California Legislation Would Redefine Community Benefit at Nonprofit Hospitals

Print Share on LinkedIn

Community benefits of hospitals

April 20, 2015; East Bay Express

Nonprofit hospitals in California, as across the U.S., are expected to provide “community benefit” services in recognition and fulfillment of their role as local charities. For the last 40 years or more, U.S. law has been inexact on just what constitutes community benefit and how much community benefit a nonprofit hospital should be expected to provide.

Nonprofit hospitals have traditionally acknowledged their responsibility, but have used the loose guidelines in current state and federal law to count more than “charity care,” or services to poor and indigent patients who cannot pay, as community benefit. “Community benefit” also includes bad debts written off by hospitals (regardless of the economic circumstances of the patient), the difference between charges for hospital services and the reimbursement rates from insurers, and “public education” activities that sometimes look more like advertising and promotion of a hospital’s branding and services.

Senate Bill 346 is designed to both give guidance and promote accountability for California nonprofit hospitals’ community benefit activities. Under the proposed legislation, California hospitals would have to report community benefit, distinguishing between charity care, bad debt, and unreimbursed expenses. In addition, community benefit would be required to include services designed to address “root causes” of community health needs (poor nutrition, transportation issues, etc.) as well as include independent public participation on hospital panels working on community benefit plans.

One interesting amended component of the bill is the provision for allowing hospital revenue shortfalls caused by inadequate reimbursements from Medi-Cal (Medicaid) and Medicare to be included in community benefit totals. In other words, nonprofit hospitals are acknowledged in law as providing a charitable benefit to their community by accepting government-paid patients at a loss. Including this provision recognizes long-standing practice while making it easier for governments to continue—and even expand—the practice of pretending to provide health insurance while not being able (or willing) to pay the real costs associated with that entitlement.

CA Senate Bill 346 is a long-overdue redefinition of community benefit as well as an opportunity for accountability and transparency. Unfortunately, in a climate of shrinking hospital revenue margins and expanding coverage of patients by programs that don’t reimburse sufficiently to cover hospitals’ costs of care. Its reliance on community benefit plans is also somewhat redundant given existing requirements to conduct public health Community Health Assessments (CHAs) and the Affordable Care Act’s requirement that nonprofit hospitals conduct Community Health Needs Assessments (CHNAs) every three years. As the bill continues its journey through the California Legislature, perhaps it will be amended further to make its provisions more complementary and less duplicative of existing rules.—Michael Wyland