In California, Not-For-Profit Hospitals Spent More Operating Expenses On Charity Care Than For-Profit Hospitals Spent

Abstract

In exchange for sizable tax exemptions, not-for-profit hospitals must engage in activities that meet the Internal Revenue Service's community benefit standard. The provision of charity care-free care to those unable to pay-can help meet that standard. Bad debt, the other form of uncompensated care, cannot be used to meet the standard, although Medicaid shortfalls can. However, the ACA lacks guidelines for providing charity care, and federal law sets no minimum requirements for community benefit activities. Using data from California, we examined whether the levels of charity and uncompensated care provided differed across general acute care hospitals by profit status and other characteristics during 2011-13. The mean proportion of total operating expenses spent on charity care differed significantly between not-for-profit (1.9 percent) and for-profit hospitals (1.4 percent), in contrast to the mean proportion spent on uncompensated care. Both types of spending varied widely across hospitals. Policy makers should consider measures that remove disincentives to meeting the persistent considerable need for charity care-for example, increasing supports to offset rising Medicaid shortfalls resulting from program expansion-and facilitate the tracking of ACA impacts on the distribution of charity care and uncompensated care delivery.

Nonprofit Hospital Community Benefit in the U.S.: A Scoping Review From 2010 to 2019

“…A major challenge with answering such a question is that the two groups are not required to follow the same reporting standards. Two studies, one using national data from 2006 and another using 2011-2013 from California found that non-profit hospitals provided significantly more charity care than their for profit counterparts (35,83). Another, by Worthy and Anderson, showed that Texas hospitals claiming tax exemption spent more on community services than other hospitals (84).…”

For-Profit Hospitals Have a Unique Opportunity to Serve as Anchor Institutions in the U.S.

“…Some scholars have argued that there are no signi cant differences in mission across for-pro t and nonpro t hospitals and have questioned why most discussion of hospital anchors has focused on nonpro ts in particular (20,21). There do not seem to be signi cant differences in the amount of uncompensated care offered by each hospital type (22)(23)(24)(25)(26)(27), and there is evidence to suggest that for-pro ts serve a larger proportion of Medicaid patients, especially in rural markets (28).…”

Competition and screening with motivated health professionals

“…The provision of charity care helps meet that standard. The mean proportion of total operating expenses spent on charity care by non-profit hospitals in California during 2011-2013 is 1.9%, with about 4% of non-profit hospitals devoting 5% or more of their operating expenses to charity care (seeValdovinos et al, 2015). In Texas, there exists a lower bound to the percentage of charity care to be provided by nonprofit hospitals, which must dedicate at least 4% of net patient revenue to the poor.…”