How to improve the delivery of charity care services

Should hospitals trade their charity care capacity?

Yes, according to a proposal put forth by Northwestern University researchers and published by the Hamilton Project, an economic initiative of the non-profit Brookings Institution.

Under the proposal, states would set a charity care "floor"--the minimum percentage of a hospital's expenses that can be dedicated to charity care. States would also set an income cutoff where charity care provisions cannot count toward hospital expenses. 

"The uneven distribution of income across states means that the most efficient income thresholds could be quite different and the imposition of a blunt national limit may limit some of the potential efficiencies of this proposal," was the report's justification for operating at the state level. 

However, hospitals would be able to trade charity care credits. "In effect, Hospital A, providing levels of charity care below the floor, may subsidize the charity care provided by Hospital B with charity-care levels above the floor. In turn, Hospital A will receive credit toward its floor that is valued at the cost of providing that care at Hospital B," the report said. Researchers say hospitals could trade credits directly with other organizations or on an exchange.

The report suggested that hospitals with large populations of low-income patients "would likely increase their provision of charity care to these individuals in order to be able to sell credits...they can accomplish this by choosing to forgo billing patients below the income threshold and instead treating them as charity care." As a result, "this trade system increases social welfare because decreases in charity care to higher-income individuals would be offset by increases in charity care to lower-income individuals."

The proposal comes as current charity care practices are under scrutiny, particularly among not-for-profit hospitals that enjoy tax exemptions. A recent Health Affairs study suggested that not-for-profit hospitals spend no more on charity care as their for-profit counterparts. And hospitals have also been criticized for the relative lack of transparency they provide on their charity care and community benefits spending. 

The report cited Brookings data concluding that hospitals with more aggressive collections practices tend to serve a patient base with lower household incomes. At the same time, most have charity care policies that extend primarily to households with incomes at or below 200 percent of the federal poverty level.

The report also recommended hospitals have the ability to bank or borrow against their credits, but bar them from counting toward charity care any patient who is billed who does not pay.

Rick Pollack, executive vice president of the American Hospital Association, suggested instead a push for full insurance coverage of all Americans and that charity care is not a full measure of a hospital's community mission, AHA News Now reported.

To learn more:
- read the Hamilton Project proposal (.pdf)
- check out the AHA News Now article