Should hospitals consider an exchange where they can trade charity care credits?

The debate about a hospitals' obligation to charity care has been a fairly intense issue for years now, particularly as medical costs have been the leading cause of bankruptcy in the U.S. and out-of-pocket costs for individual patients--even those with insurance--have been rising rapidly in recent years.

Hospitals have come under scrutiny for how they actually calculate their expenditures on charity care. Some calculate that total based on the actual cost of care delivered; others on how much they would charge for that care. In the latter instance, many hospitals have inflated chargemasters, and as Reason magazine recently pointed out, a hospital could report a $500 cast and setting of a broken bone as a $10,000 charity care expenditure.

Earlier this month, the Hamilton Project, sponsored by the centrist Brookings Institute, put forth a radical proposal for expanding hospital charity care: Credit swapping.

This program would work along the lines of other trading proposals that have been put forth to bring rationality to other pressing social issues, such as carbon emissions. 

Under this scenario, the level of charity care--a "floor"--would be set by the states, based on a minimum amount of expenses that should be devoted to charity care. States would also set minimum income thresholds for patients. Any charity care provided above that threshold could not be counted toward each hospital's charity care floor. 

Hospitals with charity care numbers below the floor could purchase credits from hospitals that are above the floor, either in a direct transaction or through an exchange.

Of course, hospital lobbies in most states put pressure on lawmakers to ensure that there are no persuasive regulations set on charity care expenditures, as is the case in my home state of California. 

Should such a proposal get past such barriers, the exchanges do have the potential to boost charity care if states are aggressive in setting floors and income thresholds. Yet I still find this proposal troubling on a number of levels.

The primary reason it bothers me is because an exchange-like mechanism renders patients in need of care and unable to pay for it as just another commodity to be swapped back-and-forth. The community missions of most hospitals ever envisioned caring for patients in such a context.

Also, although more charity care could be delivered, it would be performed at hospitals that are already more inclined to provide charity care in the first place: Public and safety-net facilities, which would have no problem hitting their floors every year. These are hospitals that already have comparatively stretched resources, and their outcomes are not on par with wealthier hospitals or those located in the suburban settings. For example, for-profit hospitals, which are more  inclined to be credit buyers rather than sellers, provide better ED care than safety-net facilities. But an exchange system would create disincentives for poorer patients to access such resources.

The idea is definitely an interesting one in theory. But in practice, every hospital should provide a minimum level of charity care. Allowing wealthier hospitals to literally buy their way out of this obligation would set an unsettling precedent. - Ron (@FierceHealth)