In Texas, measuring hospitals' charity-care commitment is all about the yardstick you use.
A recent state report shows that in 1998 several high-profile not-for-profit hospitals and systems in Texas would not have provided the minimum level of charity care required under a 7-year-old state law if the original accounting formula in Texas' historic charity-care law were still being used.
Luckily for the hospitals, the state in 1995 changed the formula, which can increase the number of dollars counted as charity care. As a result, in 1998 they were able to exceed the required minimum amount of charity care.
The Texas Hospital Association lobbied for the 1995 formula change, because it believes the new methodology takes into account more of hospitals' costs.
Hospital leaders claim the current formula better reflects the level of services they provide than the old formula, which was based on Medicare cost reports and underrepresented services to the nonelderly.
In 1993, Texas became the first state to require tax-exempt hospitals to spend a specific amount on charity care. A legal battle with 879-bed Methodist Hospital, Houston, helped prompt the Legislature into passing the charity-care law.
In 1992 the state sued Methodist when the attorney general alleged the hospital didn't provide enough charity care to justify its tax-exempt status. Methodist argued it wasn't legally obligated to provide care for the poor; a state court agreed, saying the state had no right to sue (May 6, 1996, p. 38).
Methodist is one of the nine Texas hospitals that would have missed the mark under the old formula.
The law requires private not-for-profit hospitals to spend 4% of their net patient revenue on charity and government-backed indigent care, mostly Medicaid.
Charity care is provided with no expectation of payment. Care also is considered charity in Texas if it's provided to people who have been deemed "medically indigent" by a hospital because, after insurance payments, their remaining medical bills exceed their annual income by a specific percentage.
But in 1995 Texas changed its law to allow providers to use a broader accounting formula when tallying the charity care they report to the state.
The new formula, based on generally accepted accounting principles (GAAP), factors more bad debt into a hospital's cost-to-charge ratio, which the state uses to figure out how much charity care should be provided.
For example, in 1998, under the newer accounting formula, the 82 hospitals that met the state's 4% standard collectively provided $307 million in charity care; whereas, under the old formula, they would have provided $228 million. Although they would have met the standard under the old formula, the amount of care provided would have been $79 million less.
Using that original formula, four healthcare systems along with the nine individual hospitals fell short of their required charity-care load, according to an analysis by the Texas Department of Health (See chart, p. 18).
This is the first time the state has issued a report detailing charity-care levels under both accounting methods. The Legislature mandated dual reporting of charity-care numbers because lawmakers wanted to see how the two compared.
The state health department has been refining and releasing its analysis of the charity-care numbers since spring.
Under GAAP, all 82 not-for-profit hospitals, including the nine hospitals and four systems that fell short under the old method, fulfilled their charity-care obligations in 1998, the most recent year for which figures are available.
In the case of Methodist, the Houston hospital would have provided charity care equal to only 3.2% of its $450.5 million in net patient revenue in 1998 under the old formula. When the GAAP formula is used the percentage increases to 4.6%.
"The one that's the law is the one we meet," said Brenita Crawford, executive vice president of the Methodist Health Care System. "We are meeting whatever the standard is at the time."
Charles Barnett, a Texas division executive for St. Louis-based Ascension Health, said its Austin-based Seton Healthcare Network didn't hit the standard under the old formula because one of its hospitals, which includes a children's facility, was excluded from the calculation. A state official said the hospital was excluded because it is a disproportionate-share hospital and is automatically assumed to meet the standard.
A spokeswoman for the Texas attorney general said the office was evaluating the latest charity-care numbers from the state health department.
An official with the hospital association said the group is satisfied with the charity-care results.
"It tells a very small story about what hospitals do," said Marsha Jones, vice president of government relations at the association.