Nonprofit hospitals spent less on charity care than for-profit, government facilities: Health Affairs

By | April 7, 2021

Dive Brief:

  • New research quantifying how charitable hospitals in different ownership categories are shows that, in aggregate, nonprofit hospitals spent $ 2.30 of every $ 100 in total expenses on charity care, which was less than government ($ 4.10) and for-profit hospitals ($ 3.80).
  • The Health Affairs study published Monday examines the financial data more than 4,600 hospitals submitted to federal regulators for 2018. Nonprofit hospitals represent the largest share of hospitals in the sample (2,709) and as such spent the most on charity care when looking at the total dollar amount.
  • The report also found that in 67 markets, which it defines as hospital services areas, all three types of hospital ownership exist. In 46% of hospital services areas, nonprofit or government hospitals spent less on charity care than for-profit facilities when looking at aggregated charity care to expense ratio.

Dive Insight:

The analysis is likely to garner attention as nonprofit hospitals are required to provide charity care in exchange for their tax-exempt status. But if for-profit operators, which do not enjoy the same tax advantages, are outperforming nonprofits in this area, it will likely attract scrutiny, potentially from lawmakers who have been critical of nonprofits in the past. 

The American Hospital Association, which represents many nonprofit facilities, said the study does not take into account other ways hospitals contribute to a community, such as providing health screenings and transportation to appointments.

“The authors of this report fail to recognize that charity care is only one part of a hospital’s total community benefit,” Melinda Hatton, AHA’s general counsel, said in a statement.

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The researchers from Johns Hopkins explained that they chose to calculate the amount a hospital spent on charity care by dividing total charity care by the hospital’s total expenses, which yielded the report’s charity care to expense ratio. That same equation was performed to calculate the charity care to expense ratio for each ownership type.

Researchers also calculated what percentage of hospitals spent less than $ 1 of charity care per $ 100 of expense. Government hospitals represented the largest group of hospitals in this cohort, with 54% providing less than $ 1 of charity care per $ 100 of expense, followed by for-profits (43%) and nonprofits (36%).

After examining the findings, researchers recommended policy changes that may spur hospitals to provide more charity care, including developing a ranking system.

They went as far as to say, “Congress may wish to consider changing the tax exemption rules for nonprofit hospitals,” after pointing out the challenges the IRS has noted in policing this area as well as the misalignment between charity care and tax benefits.

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