• Chart of the day: Margins and charity care spending of tax-exempt hospitals

    From Modern Healthcare:


    The consistency of charity care and community benefits surprised me. What are the implications?


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    • One question I have had is: “How is the cost of charity care measured?”
      Is it measured as the marginal cost to provide that care or is it measured as the full retail charge (which usually discounted for anyone with insurance)?
      Clearly the marginal cost to provide the care is a more accurate measure of the true cost to the hospital but I, being somewhat cynical, think that hospitals would be more likely to use the full retail chargemaster rate.

      • I did a project on community benefits for a hospital system about 4 years ago. I believe that the IRS and hospitals have adopted the Catholic Health Association standards for charity care.

        So, in response to Mark, the CHA guidelines require hospitals to report charity care is reported at their costs, NOT their charges. Bad debt does NOT count towards charity care. (Bad debt is charges the patient could have paid but didn’t, charity care is charges the patient could not have paid and the hospital is writing off.)

        I’m not certain how well hospitals adhere to the guidelines. The graph above shows data for FYs 2009 and 2010, and I’m pretty sure the IRS would only have just adopted the guidelines, so adherence to the guidelines may have been imperfect. Also, note that the organization had to be in the Guidestar database (i.e. Guidestar had their Form 990, which is a detailed tax reporting statement for nonprofits). IOW these data aren’t a random sample (but I think only the IRS itself and maybe the Urban Institute would have better data).

        To Lynn, note that the data above are only for non-profits. When a non-profit hospital system makes a profit, it’s theoretically supposed to return the profits to the community in some way. Enforcement of that isn’t that common because money is fungible. I do know that the SCAN Health Plan in CA, which was a non-profit, was eventually pressured into endowing a foundation with excess funds. So it does happen.

        On to Austin’s question. My answer is, I don’t know.

        I do know that community benefits encompasses a) charity care, b) Medicaid shortfalls (relative to cost of care or something like that), c) mission driven health services (e.g. you sponsor a free clinic), and d) unreimbursed costs of research.

        I know that non-profit hospitals do benefit from patient selection, in that if they’re located in higher-income areas, they are going to have less charity care and less bad debt, and they likely have greater margins. The line between charity care and bad debt can be fuzzy. For lower- versus higher-margin hospitals, you might be concerned if the higher-margin ones are exploiting loopholes to up what they define as bad debt, or if the lower-margin ones are being more aggressive about collecting from patients.

        On the broader community benefit category, you would want to know if higher-margin hospitals were incurring more unreimbursed research expenses, or other activities that don’t necessarily benefit the poor as much as the general population. Community benefit encompasses benefits for both the poor and underserved, and for the broader community. For example, a hospital could organize a free health screening session at a senior center in a wealthy neighborhood. Those seniors could have paid for their own screening.

        For example, the hospital system which I did the project for was in Michigan. It had no hospitals in downtown Detroit. Therefore, its charity care spending was less than or equal to most of its regional competitors. It did, however, spend a significant amount on programs for the poor (as opposed to the broader community). Either way, though, I suspect that on average, there’s a disparity in what specific types of community benefit hospitals are spending on (although charity care should be harder to fudge than other community benefits).

        • Thanks for your comment.
          I was immediately skeptical like Spohr. (And still am a bit!)
          But I had no idea about the Catholic Assoc. thing. It surely makes sense to have some kind of standard if anything’s going to be measured for any practical purpose.

          My question is, why was there not this standard earlier?
          Or was there another standard earlier?

          As for the question in the blog post… I’m a little surprised about that question.
          I guess my question is – why would there be any inconsistency??
          (Am I missing something here? Because I really would like a better perspective on this sort of thing.)

    • These figures are not surprising to me. For years I’ve observed there is little if any difference in the behaviors, policies, procedures between the not for profit hospitals and for profit hospitals in South Carolina. The most aggressive patient collection policies are displayed by not for profit hospitals. Even the not for profits that receive disproportionate share funding. All hospitals pay lip service to the AHA’s Charity care policies. None of them seem to know what to do with the physicians they now employ. I’m no longer willing to grant not for profits “special” breaks, business is business. Plus most patients have no idea how profitable or not their local hospital is, they believe the PR and propaganda.

      Did the for profit margins for the for profits account for taxes, I wasn’t sure?