Medical debt and community benefit spending: How states are taking action

On April 11th, the Lown Institute launched the third edition of their report on Fair Share Spending. The launch event included policymakers and health policy experts from across the country, including Lisa Frank, Chief Operating Officer and Administrative Officer for the City of Pittsburgh, Steven Ranzoni, Hospital Advisor at the Oregon Health Authority, Dr. Naman Shah, Director of Medical and Dental Affairs at the Los Angeles County Department of Public Health, and Nancy Dolson from the Colorado Department of Health Care Policy and Financing,  

Watch the video recording of the event

The United States is experiencing a unique and complex issue of severe medical debt, a problem that nonprofit hospitals could address with more spending on financial assistance. As of 2022, about 41% of adult Americans are in medical debt, amassing $195 billion in total. Meanwhile, large nonprofit hospital systems receive tax breaks that far outweigh their spending on financial assistance and other investments in community health. This is the case for 77% of nonprofit hospitals and a total of $14.2 billion in 2020. As concern over nonprofit hospital social responsibility has grown, some states are combating these issues legislatively and judicially.

The impact of medical debt

In Los Angeles, officials are sounding the alarm of medical debt as a public health crisis. The Department of Public Health conducted a survey on medical debt in the county and found that from 2017-2022, one in ten adult residents in LA County experienced burdensome medical debt.  

“We are taking on medical debt not just as an individual issue, but as a systemic, population, public health issue.”

Dr. Naman Shah, Director of Medical and Dental Affairs at the Los Angeles County Department of Public Health.

Medical debt led to increased credit card debt, mental health issues, avoidance of healthcare and food insecurity. The burden of medical debt didn’t change even as access to health insurance expanded, Shah noted. 

However, there is potential for hospitals to make transformative change in their communities when they work together. Recently, Los Angeles hospitals combined forces with the County and dedicated a portion of their community benefit investments to focus on addressing homelessness, which affects 69,000 county residents each year. This presents an opportunity that will not only impact thousands of individuals but also significantly push for the improvement of public health.

Innovative state legislation

One potential solution to the mounting crisis of medical debt nationwide is to encourage hospitals to increase their spending on financial assistance, which is free or discounted care offered to eligible low-income patients. 

Oregon became a leader on this issue when they passed HB 3076 in 2019. The bill, which went into effect for the first year in 2021, both created standards for hospitals’ financial assistance policies and set minimum community benefit spending floors for nonprofit hospitals. 

Steven Ranzoni, the Hospital Advisor at the Oregon Health Authority, states that this bill has resulted in a “notable increase and heightened focus on the community benefit practices, the planning, and the communication” from nonprofit hospitals. Ranzoni was optimistic that other states could implement legislation similar to Oregon’s. 

Notably, the Oregon Health Authority creates spending floors for each hospital individually based on their financial position and the community’s needs, rather than having a “one size fits all” standard. Ranzoni lauded the flexibility of the program to meet the needs of a variety of types of hospitals.

“We have hospitals that are so small, their number one priority is keeping their doors open. We can’t have an expectation that they’re developing some grand affordable housing plan…. But that’s not the case for the hospitals in the greater Portland area.”

Steven Ranzoni, Hospital Advisor at the Oregon Health Authority

Colorado is also considering a bill HB 23-1243, which would promote transparency and accountability around hospital community benefit spending. This bill requires more definitive and specific reporting measures that allow for a community’s critical examination of what was promised and what was received. Even more interesting, the bill would have auditors calculate the precise value of each hospital’s local tax exemptions. 

Under this legislation, Colorado officials would be tasked with conducting “stakeholder work to develop community engagement best practices and efficiencies so that we can really get the voice of the community at the center,” said Nancy Dolson from the Colorado Department of Health Care Policy and Financing. Dolson noted that hospitals have considerable potential to increase their spending on communities; a 2023 report from their department found that Colorado ranked within the top ten for hospital prices and profits from 2018-2021, and that some hospital systems had billions in reserves. 

Pennsylvania municipalities challenge nonprofit status

Some cities and towns in Pennsylvania are taking a different tactic, using the legal system to challenge the nonprofit status of certain hospitals. In March, Pittsburgh Mayor Ed Gainey announced that the city would be challenging the nonprofit status of more than two dozen parcels, several of which belong to UPMC. 

The discussion of the charitable sector in Pittsburgh has been going on for a long time, said Lisa Frank, Chief Operating Officer and Administrative Officer for the City of Pittsburgh. With about 33% of the city as untaxed property, making sure that nonprofits are earning their tax exempt status is “a matter of accountability and good public finance,” said Frank.

According to the Lown Institute, UPMC had the largest “fair share” deficit in the country in 2020, taking in more than $200 million in tax breaks than they gave back to their community.

“When I think about those numbers, I think about the command of resources these organizations have… [for nonprofit hospitals,] the degree of accountability relative to the public investment is remarkably teensy.”

Lisa Frank, Chief Operating Officer and Administrative Officer for the City of Pittsburgh

Gainey’s announcement comes soon after another PA town successfully sued Tower Health to revoke their property tax exemption. The basis of this lawsuit was that the Tower Health system acted as a profiting entity through high executive compensation while receiving tax breaks. The appellate court ruled in favor of the school district, sending a signal of an approaching demand for greater responsibility of hospitals throughout Pennsylvania. 

With growing transparency and a call for responsibility, hospitals throughout the United States can improve the communities they reside in. Whether through legislative action or regulation, there is the opportunity for greater healthcare that advances public health and promotes a community’s well-being.