Not-for-profit hospitals may spend as much on charity care as for-profits

A new study calls into question whether some non-profit hospitals actually provide additional community benefits as required by law in return for billions of dollars in tax breaks each year.

Researchers at the University of California at San Francisco suggest in a new Health Affairs study that non-profit hospitals spend as much on charity and uncompensated care for uninsured patients as for-profit hospitals. The reason, they conclude, is due to ambiguous eligibility criteria for tax-exempt status and no minimum requirements for hospitals' financial assistance programs.

The research team examined 264 not-for profit and for-profit hospitals in California because the state requires all hospitals to report their proportions of charity and uncompensated care to regulators. Researchers found that not-for-profit institutions devoted about 1.9 percent of operating expenses on charity care, compared to 1.4 percent by for-profits. But in total, most hospitals spent about 0.9 percent of revenue on charity care.

When the team factored in bad debt, both for-profit and not-for-profit hospitals devote about 4.4 percent of their total operating costs to uncompensated and charity care.

"The data show that some not-for-profit hospitals are not pulling their weight when it comes to uncompensated care," said Renee Hsia, M.D., a UCSF professor and senior researcher for the study, in a statement. "Secondly, the hospitals that are spending the highest proportion of their budgets on charity care may be at a competitive disadvantage. Hospitals spending more on charity have less disposable dollars to afford better facilities to attract new patients with private insurance, leading to a situation where the 'nice' hospital finishes last."

The issue about the proper levels of charity care and community benefits is not just restricted to California. Florida's Jackson Health system, the state's largest safety-net provider, has come under fire for making patients jump bureaucratic hoops in order to qualify for charity care. Other hospitals have received criticism for inflating the cost of the care they provide in order to make them appear more generous.

"There are general guidelines that dictate that these hospitals must provide a benefit to the community, but there is no minimum requirement. Individual hospitals set their own policies," said Hsia. "A patient that qualifies for charity care at one hospital might have their charges counted as bad debt at another hospital."

In an interview with the Washington Post, Hsia suggested that not-for-profits be held more accountable for community benefits and charity care provisions. "These are exemptions that, if we didn't have them, could fund education, water or public utilities," Hsia said.

To learn more:
- read the study abstract
- check out the study announcement 
- here's the Washington Post article