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Nonprofit hospitals' charity care falling behind tax breaks, report shows

The American Hospital Association took issue with the report, saying the methodology is flawed.

Jeff Lagasse, Editor

Photo: sturtu/Getty Images

About 80% of all nonprofit hospitals' charity care falls behind tax breaks, according to a new Lown Institute – and some are short by hundreds of millions of dollars.

Of the 2,425 nonprofit hospitals that were evaluated, 80% spent less on financial assistance and community investment than the estimated value of their tax breaks, known as a fair share deficit.

The combined fair share deficit for all hospitals included in the report is $25.7 billion for 2021; the numbers were pulled from 2021 IRS data. That, said Lown, is enough to erase 29% of the country's total medical debt, as reported on the Consumer Financial Protection Bureau's Consumer Credit Panel.

The 10 hospitals with the largest fair share deficits also reported at least one hundred million dollars in net income in 2021, the report found.

They are, in descending order: New York-Presbyterian Hospital (New York, NY); UPMC Presbyterian (Pittsburgh, PA); NYU Langone Hospitals (New York, NY); Cleveland Clinic Main Campus (Cleveland, OH); Massachusetts General Hospital (Boston, MA); Stanford Hospital (Stanford, CA); Mayo Clinic Hospital (Rochester, MN); Hospital of the University of Pennsylvania (Philadelphia, PA); Vanderbilt University Medical Center (Nashville, TN); and Brigham and Women's Hospital (Boston, MA).

Hospitals spent 3.87% of their budget on community investments, on average, but this proportion varied widely. For example, the Hospital of the University of Pennsylvania (0.25%) would have spent $248 million more in community investments had it spent at the rate of North Shore University Hospital (8.84%).

In five states – Michigan, West Virginia, Louisiana, Washington and Rhode Island – 97% or more of all hospitals have a fair share deficit. There are only five states in which a majority of hospitals have a fair share surplus: Delaware, Montana, Maryland, Texas and Utah.

WHAT'S THE IMPACT? REACTION

The American Hospital Association took umbrage with Lown's report, with President and CEO Rick Pollack writing a defending the community dedication of hospitals and health systems.

According to Pollack, the report "cherry-picks" categories of community benefit, ignoring other areas by omitting the Medicare and Medicaid underpayments that hospitals have to absorb.

"Importantly, hospitals cannot deny care to patients based on their insurance status, which means that hospitals must absorb these underpayments," said Pollack. "In 2022, combined Medicaid and Medicare underpayments totaled $130 billion." And that, he said, doesn't take into account investments in treatments and staff training and education.

Pollack also criticized the report for not addressing state-level policy differences that can skew the data, such as whether a state has expanded Medicaid, which can have a significant impact on a hospital's levels of financial assistance.

In regards to the "fair share" threshold, Pollack called it arbitrary and based on a standard that existed before implementation of the Affordable Care Act's coverage provisions, such as Medicaid expansion.

"In addition, data from 2021 in particular should be viewed with a heavy dose of speculation as hospitals were still very much in the midst of the COVID-19 pandemic and the government stepped up to provide desperately needed temporary support in the form of relief payments and coverage expansions," he said. "And by 2022, hospitals faced a new set of challenges, like skyrocketing expenses, many of which persist today."

THE LARGER TREND

The Lown Institute issued a with a number of policy recommendations, including requiring hospitals to report their spending on community benefit programs directly related to the priority health needs identified in the hospital's Community Health Needs Assessment.

Lown also advocated for creating a minimum threshold of community benefit spending for hospitals based on the hospitals' financial positions, previous spending and local needs, as Oregon currently does, and requiring hospitals to report more information on financial assistance and extraordinary debt collection actions on Schedule H – including the number of patients given financial assistance, the number of patients denied financial assistance, the number of each extraordinary collection action undertaken, and the amount recovered through these actions.

Other policy recommendations included defining eligibility thresholds for financial assistance and considering intermediate enforcement measures for hospitals that do not comply with the community benefit standard.

But the AHA was critical of these recommendations as well, with Pollack saying that flawed input led to flawed output.

"Because the Lown report's analysis is so biased and the data so limited, its policy proposals are equally bad," he said. "For example, the Lown report proposes a minimum threshold of community benefit spending for hospitals, but by failing to account for swaths of relevant community spending, the recommendations would result in distorted and rigid standards."

He also said the report would seek one-size-fits-all requirements for financial assistance "without accounting for the vast swings in hospital finances that can occur year to year."

Jeff Lagasseiseditor of Healthcare FinanceNews.
Email:jlagasse@himss.org
Healthcare FinanceNews is aĹýMedia publication.