Nonprofit hospitals spent less on charity care than for-profit and government hospitals

For every $100 of expense incurred in 2018, nonprofit hospitals spent less on charity care ($2.30) than for-profit hospitals ($3.80) and government hospitals ($4.10), according to an analysis of 4,666 Medicare-certified general acute care hospitals.

In 2018, among Medicare-certified general acute care hospitals, nonprofit hospitals provided less charity care per dollar of expense than for-profit hospitals and government hospitals, a recent study found.

Researchers used an aggregated analytical approach to look at variations in charity care provision by hospital ownership type in 2018, the most recent year with available CMS data. The final sample included 4,663 hospitals (1,024 government, 2,709 nonprofit, and 930 for-profit). The tax treatment of hospitals implies that the charity care obligation is greatest for government hospitals and least for for-profit hospitals, with that for nonprofit hospitals somewhere in the middle, the study authors noted. Hospitals self-reported their charity care for uninsured and insured patients on their Medicare Hospital Cost Reports. Charity care for uninsured patients is measured as the cost of the services (charges for the services multiplied by the hospital's cost-to-charge ratio) offset by any partial payments, and charity care for insured patients consists of the amount owed for deductible and co-insurance payments written off by the hospital according to the hospital's charity care policy without expectation of payment, offset by any partial payments, after certain adjustments. The researchers used hospital service area information from the Dartmouth Atlas. Results were published in the April Health Affairs.

In the study sample, government (82,540 total beds), nonprofit (383,548 total beds), and for-profit (102,861 total beds) hospitals provided $6.9 billion, $16.0 billion, and $4.1 billion in charity care, respectively. The median charity care-to-expense ratio of government hospitals (0.9%; interquartile range [IQR], 0.2% to 2.9%) was less than that of nonprofit hospitals (1.5%; IQR, 0.7% to 3.2%; P<0.01) and for-profit hospitals (1.4%; IQR, 0.2% to 4.1%; P<0.01). About 54% of government hospitals, 36% of nonprofit hospitals, and 43% of for-profit hospitals provided less than $1 of charity care per $100 of expense. An analysis of aggregate spending by hospital ownership category found that for every $100 of expense incurred, nonprofit hospitals spent less on charity care ($2.30) than for-profit hospitals ($3.80) and government hospitals ($4.10). Charity care provision by individual hospitals of the same ownership type varied widely, particularly for government hospitals. Government hospitals with total expenses in the top 25% had a median charity care-to-expense ratio that was 150 times higher than that of those with total expenses in the bottom 25% (5.99% vs. 0.04%). In 46% of 67 hospital service areas with hospitals of all three ownership types, government or nonprofit hospitals contributed a lower proportion of expense to charity care than for-profit hospitals.

Among other limitations of the study, charity care eligibility criteria, self-determined by individual hospitals, are not available in the Medicare Hospital Cost Reports, the authors noted. They added that hospital-reported charity care amounts can be subject to inaccuracies or misrepresentations.

The authors proposed three policy recommendations to encourage hospitals to provide more charity care: 1) a charity-care ranking system for hospitals of all ownership types, 2) a “floor-and-trade” system in which nonprofit and government hospitals could be required to meet a minimum charity care amount requirement (floor) by either providing it or purchasing credits from other hospitals (trade), and 3) changed tax exemption rules for nonprofit hospitals.