The rules, issued in 2007, also allow not-for-profit providers to include direct support for community health projects and subsidies for medical research and education in their community-benefit declaration. Yet no federal law prescribes how much hospitals must spend on community benefit overall or for any service.
The growing share of community benefits coming from Medicaid losses will likely shift the debate about what constitutes charitable care. “At least in the states that passed expanded Medicaid, all these old arguments about community benefit and charity care ought to be much less salient in the future than in the past,” said Mark Pauly, a management professor and health economist at the University of Pennsylvania.
Hospitals subsidize Medicaid and other community benefits from operations or reserves. They may respond to increased Medicaid losses by expanding their more profitable service lines. Recent studies suggest that hospitals largely haven't been able to negotiate with insurers for higher rates for the commercially insured to make up for shortfalls from public programs.
Or, some say, hospitals could step up efforts to deliver care within the payments set by public agencies. “This becomes far more a discussion of how do we become more efficient,” said Tom Tiggelaar, vice president and chief financial officer for La Crosse-Wis.-based Mayo Clinic Health System-Franciscan Healthcare, which has gained new Medicaid patients even though Wisconsin didn't expand the program.
The reason, he said, is that more of those already eligible signed up because of the broad public discussion about the Affordable Care Act. In 2013, Medicaid losses accounted for 6.3% of the system's total expenses, and 74% of its total community benefit spending.
Many hospitals that see fewer uninsured patients because they've switched to Medicaid will now be getting at least something for serving patients who were previously uninsured, said Sara Rosenbaum, a professor of health policy at George Washington University. Medicaid may not cover costs, but it's more than what hospitals previously received.
“This is an area that's very important, because it is the single largest expense” within the spending that hospitals can claim as community benefit, said Rosenbaum, whose research focuses on tax exemptions for hospitals.
“Our charity care has gone down and our Medicaid volume has gone up significantly along with our volume,” said Michael Blaszyk, CFO of Dignity Health, a San Francisco-based system with 39 hospitals. In response, the system plans to earmark an increased share of its 2017 community benefit budget for increasing Medicaid patients' access to primary care.
To continue earning their tax benefits, Rosenbaum said she would like to see hospitals invest more in community health efforts, “things that are not going to earn the hospital revenue directly.”
Public reporting on community benefit typically is delayed; Modern Healthcare reviewed available IRS filings for 2013. But Modern Healthcare's limited review of IRS filings by hospitals and systems for 2013, the year before Medicaid expansion went into effect, revealed figures almost identical to a 2009 analysis of community benefit spending by 1,800 hospitals published in the New England Journal of Medicine.
That study found Medicaid losses made up 45% of community benefit spending and charity care 25%, on average. In another study, Wisconsin hospitals reported that Medicaid losses accounted for half of community benefit spending in 2009, although charity care made up just 9%.
Hospitals may face new questions and more pressure from local community groups and lawmakers who see fewer uninsured patients as an opportunity to promote investment in prevention and wellness. “There is a debate about how much hospitals should be doing in this area,” said Gary Young, director of Northeastern University's Center for Health Policy and Healthcare Research and co-author of the analysis of not-for-profits' 2009 community benefits.
The Affordable Care Act has intensified that debate, he said, by reducing the number of uninsured, and also by introducing new regulations and financial incentives for hospitals to branch further into local communities. Under the Affordable Care Act, not-for-profit hospitals must assess local community health needs every three years. Those that fail to do so could lose their tax breaks.
Public health officials and underserved and low-income communities must be allowed to comment on community health needs. That has increased their involvement in devising ways to invest community benefit budgets.
Community health improvement accounted for 5% of what hospitals gave back among facilities in Young's study. In Modern Healthcare's survey, the median hospital awarded 3% of its community benefit spending to health improvement in the community.