Yearly tax records not-for-profits must file with the Internal Revenue Service, the Form 990, now require hospitals to itemize spending on patient financial aid, as well as research, training of new doctors and other subsidized services. Modern Healthcare reviewed 156 Form 990s from 20 large systems with the earliest tax filing deadline. The majority (58%) of those with a profit in 2009 reported below-average financial assistance.
Overall, the analysis found hospital and system spending and policies on low-income patients varied.
One quarter reported financial aid amounted to 0.9% or less of total expenses. Half said free or discounted medical care for low-income patients made up roughly 2.2% or less of costs. Those in the top quarter reported subsidized care of 3.4% or more.
Disclosures released in the coming months will provide the broad overview of hospital community benefits that many policy experts and lawmakers argue has limited oversight of the sector.
Rules that once directly tied tax breaks to financial aid for low-income patients were replaced in 1969 with less prescriptive regulations. So for more than 40 years, hospitals have received the advantages of tax breaks but with no definitive measure of how they earned it.
“It turned out the bar for being tax-exempt was indistinguishable from the bar for being taxable,” says Nancy Kane, a professor of management at the Harvard School of Public Health's health policy management department, with the exception of certain limits on compensation, bonuses and other perks.
That means roughly 2,900 not-for-profit hospitals across the United States operate under a loose agreement with federal, state and local governments. In return for significant tax breaks, the hospitals agree to provide vaguely defined benefits to local communities.
But that agreement began to fray during the last decade, after reports that some uninsured patients faced aggressive billing and collection practices. Members of Congress, patient advocates and state attorneys general sharply criticized the sector's lack of transparency. The outcry led—after lengthy debate—to the new Form 990 hospital disclosure, the Schedule H.
Kane says heightened disclosure of how well hospitals meet local needs could help create policies that better target tax exemptions or other hospital support—such as bonus payments for hospitals with high numbers of low-income patients, or disproportionate share payments—to address the greatest need.
She says she remains undecided on the value of a required federal minimum for charity-care spending to earn tax benefits. That's in part because of upcoming insurance expansion under the Patient Protection and Affordable Care Act, but also because the most significant tax breaks are local property-tax exemptions.