Nonprofit hospitals spend less on charity care than for-profits, study finds

Nonprofit hospitals spent less on charity care for the uninsured compared to for-profit and government hospitals, a new study found.

The study, published Monday in the journal Health Affairs, found nonprofits provided less charity care per dollar of expenses compared to for-profit and government-run hospitals.

Nonprofit facilities must provide charity care and several other benefits in order to qualify for tax-exempt status with the federal government. But the federal government does not specify requirements for those benefits nor the amount of charity care, the study said. The Affordable Care Act also calls for nonprofits to create their own criteria for determining eligibility for charity care.

For-profit chains, on the other hand, do not have such charity care requirements.

The study used an analytical approach to explore variations in charity care among 1,251 government hospitals, 3,040 nonprofits and 1,830 for-profit facilities in 2018. Researchers looked at the amount of charity care for uninsured patients provided in the Medicare cost reports for these facilities.

RELATED: Hospitals with strong finances spend less than their peers on charity care

To compensate for the difference in operating scale, the study examined the amount of charity care divided by a hospital’s total expenses.

Nonprofit hospitals spent $2.30 out of every $100 in total facility expenses on charity care. That is less than the amount for government hospitals, which paid $4.10 for every $100 on charity care and for-profit hospitals that spent $3.80.

“These results suggest that many government and nonprofit hospitals’ charity care provision was not aligned with their charity care obligations arising from their favorable tax treatment,” the study said.

Other studies have found the opposite results, most notably a 2015 study that found California not-for-profits spend more operating expenses on charity care compared with for-profit facilities.

The study outlined several recommendations that aims to address the disparity found in the research.

Some of these recommendations include ranking hospitals based on the amount of charity care provided by the facility. This system could highlight a hospital’s change over time in the standings.

Another recommendation is to create a “floor-and-trade” system that requires nonprofit and government hospitals to create a minimum requirement for charity care or purchase credits from other hospitals.

“This approach takes into consideration the heterogeneity of demand for charity care across communities and gives hospitals in wealthier communities the option to subsidize hospitals in needier communities for the extra charity care,” the study said.

The goal is to get hospitals to allocate resources more equitably, but researchers concede it could encourage some hospitals with a high demand for charity care to “provide minimal amounts of care and pay the credit or to provide just enough charity care to meet the minimum requirement,” the study said.

Another option is to revisit the tax-exempt status for nonprofits and the rules for providing charity care, but the study doesn’t offer specifics.