Nonprofit hospitals in the US have recently come under fire for acting more like for-profit hospitals, despite taking billions in tax breaks. A New York Times investigative series last year found that large hospital systems took actions like hounding low-income patients for payment, understaffing hospitals on purpose to save on labor costs, giving VIP treatment to donors while transferring poor patients away, and failing to support Black-serving community hospitals. (Listen to this episode of the New York Times podcast The Daily for a rundown.)
Hospitals are increasingly being questioned about their spending on community health, which is a requirement of their tax-exempt status. A 2022 Lown Institute report found that most nonprofit hospital systems failed to spend as much on their communities as they received in tax breaks, resulting in a total $18 billion deficit for the industry.
However, some hospitals are responding to calls for accountability by pushing back. Here are a few recent stories about hospital community investment that show where we are in the movement for hospital social responsibility.
Montana hospitals avoid accountability
Nonprofit hospitals in Montana have fallen short on their community benefit obligations. According to the Lown Index, Montana hospitals took in $70 million more in tax breaks than they gave back to communities in 2019. A 2021 Kaiser Health News investigation found that Montana hospitals’ reported spending on community benefits to the IRS varied widely, with many hospitals reporting rates of spending far lower than the national average.
“There’s really no enforcement, with very little motivation to change things.”
Dr. Vikas Saini, president of the Lown Institute, in Kaiser Health News
In response, Montana state officials proposed legislation that would allow the health department to set new reporting and spending standards for nonprofit hospital community benefit. This would put Montana in line with other states like Massachusetts and Oregon, which have additional requirements for community benefit reporting and spending.
But Montana hospitals have been pushing back, according to a recent update from Kaiser Health News. In response to the legislation, the Montana Hospital Association proposed limiting reporting standards to what hospitals already report to the IRS, which would result in no new information.
It’s telling that the MHA opposes any new reporting standard beyond the federal one. Having additional reporting requirements would allow state officials to see what hospitals spend specifically on community health programs that address the state’s greatest health needs, such as prevention of alcohol abuse and suicide. In reports to the IRS, all community health improvement spending falls into one bucket, making it difficult for states to know what is being spent on programs for specific community health issues.
All hospitals should want to be transparent about their spending and leverage their community benefit programs for the most good. What do Montana hospitals have to hide?
Private equity-backed hospital fails to give back
For-profit hospitals give back similar amounts of financial assistance (free and discounted care to low-income patients) on average than nonprofits. But some for-profit hospitals are very far behind. Fauquier Hospital in Virginia spends far less in charity care than other hospitals in the state, according to a local news investigation citing Lown Institute data. Not only that, their charity care spending as a share of expenses declined by 38% in the years Medicaid was expanded.
“It’s not uncommon for Medicaid expansion to result in a reduction in charity care spending, but that doesn’t mean it’s justified.”
Aaron Toleos, vice president of communications for the Lown Institute, The Fauquier Times
Fauquier hospital protested, citing other spending on programs to benefit the community. Some of these passed our smell test (like $50K in donations to community groups) while others did not ($57.2 million spent to pay employees). A meaningful community benefit is a program undertaken specifically to address a community health or social need beyond day-to-day patient care, even though it doesn’t bring revenue to the hospital. Paying employees is just something all hospitals have to do, not something extra to improve community health.
The Fauquier community is right to ask for transparency from their local hospitals. Even though they are a for-profit and don’t need to abide by the community benefit standard, they could still be doing more for their community, given the financial muscle of the companies behind it. Lifepoint Health, the health system that owns Fauquier, makes billions in revenue each year — and is backed by Apollo Global Management, a private equity firm that manages more than $500 billion in assets.
As the trend of private equity acquisitions in healthcare continues to grow, we have to demand that hospitals within these systems are accountable to the community, not just to shareholders. If Fauquier Hospital is any indication, these private equity-backed hospitals will need more than a nudge to spend their fair share on communities.
Michigan system expands despite fair share deficit
Lastly, Henry Ford Health System’s proposed expansion raises the question, Will this growth benefit the Detroit community? Crain’s Detroit Business recently reported that the flagship hospital is undertaking the largest renovation in its history, with a $2 billion+ investment in a new patient tower, emergency department, research facility, and potentially a hotel on campus. Their goal is to become a destination for patients traveling for care, a la the Cleveland Clinic or Brigham & Womens.
But what about those in the surrounding area who need care? Bob Riney, Henry Ford’s CEO, seems to think the whole city will benefit from the expansion. “A world-class medical facility is key to a world-class city. I’m really excited for the city,” Riney said.
Yet history paints a different story. Henry Ford Health System has one of the largest fair share deficits in the country, spending $213 million less on meaningful community benefits than they received in tax breaks in 2019. Over the past several years, Henry Ford’s spending on financial assistance has declined, from 1.9% of expenses in 2010 to 0.73% of expenses in 2019.
If Henry Ford succeeds in its vision, it will increase its prestige and revenue. But it’s unlikely the health of the Detroit community will improve, given that the hospital is targeting people traveling from across the country, not the surrounding area. In fact, the expansion will bring more of the city’s property under the hospital’s tax-exempt umbrella, which could lead to a similar situation as Cleveland where the city is struggling to maintain the property tax base.
Michigan authorities should take this opportunity to demand higher spending to address health needs of the Detroit community such as lead risk, cardiovascular deaths, opioid use disorder, and others. The state’s Certificate of Need program may be able to leverage more community benefit spending from the system in exchange for approval, as other states have done in the past.