Has The Non-Profit Hospital Community Benefit Standard Been Successful Thus Far?

Nambi Ndugga is a Policy Analyst with Boston University’s School of Public Health. She tweets at @joerianatalie. Research for this piece was supported by the Laura and John Arnold Foundation.

How does the non-profit hospital community benefit standard impact the community?

In a previous post, I presented the regulatory requirements non-profit hospitals must fulfill to qualify for tax-exemption. In this post, I consider the impact of these investments on the communities served by non-profit hospitals. I will also introduce some critiques of the standard and suggest some steps for future reform.

The IRS requirements for 501c3 organizations, including hospitals, state that they must invest financially into their communities. Given the tax breaks afforded to non-profit hospitals in exchange for their community investments, I wanted to see if patients, communities, and hospitals all benefit equally from this agreement.

Is the community benefit standard adequately addressing health care costs?

Short answer: not quite.

Policymakers implemented the community benefit standard to ensure that non-profit hospitals give back to their communities in a meaningful way. One example is through financial assistance policies. However, there appears to be a disconnect between the investments hospitals make and their community impact.

An illustration of this is the Medicaid shortfall population. This refers to formerly uninsured patients who now receive Medicaid coverage through the Affordable Care Act (ACA). Even though Medicaid pays for some of their care, it is often not enough to cover all their hospital costs. With the ACA’s coverage expansion, hospitals in Medicaid expansion states decreased their direct financial assistance investments in lieu of investing in other aspects of the community benefit standard, including addressing the Medicaid shortfall.

Between 2013 and 2014, Ascension Health hospitals, the largest non-profit hospital system in California, observed a $35 million reduction in financial assistance expenditures and a $23 million increase in Medicaid shortfall amounts. Thus, the increased attention to the Medicaid shortfall population resulted in a $12 million net decrease in the cost of care dedicated to low income individuals. This is just one example of a larger trend.

Does the community benefit standard go far enough?

Short answer: not really.

The community benefit standard is the groundwork to ensure non-profit hospitals reinvest into their communities. But, currently, the onus is on the hospitals to determine what their communities need rather than offering evidence-based guidelines on which investments would have the biggest impacts.

A recent report on Massachusetts non-profit hospital community investments found little evidence to suggest they were impactful or adequately addressed underlying community needs. The report found that 83 percent of Massachusetts’ hospitals spent far less on community benefits than recommended by the Attorney General (she recommends three percent of total patient expenditures). In addition, the investments made, often did not encourage long-term, transformative change in community health outcomes.

These findings echo those of University of Pennsylvania researchers who found that hospital community investments often did not match community needs. Plus, hospital expenditures for community-directed benefits didn’t differ if the hospital was located in a poverty-stricken or an affluent neighborhood. In addition to insufficiently matching community needs, the current policies do not assess their impact on communities’ health outcomes.

Are there examples of the community benefit standard having unintended consequences?

Short answer: yes.

Two-thirds of patients are unable to pay their medical bills. The news cycle has highlighted this gap through stories of patients who fall through the cracks of financial assistance policies, which tend to only cover the uninsured. More than half of non-profit hospitals fail to inform their patients if they qualify for financial assistance. And when they are unable to make their payments, they are directed to debt collection agencies.

For example, researchers have found that 71 percent of Virginia hospitals that engage in aggressive medical debt collection practices are non-profit hospitals. In other words, these hospitals are suing low-income patients and garnishing wages to pay off medical debts.

But this is not unique to Virginia. ProPublica recently published a series of stories on wage garnishment in six different states. Methodist LeBonheur Hospital, a non-profit hospital in Memphis, filed over 8000 lawsuits against patients, between 2014 and 2018 for unpaid medical bills. For the most part, these patients made less than $15 an hour.

This is not a new phenomenon, with the Wall Street Journal exposing aggressive debt collection practices that were considered inconsistent with their non-profit standings, in the early 2000s.

Understandably, hospitals must pay their bills, and practices that attempt to balance the bottom line are necessary. But it seems that the goals of staying in the black and ensuring low-income patients receive equitable services aren’t quite balanced under current policies.

What are some possible policy reforms, both ongoing and future?

Short answer: increased accountability and locally driven investments.

While the picture painted may seem bleak, there are hospitals and health systems that are making significant investments into their communities. The Democracy Collaborative found that Kaiser Permanante, and other hospitals are developing systems of accountability that ensure investments are locally driven, sustainable, and transformative. Other health systems such as Yale New Haven Health Systems and Tenet Healthcare have also re-evaluated their financial assistance policies to include a wider swathe of patients and develop more compassionate debt collection practices.

It is worth noting that the federal community benefit standard already includes a needs assessment component, but it doesn’t have any teeth. State governments have begun taking community benefit standard policies into their own hands to fit their states’ needs. For example, earlier this year, Oregon signed HB 3076 into law, establishing a required minimum for non-profit hospital community benefit spending and expanding the income range covered by financial assistance policies. The Oregon Health Authority is developing methodology to determine a spending floor specific to each hospital and health system, set to go into effect in January 2021.

Recently, Colorado enacted HB 19-1320 to increase transparency by requiring hospitals to submit annual public reports on their community benefit activities to the Colorado Department of Health Care and Financing. They will also be required to report the value of their tax exemptions to determine if their savings are comparable to their community benefit investments. Finally, regional community boards will be created throughout the state to increase local oversight of non-profit hospitals and to identify and strengthen gaps in the current federal regulations.

Big Picture

The spirit of the community benefit standard is that non-profit hospitals are expected to engage in charitable activities that benefit the communities they serve, thus qualifying them for tax-exempt status. Media coverage and scholarly investigation suggests that those activities do not always meet the needs of communities. In some areas, policymakers and certain hospitals and health systems are attempting to bring them more in alignment, with the population-level effects not yet known.

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