William Yeung

North Carolina State Health Plan and the National Academy for State Health Policy analyzed the audited financial statements of the hospital systems and compiled the report. The work was peer-reviewed by Johns Hopkins University researchers.  

“NASHP analysis has found that many health systems are in more prosperous positions now than before the pandemic,” said Marilyn Bartlett, CPA, senior policy fellow at the National Academy for State Health Policy.

The report shows that Atrium Health, Novant Health, UNC Health, Duke Health, Vidant Health, WakeMed, and Cone Health took in $1.5 billion in COVID relief money and $1.6 billion in Medicare Accelerated and Advanced Payments (MAAP). The federal government based the relief payments on the hospitals’ revenue, not their need. Folwell said most systems had enough cash on hand to operate for more than half a year without any incoming revenue — or 10 times as long as many rural hospitals.

According to the report, after receiving millions of dollars of COVID relief, the hospital systems recorded $5.2 billion in net profits in 2021, along with $7.1 billion growth in cash and investments from 2019 to 2021. While six of the hospitals had record net profits, Duke Health came out ahead of them all with a 41% or $1.8 billion net profit in 2021, a profit margin higher than tobacco and investment banking.

They collected $180.1 million in COVID relief and another $282.1 million in MAAP dollars in 2020 to 2021. The hospital system’s investment portfolio includes about 65% of the funds in riskier assets, including hedge funds and private equities and the investment risk yielded a $1.5 billion growth in cash and investments from June 2019 to 2021. Duke Health had more than $4 billion in cash and investments in 2020 when it accepted the federal money.

What’s more, charity care spending, which is intended to help those in most need, fell across a third of 104 hospitals in 2020 as people struggled with economic lockdowns, job losses, and the spread of the coronavirus. To put into perspective, charity care spending rose only $246.5 million from 2019 to 2020 — an increase that equals less than 8% of the seven systems’ $3.1 billion growth in cash and investments that year.

“These entities who disguise themselves as non-profits have lost their mission,” said Folwell during a press conference at the Legislative Office Building in Raleigh on Wednesday. “They have turned into stock market, private equity, and real estate development firms vs healthcare firms.”

He stressed just like he has in past reports that this is not about the doctors, nurses, and other workers who work in the hospitals but about the executives who run the hospital systems.

“The North Carolina taxpayers are hit by a double-whammy,” said Dr. Ge Bai, professor of health policy & management at the Johns Hopkins Bloomberg School of Public Health and professor of accounting at the Carey Business School. “The federal government channeled taxpayers’ money to the rich and powerful hospitals, especially here in North Carolina, which did not need the money.”

Bai said the hospitals use the windfall profits to engage in mergers and acquisitions in order to consolidate and strengthen their market power, thereby squeezing higher prices from private payers and lobbying for more government handouts. She also mentioned that the same non-profit hospitals didn’t increase their charity care during the pandemic and their charitable mission is why they receive tax-exempt status.

Atrium Health took the most taxpayer relief dollars, collecting $589 million in COVID relief and another $438 million in Medicare advance payments. Atrium Health then made a $1.7 billion net profit after its merger with Wake Forest Baptist Health in 2021. Atrium also announced in May that it plans to merge with Midwest-based Advocate Aurora Health. Atrium has said in the report that the combination will create the fifth-largest health system by revenue in the U.S., with 67 hospitals with combined annual revenues of more than $27 billion. Folwell said Atrium has $12 billion in the bank, which is equivalent to half of the state budget, and that they made that “on the backs of the taxpayers.”

Some hospitals increased billing of poor patients eligible for charity care, while Atrium Health sued hundreds of patients. They also have 63,000 patients enrolled in medical credit cards that can charge up to 18% interest rates, depending on the payment plan. Ironically, the discussion on charity care comes as the Senate passed a Medicaid expansion bill that now awaits a vote in the House.

The report said the North Carolina Healthcare Association representing hospitals argued that criticizing hospitals for billing poor patients during the pandemic was “potentially dangerous,” writing that “hospitals are now spending needed reserves to fight the virus.”

“The report released today falsely demonizes health systems for applying for and using Provider Relief Funds (PRF) to respond to the COVID-19 crisis,” the Association said in a press release. Calling Folwell’s statements “politically motivated”, they went on to say, “cherry-picking financial data, and then spinning it, is not reflective of the many immense struggles and challenges facing the hospital field, including a workforce shortage crisis, along with skyrocketing costs for supplies, equipment, drugs and labor, and near-historic levels of inflation.”

The Association said hospitals are held accountable for these funds through a reporting and auditing process, including charity care, which receives oversight from the IRS. 

The economic windfall was indeed lopsided when it came to rural hospitals, many of whom struggled to stay open during the pandemic. Rep. Allen McNeill, R-Randolph, said that’s just what the $14.5 million in COVID relief that Randolph Health in Asheboro received did – kept the hospital’s doors open and nothing more.

McNeill said the hospital had already gone through a series of talks about keeping the hospital running before COVID hit. “Randolph Hospital eventually filed from bankruptcy and eventually found someone willing to help a struggling rural hospital,” he said. “”Unfortunately, it didn’t come from any person or any entity from North Carolina. A newly formed company from California, called American Healthcare Systems successfully won the bid from bankruptcy court to purchase the assets from Randolph Health in 2021.”

He said it was thanks in part to the laws in the Rural Healthcare Stabilization Act The hospital went from a non-profit to a for-profit hospital and has been out of bankruptcy for a year. He said the debate continues on how to fund rural hospitals.

Folwell said there is little accountability at the state or federal level for nonprofit hospitals’ tax exemptions or community benefits and urged lawmakers to take action, like with the Medical Debt De-Weaponization Act, before things get worse for patients and taxpayers.