How Much of a Donated Dollar Goes to Healthcare or Research?

As recently as 30-plus years ago, most hospitals were not-for-profit and often run by religious organizations. They were called community hospitals. The public, as well as community and business leaders, financially supported hospitals generously. They served on the board of directors and took great pride in their hospitals. Some community hospitals affiliated with academic medical centers and had internship and residency programs. There was a community spirit which permeated these local teaching hospitals. At the community teaching hospital where I practiced for many years, each patient room had a bronze plaque on the door with the name of a family that donated a significant amount of money to the hospital.

In the 1990s, things began to change and for-profit hospitals appeared. Today there is very little difference between for-profit and not-for-profit hospitals. For-profit hospitals provide about the same amount of charity care as not-for-profit hospitals. Yet not-for-profit hospitals pay no property taxes while for-profit-hospitals pay property taxes. This taxation difference can be a substantial sum and a major financial burden for the cities in which not-for-profit hospitals are located.¹

For example, in one recent study, not-for-profit and for-profit hospitals had similar unreimbursed Medicaid costs as a share of expenses. While another study showed that for-profit hospitals actually provided more charity care than not-for-profit hospitals.² Yet not-for-profit hospitals often avidly solicit monetary donations from the public. They compensate their fundraisers handsomely. Charity Navigator (www.charitynavigator.org) is an internet source for the amount of money hospitals spend on fundraising salaries versus actual medical care. Incredibly some hospitals’ fundraising fees are egregiously as high as 70 to 80 percent of donated money.³

St. Jude is the largest health care charity in the country. Pro Publica, a consumer watchdog organization, did a detailed study of St. Jude focusing on its fundraising efforts.⁴ Each year the hospital sends out hundreds of millions of letters, many with heart-wrenching photos of children receiving cancer treatment. It advertises heavily on television. It has hired celebrities to endorse the hospital. In 2020, St. Jude’s raised a record two billion dollars. It has 5.2 billion dollars in reserve.

Since 2017, only about half of the $7.3 billion dollars St. Jude has received in contributions went to the hospital’s patient care and research. Of the remainder, 30% was spent on fundraising and 20% to its reserve fund. It should be noted that although St. Jude advertises that care is free for those who cannot afford treatment, much of the cost of treatment is paid by the families’ private insurance or by Medicaid.⁵

Although families may not receive a bill from St. Jude, they still sustain significant financial stress, primarily the loss of income as parents take leave from their jobs to be with their child during treatment. In these cases, St. Jude recommends that families apply to other charities or for government help. The head of one of the charities recommended by St. Jude has stated that St. Jude families have the same money problems as the families of other children’s hospitals, even though he said St. Jude’s marketing creates the public perception that it alleviates these burdens.⁶

The fundraising and investment arm of St. Jude known as ALSAC has 2,188 employees. More than 400 of its employees are paid over $100,000 annually. In 2020, St. Jude raised a record two billion roughly equal to the total raised by all the nine children’s hospitals ranked ahead of it in quality. St. Jude’s reserve has grown by 58% over recent years. It has shifted its portfolio to financial products such as private equity funds designed to generate larger returns than stocks, bonds and mutual funds.⁷

Marty Makary, MD, an academic gastrointestinal surgeon and author, in his book “The Price We Pay” notes that hospital charges are notoriously inflated sometimes over 20 times what is paid by Medicare. He cites how his own not-for-profit teaching hospital, Johns Hopkins, sends unpaid patients’ bills to collection agencies. How does this practice differ from the practices of for-profit hospitals?⁸

When not-for-profit hospital finances are exposed and the practices and compensation of fund raisers scrutinized, one can reasonably question why the public would donate any money to hospitals.