ACA regulations for nonprofits could have unintended consequences

Affordable Care Act (ACA) regulations for not-for-profit hospitals may have problematic side effects and impact the amount providers spend on new services, argues a blog post from Health Affairs.

The ACA adds further conditions for charitable providers to qualify for exemption from federal income tax, including establishing policies for financial assistance and emergency care, limiting charges for patients eligible for such care and taking "reasonable" action to identify such patients before taking collection action, according to Jill R. Horwitz, Ph.D., professor of law and codirector of the law and economics program at University of Michigan Law School, and David Cutler, Otto Eckstein professor of applied economics for the Harvard University Department of Economics. The regulations also require assessments of community health needs, such as preventive care, nutrition and environmental health issues every three years.

Under these regulations, noncompliant hospitals face excise taxes of $50,000 or the loss of their tax exemption. Although the goals are commendable in theory, Horwitz and Cutler write, less profitable organizations will be hard-pressed to devote further funds to uncompensated care, and while not-for-profit hospitals are doing better financially than public ones, they are both significantly less profitable than for-profit organizations, which are not subject to the regulations.

Smaller hospitals contribute 7.3 percent of total expenses to uncompensated means-tested government programs, according to an American Hospital Association study of 900 member hospitals. And despite recent good financial news for hospitals in states that failed to expand the Medicaid program, hospitals in those states will lack the revenue enhancements intended to help them meet the ACA regulations, according to the post.

There are, however, some options for hospitals that want to offset the cost of the obligations, such as increasing profitable services such as invasive cardiac or diagnostic imaging services, but analysts have voiced concerns this may lead to overuse of services, according to Horwitz and Cutler.

"All hospitals--for-profit, government, and nonprofit--should be held accountable for providing quality care to those in need. Policymakers have many regulatory tools to advance these ends," the authors write. "Market-based tools such as incentivizing hospital behavior through reimbursement, one of the central approaches of the ACA, are available."

To learn more:
- read the blog post

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