The US House of Representatives Ways and Means Committee just held a hearing on tax-exempt hospitals and the community benefit standard, where the Lown Institute’s work on Fair Share Spending was included in the record. The hearing featured testimony from experts at the Government Accountability Office, Kaiser Family Foundation, the Johns Hopkins School of Public Health, and the American Hospitals Association.
What is the hospital community benefit standard and why is it getting so much attention? If you want to get up to date fast on this key health policy issue, we’ve got you covered. Here are some of the most important things you need to know about community benefits…
1. Community benefit standard is a requirement for tax-exempt hospitals
Most hospitals in the US are private nonprofit hospitals that are exempt from most federal, state, and local taxes. For big hospitals that bring in billions in revenue and own many properties, that’s a huge benefit. Overall, it’s estimated that the nonprofit tax exemption is worth nearly $30 billion a year for the industry.
As a condition for their tax-exempt status, nonprofit hospitals have to offer financial assistance (free or discounted care, also known as charity care) to low-income patients and engage in other activities to promote community health. They have to report spending on these activities on their tax form 990.
That sounds like a fair trade–communities invest their tax dollars in hospitals, which provide charitable care and other programs back to the community. But here’s the kicker…
2. There is no minimum amount hospitals have to spend on community benefits
Under the Affordable Care Act, hospitals have to report their community benefit spending, but there is technically no minimum amount they have to spend to maintain their tax exemption. As a result, the amount hospitals spend on community benefits is extremely variable. One study found that the top-spending hospitals devote $0.18 of every dollar in expenditures to community benefits, while the lowest-spending give less than $0.01. A 2020 report from the Government Accountability Office identified 30 hospitals that reported no spending at all.
In a trial last year, a Sutter Health executive said the quiet part out loud when they testified that giving financial assistance was not a requirement for being a nonprofit hospital. Nonprofit hospitals must have a financial assistance policy that outlines which patients are eligible for assistance, and they have to make this policy widely available. However, the way that hospitals implement this policy is up to them. Hospitals can create very generous financial assistance policies that presume people are eligible and offer free care upfront, or they can choose not to mention financial assistance to patients or put up obstacles like burdensome applications.
Because these requirements are pretty lax, maybe it’s not so surprising that…
3. Nonprofit hospitals don’t give more charity care than for-profits
Given the significant tax benefits that nonprofit hospitals receive, one would expect that as a group, they outspend for-profit hospitals substantially. But research shows that isn’t the case. Several recent analyses of hospital spending on financial assistance using hospital cost reports show that overall, nonprofits don’t spend significantly more on financial assistance than for-profits do. In fact, two of these studies found that nonprofits spend slightly less than for-profits.
This may be because for-profit hospitals are located in areas with higher need for free care, or that hospitals that serve disproportionately more low-income patients are more likely to suffer financially and get bought by a for-profit system. Whatever the reason, it’s worth examining why for-profits appear to be outspending their nonprofit counterparts on charity care.
But there are more types of community benefit spending than just financial assistance, right? Let’s talk about that.
4. Not all community benefit categories are equally meaningful
When you imagine programs to improve community health, you might think of free immunizations, health fairs and educational classes, food pantries and other nutritional assistance, investments in affordable housing, healthcare for the homeless, etc. However, these types of programs actually make up only a small fraction of what hospitals report as community benefit spending.
The IRS 990 form includes eight types of community benefit spending hospitals can report. Some of these categories, such as community health improvement services, community building activities, and contributions to community groups, incorporate the types of programs one would expect to see hospitals undertaking to improve community health and social conditions. Of all the community benefit spending reported, less than 8% goes to these categories.
Where does the rest go? About 20% goes to financial assistance, or charity care. But the largest single proportion is reported as Medicaid shortfall, or the difference between what Medicaid pays hospitals and their cost of care. It’s incredibly important that hospitals care for patients with Medicaid, but the “shortfall” they report is not spending that goes into tangible community programs or the pockets of patients. Hospitals offer discounts on care to insurers all the time based on their negotiations, but these aren’t considered community benefits–why should Medicaid discounts be different? Most hospitals already make up this shortfall from public insurers by charging private insurers more than the cost of care.
Another large category of community benefit spending is health professions training and research. We are in a provider shortage and clearly training medical professionals is a public good. But hospitals’ spending on this training doesn’t necessarily align with community need. There’s no guarantee that the doctors and nurses training at a medical school will go on to work in underserved areas or specialties like primary care; in fact, most of them don’t. Medical research is also undoubtedly good for society, but hospitals already receive funding for research from the government and other sources. Even if this research is fully funded, hospitals can still report it as a community benefit.
(For more on the different categories of community benefit, check out our op-ed in Stat News.)
How can it be that so much reported community benefit spending isn’t directly related to community health needs? This issue stems from a key disconnect in the community benefit standard…
5) Community benefit spending does not have to be connected to community health needs
Under the Affordable Care Act, hospitals have to create a community health needs assessment (CHNA) every three years that identifies the most important health needs in their community. Hospitals spend a significant amount of time and resources to conduct the CHNA and understand what barriers are keeping their communities from living their healthiest lives.
Hospitals are then supposed to create an implementation plan that explains what measures they will take to address these health needs. But there is no requirement that hospitals spend a certain amount on these programs, or even report specifically how much they are spending on the implementation. In fact, one study found that 42% of hospital CHNAs don’t include any information on how their community benefit programs have impacted health needs thus far.
This disconnect can lead to situations like in Atlanta, where Wellstar Health System identified access to care as a key health need for the Atlanta area in their CHNA, then proceeded to close both of their Atlanta hospitals.
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The hospital community benefit has enormous potential to make a difference in community health and financial well-being. If all hospitals invested heavily in financial assistance and community health programs, we would undoubtedly see less medical debt burden and improved outcomes. However, the current regulatory landscape gives hospitals little incentive to reach this potential. Clearly there needs to be more transparency and accountability on this issue, so we’re happy to see both federal and state policymakers stepping up and taking action.
For more on how states are addressing hospital community benefit spending, check out our Fair Share Spending event featuring health policy leaders from Oregon, Pennsylvania, California, and Colorado.