Nonprofit Hospitals No Better than For-Profits on Charity Care

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August 4, 2015; Washington Post

The Washington Post headline reads, “Tax-exempt hospitals spend just as much on charity care as for-profits, study finds,” but that seems a little off. A better headline would have been, “Tax-exempt hospitals spend just as little on charity care as for-profits, study finds.” The Post’s Robert Gebelhoff describes a study from the University of California San Francisco, coauthored by UCSF professor Renee Y. Hsia, UCSF medical student Sidney Le, and Alameda County Medical Center resident Erica Valdovinos, that showed that the mean proportion of total operating expenses spent by nonprofit hospitals on charity care (free care for patients unable to pay) was 1.9 percent compared to 1.4 percent for for-profit hospitals.

One might debate whether 0.5 percent is a significant difference. However, an equally important finding of the study is that a third of the nonprofit hospitals spent less than 0.9 percent for charity care compared to roughly 40 percent of the for-profit hospitals. The study involved 264 California hospitals, because California is the only state that requires all hospitals, nonprofit and for-profit, to report on their provision of uncompensated care.

The public debate around charity care delivered by nonprofit hospitals often focuses on whether these institutions merit their local property tax exemptions, but Hsia, the lead author of the study, reframed the issue more appropriately: “The takeaway is not that we should not be giving tax breaks, but that there should be a little more accountability.”

The real question is just how “nonprofit” nonprofit hospitals actually are. In the questions that legislators are raising about nonprofits, sometimes with real justification, nonprofit hospitals often stick out like sore thumbs, closely followed by nonprofit colleges and universities. The nonprofit sector has to own up to a legitimate debate about whether some—or many—nonprofit hospitals are not living up to mandates of service to people in need.

Since the investigations of the Senate Finance Committee under Senator Charles Grassley (R-IA), there have been serious questions about nonprofit hospitals. Not wanting to criticize nonprofit hospitals lest questions get raised about other kinds of nonprofits, sector leadership organizations have been reluctant to criticize rates and amounts of charity care expenditure and delivery. Times are different, however. Since the enactment and operationalization of the Affordable Care Act, alleviating many hospitals of what they would have otherwise had to spend on charity care, nonprofit hospitals should be taking a hard look at what they are doing for their communities. Actually, that’s the importance of the ACA-required Community Health Needs Assessment process, but there’s little evidence that CHNAs are getting the kind of community critiques that have accompanied other federally mandated needs assessments such as the housing-oriented Consolidated Plans for the HOME Investment Partnerships and CDBG programs.

Nonprofit hospitals and the nonprofit sector in general will not be harmed by doubling down on what nonprofit hospitals should be doing to earn their status. It’s not just for them; it’s for the people nonprofit hospitals should be serving.—Rick Cohen

  • Beth Gazley

    Rick, I had a very different take on this study and the resulting press. First of all, I quote the study’s authors: “Not-for-profit hospitals spent a significantly greater share on charity care than for-profits did: 1.9 percent versus 1.4 percent.” So any press reports that there was no difference are wrong. The study did find that uncompensated care (e.g., writing off bad debt) was the same between NFP and FP hospitals, and the authors rightly concluded that the reason might be that uncompensated care is not considered in the definition of charity care. And, as you do, I also wondered at the small percentages of charity care overall and the large variance among NFP hospitals. But the fact remains that NFP hospitals provide much more charity care, on average. And to encourage even more, the authors’ call for clearer reporting guidelines and more reporting transparency are the most important takeaway from this study.

    And that leads me to a second and major limitation on this study. By only relying on Schedule H reporting, it misses some charity care. NFP hospitals also serve as incubators of other charitable health and social services. In my city, the for-profit hospital does little more than provide selective high-profit health services, “creaming” from the population. The not-for-profit hospital provides the major HIV prevention and needle exchange clinic for the entire southern part of Indiana — a service that has been in crisis mode after an HIV outbreak (exacerbated by the closure of the Planned Parenthood clinic that provided most HIV testing in the southern part of the state). Our charity hospital also created an entirely separate not-for-profit organization that this study would not have accounted for: a free dental and health clinic. Volunteers in Medicine is staffed by medical personnel from the hospital, operates from donated facilities, and provides another $750,000 of charity care annually. Even when that item is left out, our c-3 hospital reports more than 11% in charity expenditures on its Schedule H.

    It’s clear that SOME c-3 hospitals can and should do better. That can be accomplished by expanding California’s reporting expectations to other states, so that for-profits and not-for-profits can be compared elsewhere. But to say that not for profit hospitals are no more charitable than for-profits is wrong.

  • Sharon Charters

    It doesn’t much matter – until you get away from a “charity” model to one which sees health care as a right, there will little progress.