Nonprofit, for-profit hospitals in California show same uncompensated care costs, study finds

Authors say there is need for more accountability in the Affordable Care Act's charity care standards, especially among nonprofit hospitals, which qualify for about $24 billion in federal, state, and local tax exemptions annually.

A new report on California uncompensated care has found there's very little difference between what for-profit and nonprofit healthcare providers are giving away in care, despite the expectation that nonprofits should be more charitable than their for-profit competitors.

In a study published in Health Affairs, Renee Hsia, MD, an emergency physician, and fellow researchers at the University of California, San Francisco, combed through utilization and financial data on California nonprofit and for-profit hospitals between 2011 and 2013, to compare their rates of charity and uncompensated care.

They found that California's general acute care hospitals dedicated an average of 1.8 percent of their total operating expenses to charity care, under hospital-set policies that generally allows patients to pay nothing. Nonprofit hospitals in the study spent about 1.9 percent of operating expenses compared 1.4 percent.

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But when it came to uncompensated care,  which includes both charity care and bad debt, there was little difference in what nonprofit and for-profit hospitals spent: the percentage of operating expenses devoted to uncompensated care averaged 4.4 percent.

Hsia and colleagues from UCSF argue that this variation highlights a need for more accountability in the Affordable Care Act's charity care standards, especially among nonprofit hospitals, which qualify for about $24 billion in federal, state, and local tax exemptions annually.

The ACA requires all nonprofit hospitals to have charity care policies. "But the law lacks specific details, including which patients qualify and what charges should be waived," Hsia and colleagues wrote. "In addition, there has been increasing concern that hospitals are narrowing their charity care policies."

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Nonprofit hospitals can meet the ACA's community benefit standard, overseen by the IRS, in a variety of ways, including providing charity care, workforce training or even construction of bike and walking trails.

The distinction between bad debt and charity care, under the broader category of uncompensated care, is based on a hospital's charity care policies.

In California, all hospitals must allow patients earning below 350 percent of the poverty level (roughly $41,000 for a single person) to apply for financial assistance, although hospitals can decide who qualifies for full-charity care. An uninsured patient with a particular income might qualify for charity care at one hospital but not at another. The ACA requires that all nonprofit hospitals maintain financial assistance policies, although the specifics are also left up to the institutions.

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Hsia and other researchers suggest that policymakers try to address root issues and try to eliminate the need for charity care, including by expanding Medicaid eligibility and creating sustainable payments in the program.

State and federal leaders could also establish "minimum charity care benchmarks that include Medicaid shortfalls for not-for-profit hospitals," Hsia and colleagues write. "However, a more precise strategy could be for policy makers to increase Medicaid reimbursement rates for hospitals that care for relatively high percentages of Medicaid patients, as California is doing with cost-based reimbursement for public hospitals that care for patients newly eligible for Medicaid. This strategy would more accurately direct funding to the hospitals that care for poor patients."

Twitter: @AnthonyBrino