Six ways Congress could improve the hospital community benefit standard

By Judith Garber and Vikas Saini

A recent report from the majority staff of the Senate Health, Education, Labor, and Pensions (HELP) Committee, chaired by Senator Bernie Sanders, called out some large nonprofit hospital systems for underspending on financial assistance and engaging in predatory billing activities. What can policymakers do about this issue to protect patients from medical debt and ensure hospitals are giving back their fair share to communities? 

Here are some proposals that could move the needle. 

1. CLEARLY DEFINE COMMUNITY BENEFIT: Currently, hospitals get a lot of leeway in determining what counts as a “community benefit.” Any program that purports to improve community health can count, even if it has nothing to do with what community members have said matters most to their health. Congress should create a clearer definition of community benefit that ties spending directly to the priority health needs identified in the community health needs assessment that hospitals are required to conduct, as states like Massachusetts do already.
2. BETTER REPORTING: The IRS requires hospitals to report their spending on several community benefit categories on their Form 990 Schedule H, but current reporting requirements have holes. For example, hospitals are allowed to report their spending aggregated at the system level, which reduces transparency by masking differences in spending by individual hospitals. Congress could direct the IRS to make facility-level reporting of Schedule H a requirement, as several states already do. They could also enable communities to more easily see if hospitals are spending their fair share by requiring hospitals to report the value of their local property and sales tax breaks.
3. FINANCIAL ASSISTANCE STANDARDS: Currently, hospitals in most states do not have a set standard on who they must make eligible for financial assistance or how much they must spend. Congress could do what California and other states have done, and set specific standards for nonprofit hospitals to ensure that patients under a certain poverty level (depending on the state or local economic conditions) receive care that’s free or discounted. Congress could also create a standard financial assistance application all hospitals must make available and disallow barriers to assistance like asset tests for patients that qualify.
4. CB SPENDING MINIMUMS: Nonprofit hospitals are not required to spend a certain amount on community benefits to maintain their tax-exempt status, giving them little incentive to increase their spending. Congress could encourage hospitals to spend more by providing tax benefits on a sliding scale based on how fully hospitals comply with the community benefit standard compared to their peers, so that hospitals meeting the bare minimum would get a smaller tax break. Or they could follow Oregon’s example and set a community benefit spending floor for all hospitals, based on hospitals’ financial positions and local need, to ensure hospitals give back at least a certain amount.
5. PREDATORY BILLING RESTRICTIONS: Nonprofit hospitals are allowed to take “extraordinary collection actions”–send patients’ medical debt to collections, sue patients for medical debt, garnish their wages, or refuse patients with debt nonemergency care–if they have “made reasonable efforts” to determine whether someone is eligible for financial assistance before doing so. However, there are many cases in which hospitals take these actions against low-income patients who should have received assistance. Congress should disallow these actions entirely for nonprofit hospitals or issue fines to hospitals who are found to have taken these actions against patients who should have qualified for financial assistance. At the very least, they could require hospitals to report on their IRS 990 the number of patients they’ve taken extraordinary collection actions against in the past year.
6. CEO PAY LIMITATIONS: Some nonprofit hospital CEOs make tens of millions each year, despite spending little on community benefits. While capping CEO pay outright—as some have proposed—would be most simple, the political feasibility is low. However, policymakers could place additional requirements on hospitals that pay their CEOs an “excessive” amount, such as halting all extraordinary debt collection actions or requiring a living wage for all employees.

This is just a sample of the many ideas that health policy experts and community health advocates have proposed to make the community benefit standard more meaningful, reduce medical debt, and attend to community health needs. For policymakers worried about small hospitals being able to comply, critical access hospitals could be excluded, or policies could be targeted specifically at large nonprofit hospitals or systems.

Whichever route policymakers decide to take—through transparency, regulation, or all of the above—urgent action on this issue is needed for the physical and financial health of our communities.