Once theyre able to quantify hospitals community benefits, policymakers may ask whether its enough to justify tax exemptions, Mancino says. That could lead to other new laws that set thresholds for spending on free and discounted care for low-income patients, he says. I think theres going to be a continuing chorus pushing for charity-care legislation, he says.
Jane Hopkins Gould, a director in consultancy Grant Thorntons healthcare practice in Minneapolis, agrees. Expect states to increasingly tie tax breaks to minimum spending on aid, she says. Not-for-profit hospitals enjoy tax advantages that affect state treasuries, so legislators want to see a return. I think it is as much an economic evaluation as it is a philosophical or social initiative at the state level, Gould says.
State laws also give legislators leeway to modify disclosure or spending rules based on local demographics or markets, Gould says. That is important, considering the widespread disagreement among states over what expenses count toward community benefit.
Two expensesbad debt and losses on Medicare patientsare at the center of the debate over how to tally community benefits. Bad-debt expenses are losses on bills that patients are expected to pay, but do not. Two powerful associations, the American Hospital Association and Catholic Health Association, disagree on whether to count such costs. The AHA has lobbied aggressively to count bad debt and Medicare losses toward community benefits. CHA officials support excluding both, a position the IRS adopted in its proposed criteria.
Hospitals in five states count Medicare losses under voluntary or mandated community-benefit reporting efforts and another nine include both Medicare and bad-debt losses, according to a January report by the Minnesota Health Department. Minnesota lawmakers interest in the issue led to the state reporting law earlier this year. One state, Rhode Island, includes bad debt but not Medicare losses. At least three statesPennsylvania, Texas and Utahrequire that hospitals spend a minimum amount on community benefits, according to the report.
In January, Pennsylvania Gov. Edward Rendell took aim at how much free care low-income patients receive from Pennsylvanias not-for-profit hospitals as part of a far-reaching plan to boost healthcare access and quality.
Rendells aggressive proposal would set tougher criteria for a 10-year-old law that requires hospitals to meet charity-care spending targets to win property tax exemptions. Under state law, hospitals may meet the target in one of several ways. James Redmond, senior vice president of legislative services for the Hospital and Healthsystem Association of Pennsylvania, says hospitals typically agree to provide uncompensated goods or services that total at least 75% of net operating income, but not less than 3% of total operating expenses.
Rendell proposed that bad debt should no longer count toward the tally of free care. The value of aid should be based not on cost, but on how much Medicare pays hospitals, a more conservative standard, under the plan. And hospitals that fall short should be fined the difference, Rendell proposed, with funds used to offset the cost of a proposed state and federally subsidized insurance pool for small business and uninsured adults. Barbara Holland, a deputy general counsel for Rendell, says the proposal seeks to bolster enforcement and tighten standards to ensure hospitals deliver promised community benefits.
Pennsylvanias hospitals object to the plan, which would cost roughly $1 billion annually, Redmond says. According to the associations estimate, hospitals community benefits totaled an estimated $4 billion in 2006a figure that included $1.1 billion in bad-debt expenses.
Renee Markus Hodin, a project director with patient-advocacy group Community Catalyst, acknowledged states community-benefit reporting laws vary widely and called required disclosure a leaping-off point. Federal and state policy standards that require hospitals to meet specific criteria, she says, really are the goal.
In late September, Community Catalyst and two dozen groups urged Congress to set a threshold of at least 5% of revenue or operating expenses, whichever is greater. The organizations also endorsed penalties for those that fail to meet clearly defined criteria. Improving oversight should not stop with enacting state laws or setting a federal standard, Hodin says. Mandates are only as good as their enforcement and monitoring, she adds.
The Boston-based organization, which posts model free-care legislation on its Web site, recently finished its second overview of state community-benefit laws. The results, not yet published, found radically different definitions of community benefit and equally divergent opinions on what should be required of tax-exempt hospitals across 18 states. Hodin also pointed to early results, released in July, of an IRS survey of nearly 500 not-for-profit hospitals community-benefit policies and disclosure as further evidence of the sectors erratic performance. Some 22% of respondents reported spending less than 1% of total revenue on uncompensated care.
No consensus exists on how much is enough to justify not-for-profits tax advantages, Hodin says. Earlier this year, Sen. Chuck Grassley (R-Iowa), ranking member of the Senate Finance Committee, proposed 5% of annual patient revenue as the minimum requirement. Industry insiders voiced opposition to Grassleys plan at a roundtable the senator convened Oct. 30, arguing that a charity-care spending target would make free and discounted care a priority over other community benefits, regardless of their impact (Nov. 5, p. 8).