Though nonprofit hospitals receive tax breaks for providing charity care, a new analysis shows that they may not be doing their share.
In 2018, nonprofit hospitals spent $2.3 of every $100 in total expenses incurred on charity care, which was less than government or for-profit hospitals, according to a study published in Health Affairs.
For the study, researchers analyzed 2018 Medicare Hospital Cost Reports and compared charity care provisions across 1,024 government, 2,709 nonprofit and 930 for-profit hospitals.
Charity care is defined as providing all or a portion of services free of charge to financially disadvantaged patients without expectation of payment. To qualify as 501(c)(3) tax-exempt organizations, nonprofit hospitals must provide charity care and other types of community benefits, but the Internal Revenue Service does not specify how much.
According to the most recently available estimate, the value of nonprofit hospitals’ tax exemption was approximately $24.6 billion in 2011.
“Nonprofit and government hospitals receive substantial tax subsidies and are obliged and expected to provide charity care to relieve the financial burden of financially disadvantaged patients,” said Dr. Ge Bai, the study’s lead author and an associate professor of health policy and management at Johns Hopkins Bloomberg School of Public Health, in an email. “However, as we have found in this study, reality often fails to meet expectations.”
The study shows that in 2018, government hospitals provided $6.9 billion in charity care, nonprofit hospitals provided $16 billion and for-profit hospitals provided $4.1 billion. The overall spending for nonprofit hospitals far exceeded the other two hospital types because there were nearly thrice as many nonprofits included in the analysis.
In terms of aggregate spending, however, nonprofit hospitals spent less on charity care ($2.3) for every $100 of expense incurred than for-profit hospitals ($3.8) or government hospitals ($4.1).
“Some nonprofit hospitals choose to spend less on charity care in order to protect their bottom lines,” Bai said.
Overall, 54% of government, 36% of nonprofit and 43% of for-profit hospitals provided less than $1 of charity care per $100 of expense, the study found.
Another key finding was that government or nonprofit hospitals contributed a lower proportion of expenses to charity care than for-profit hospitals in 46% of geographical service areas with hospitals of all ownership types.
The researchers offered state and federal policymakers three recommendations to encourage more spending on charity care. These are:
- Create a ranking system for hospitals of all ownership types to promote competition around providing more charity care.
- Implement a “floor-and-trade” system in which nonprofit and government hospitals could be required to meet a minimum charity care amount by either providing the care in their own facilities or purchasing credits from other hospitals.
- Revisit and change the tax exemption rules for nonprofit hospitals.
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