August 14, 2012; Source: Los Angeles Times

Sometimes audits of nonprofit hospitals (which a recent study reports occur more regularly than audits of for-profit health care organizations) are really quite necessary. Chad Terhune reports for the Los Angeles Times that a “California state auditor’s report shows that nonprofit hospitals have significant leeway in determining how much charity care they provide to the neediest patients.” The audit also revealed that 15 unnamed nonprofit hospitals failed to report on their charity care in 2010. Those findings, among others, were the subject of a California State Senate hearing this week on “whether nonprofit hospitals do enough to justify their tax-exempt status.”

California state law requires annual reports on what nonprofit hospitals do to deliver “community benefits” but doesn’t establish standards regarding what might be sufficient or insufficient uncompensated care or other benefits to justify nonprofit hospitals’ tax-exempt status. The law doesn’t even establish how to assess and value what a hospital says is a community benefit, making some annual reports sound, at minimum, a little vague.

Typically, nonprofit groups think that it’s the big bad anti-charity Republicans leading the charge, but when it comes to nonprofit hospitals, both Republicans and Democrats find themselves in a quandary about exactly what to do. This new audit was requested by California State Senate Majority Leader Ellen Corbett, a Democrat, who told the Times, “Communities across California are served by nonprofit hospitals, and we need to make sure they are honoring their commitment to serve the public that comes with their special tax-exempt status.”

The hearing brought out a number of critics, some of them motivated by findings suggesting that some nonprofit hospitals weren’t particularly different than their for-profit cousins in the delivery of charity care and other community benefits. Representing busloads of people from the California Nurses Association/National Nurses Association, Public Policy Director Michael Lighty called for new legislation “to rein in the abuses we have seen,” which he said were partially due to “a woeful lack of specific requirements on nonprofit hospitals,” many of which pay their executives million dollar salaries.

Lighty called for nonprofit hospitals to devote a minimum of eight percent of their combined operating and non-operating revenues to free or discounted health services to poor, uninsured patients. A representative of the California Hospitals Association, Anne McLeod, responded that a rigid standard like that undoes the flexibility that hospitals need “to respond to the unique needs of a community,” and said that hospitals provide lots of other benefits beyond reduced cost health care, such as health vans, free screenings, support for clinics, classes, and research.

The Mercury News noted that, in 2007, its own reporting found that for-profit hospitals in California had provided higher levels of charity care than nonprofit hospitals in three out of the five years studied. Last year, Merc News articles documented how “the responsibility of caring for the poor and uninsured falls largely on the East Bay’s financially ailing public hospitals, despite the large tax breaks for nonprofit hospitals.”

The federal Affordable Care Act might address some of these controversies, should its enactment ever lead to coherent implementation and oversight. Nonetheless, the continuing spate of criticisms about the inadequate “nonprofitness” of nonprofit hospitals, especially those near public hospitals, doesn’t lead to great confidence about their likely performance and compliance with the national health insurance reform law. —Rick Cohen