Large for-profit hospitals spend more on charity care than not-for-profit peers, study says

Among the country’s largest hospitals, a new study finds the for-profit ones dole out more charity care than their not-for-profit counterparts.

When stretched across all of the nearly 2,800 hospitals of all sizes included in the study, there wasn’t a statistically significant difference in charity care spending across hospitals. But among those with 350 or more beds, charity care was 3.7% of expenses for for-profit hospitals and 2.6% of expenses for not-for-profits.

An unprecedented number of Americans have lost employer-sponsored health insurance amid the COVID-19 pandemic. An estimated 5.4 million Americans became uninsured between February and May alone because they lost their jobs, resulting in far and away the highest annual increase in uninsured adults ever recorded, according to an analysis by Families USA.

That will undoubtedly result in greater need for charity care, said Joseph Bruch, the study’s lead author and a doctoral candidate in population health sciences in the Harvard T.H. Chan School of Public Health.

“If there ever was a time for nonprofit hospitals to be demonstrating their commitment to their social mission, I think now would be the time,” Bruch said.

The charity care study, published this week in the Journal of General Internal Medicine, relied on 2018 Medicare cost report data. The 725 for-profit hospitals studied provided $4.3 million in charity care on average, or 2.6% of expenses. The 2,068 not-for-profit hospitals included in the analysis averaged $7.1 million in charity care, or 3% of expenses.

Among small hospitals with fewer than 100 beds, for-profits dedicated 1.8% of expenses to charity care, compared with 3% for not-for-profits. Among hospitals with 100 to 349 beds, there wasn’t a statistically significant difference.

In low-income areas, the study also found for-profit hospitals spent slightly more on charity care than not-for-profits, although the difference was not statistically significant.

Cynthia Woodcock, executive director of The Hilltop Institute, a nonpartisan research organization that studies healthcare issues, including hospital community benefits, wrote in an email that the study is “an important contribution to the literature” on charity care. However, it doesn’t include a number of other forms of community benefit spending that not-for-profit hospitals report on Schedule H of their Internal Revenue Service Tax Form 990s, including health professions education, Medicaid shortfall, community health improvement and research. It would be interesting to learn about the community missions of for-profit hospitals, particularly since they’re not required to carry out community health needs assessments, like not-for-profits.

Woodcock added that while the study looked at charity care spending by household income, it would have been better to incorporate uninsured rates, which more closely align with the need for charity care. In Medicaid expansion states, the need for charity care coverage is smaller than non-expansion states, because of their higher uninsured rates, she said.

Bruch said his results didn’t surprise him, given they’re consistent with prior research.

Not-for-profit hospitals with the highest net income provided $11.50 in charity care for uninsured patients for every $100 of their overall net income, compared with $72.30 for hospitals with the highest net losses, according to a February research letter in JAMA Internal Medicine. The American Hospital Association criticized the analysis for not including Medicare and Medicaid underpayments.

Many of the large not-for-profit hospitals included in the study are likely teaching hospitals and therefore dedicate more expenses to education. But Bruch questioned whether education is enough of a community benefit to justify hospitals’ tax exemptions.

Hospitals’ finances have suffered severely during the pandemic. An AHA-commissioned report in July found hospitals’ median operating margin could sink to -7% by the end of 2020 without additional government support. At the same time, the country’s four largest for-profit hospital chains grew their cumulative profit by 69% during the quarter ended June 30 to $1.5 billion, thanks in large part to government stimulus grants and aggressive expense reductions.

Bruch acknowledged many hospitals are struggling financially amid the pandemic, especially having been forced to suspend elective procedures for months and continuing to struggle with anemic volumes.

Regardless, he said, “I do think this is an important area of investment they should be considering.”

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