California has become the first state in the nation to require not-for-profit hospitals to draft and implement community benefits plans and to make those plans available to the public.
The plans will include detailed information about how much true charity care a hospital is giving to its community.
The new law is one state's response to the ongoing national debate over whether not-for-profit hospitals provide enough charitable benefits to justify their tax-exempt status.
Interestingly, the law that places the new requirements on California hospitals wasn't written by tax-happy state lawmakers. It was introduced on behalf of two state hospital associations: the California Association of Catholic Hospitals, and the California Association of Hospitals and Health Systems.
"We had to stop stonewalling on the issue of community benefits," said Marc Lowry, vice president for finance policy at the CAHHS. "All we did was kick and scream and oppose every piece of legislation without dealing with the issue."
Bud Lee, vice president of the state Catholic hospitals association, said the two associations acted because they saw the handwriting on the wall.
Every year for the past several years bills have been introduced in the state Legislature that would place strict charity-care requirements on not-for-profit hospitals that want to preserve their exemptions from local taxes. The associations couldn't keep beating the efforts down forever, Mr. Lee said.
And the recent controversy over a for-profit subsidiary created by Blue Cross of California focused the attention of many lawmakers on what the state is getting in return for giving exemptions to large not-for-profit corporations, Mr. Lee said.
The issue was resolved after the Blues plan decided to convert itself into a for-profit company (Sept. 19, p. 3). But the issue could prompt lawmakers to train their sights on other not-for-profit organizations, Mr. Lee said.
The California bill was approved by the state Legislature in August and signed into law by Gov. Pete Wilson on Sept. 26.
Under the new law, not-for-profit hospitals must reaffirm or rewrite their mission statements by July 1, 1995, to reflect the hospitals' goal of operating in the public interest as tax-exempt public charities.
By Jan. 1, 1996, they must have completed a community needs assessment by themselves or in conjunction with other providers in their markets.
Perhaps most importantly, the hospitals must develop a plan by April 1, 1996, to provide community benefits to their markets. Hospitals must update the plans annually and document the amount of community benefits they provide.
Under the law, community benefits include: charity care; bad debt; Medicare and Medicaid shortfalls; financial support of public health programs; donations of time, money or services; and community health and education programs.
Hospitals must submit their community benefits plan and documentation to the California Statewide Office of Health Planning and Development no later than 150 days after their fiscal year ends, starting with hospitals whose year ends on Dec. 31, 1995.
The law applies to all private not-for-profit hospitals in the state.
In 1992, the latest year for which figures are available, some 436 acute-care hospitals in California posted a combined $1.1 billion profit on total revenues of about $28.4 billion, according to the American Hospital Association.
The 239 nongovernmental, not-for-profit hospitals in California earned $719.5 million on total revenues of about $18.2 billion, the AHA said.
Although the not-for-profits represent a little more than half of the hospitals in the state, they generated more than 65% of the profits in 1992.
Unlike charity-care statutes and case law in states such as Pennsylvania, Texas and Utah, the California law contains no minimum community benefits requirements or penalties-such as loss of property-tax exemptions-against hospitals that don't do enough.
However, the goal of the statute is the same, and that's to encourage not-for-profit hospitals to do more for their communities. And the stick to prompt them along is public disclosure.
"This isn't going to be easy for some of our members to take," Mr. Lowry said.
The 41 members of the state's Catholic hospital association, though, are in a good position. Most, if not all, have been documenting community benefits for several years as part of the national Catholic Health Association's "social accountability" program, Mr. Lee said.
The voluntary CHA program helps hospitals measure and document what they do for their communities.
To help hospitals comply with the new law, both associations have scheduled a series of educational seminars for November and December.