Nonprofit hospitals are not only expected to take care of individual patients, but to provide for their communities. As a condition of their tax-exempt status (a benefit worth an estimated $24.6 billion in 2011), they are required to offer financial assistance–also known as charity care–to uninsured or underinsured patients.
Yet the amount that hospitals have to devote to charity care is not specified in most states, leading to considerable variation in how much hospitals spend on financial aid to patients. The results of the Lown Institute Hospitals Index show that community benefit spending (of which charity care is a large part) varies widely. Some hospitals– mainly public hospitals and hospitals in states where Medicaid was not expanded–spent more than 15 percent of their total expenses on charity care alone. At the same time, about 150 hospitals spent less than 0.1 percent of their expenses on charity care and other community benefits.
On the Lown Hospitals Index, some hospitals spent more than 15 percent of their total expenses on charity care alone; others spent less than 0.1 percent.
One would expect that nonprofit hospitals spend much more than for-profit hospitals on charity care, because they are required to provide charity care, and are financially rewarded for doing so. Yet that isn’t always the case. A recent article in the Journal of General Internal Medicine from researchers at the Harvard T.H. Chan School of Public Health compared charity care as a share of expenses between nonprofit and for-profit hospitals. Researchers used 2018 data from the Centers for Medicare and Medicaid Services (CMS) hospital cost reports.
They found that overall there was no significant difference between the hospital types and their charity care spending as a share of expenses, on average. However, when stratifying by size, large for-profit hospitals (with 350 beds or more) spent more than larger nonprofit hospitals, and very small nonprofit hospitals (with fewer than 100 beds) spent more than very small for-profits.
Why isn’t there a larger difference between nonprofit and for-profit hospitals in charity care spending?
Similarly, among the hospitals on the Lown Hospitals Index, there was no significant difference in charity care spending as a share of expenses between nonprofit and for-profit hospitals. When adding direct community benefits such as subsidized health services and community health improvement activities, nonprofits only spent slightly more than for-profit hospitals did (2.88% of expenses vs 2.57%).
Why isn’t there a larger difference between nonprofits and for-profits in charity care spending? It may be that nonprofit hospitals have taken a more passive approach to charity care, treating uninsured patients that come into the hospital, but not adjusting their financial aid policies to ensure a certain level of spending on charity care. Thus, hospital policy does not determine charity care so much as the hospital’s location and state policies (especially Medicaid expansion). On the Lown Index, differences in charity care spending between hospitals were far more evident among states than between nonprofit and for-profit hospitals.
The results from the recent JGIM study seems to support this theory. The authors examined charity care spending differences within communities of various income levels, and found no differences between for-profit and nonprofit hospitals. That is, nonprofit hospitals in low-income locations did not spend significantly more than for-profit hospitals in low-income locations.
It will take more than just passively taking in patients for nonprofit hospitals to achieve a high level of charity care spending.
With the expansion of Medicaid, the burden to provide uncompensated care for uninsured patients was dramatically reduced. Nonprofit hospitals could have responded by making their financial aid policies more generous, to cover more underinsured people, or increased spending on community benefit programs that address social determinants of health. However, research shows that nonprofit hospitals in expansion states have not done this; community benefit spending as a whole has stayed basically flat, charity care spending fell, and reported Medicaid shortfall increased.
Nonprofit hospitals are supposed to take all the patients that come through their door, regardless of their ability to pay. However, it will take more than just letting patients in for nonprofit hospitals to achieve a high level of charity care spending. Growing evidence shows that for-profit hospitals are doing just as well as nonprofits on charity care spending, even without the incentive of tax-exempt status. Given the value of this exemption (particularly the property tax exemption for local communities), non-profits should be taking an active approach to provide more financial aid for patients.