How much charity care do not-for-profit hospitals provide?

In March, it was discovered that the Mayo Clinic's CEO, John Noseworthy, had asked staff to "prioritize . . . commercially insured patients" over those covered by Medicare or Medicaid.

Observers described the message as being in poor taste but surprising only because someone publicly discussed the policy—not that hospitals were trying to bring better-paying patients through their doors, even when those hospitals are not-for-profit organizations that receive tax exemptions in return for providing community benefits.

This idea raised questions that prompted Modern Healthcare to look into the proportion of charity care provided by the country's 20 biggest not-for-profit hospitals and hospital systems by revenue in 2015 and 2016. The analysis revealed a huge range.

Charity care is only one type of the community benefits that not-for-profit hospitals provide. Usually, charity is defined as uncompensated care, but not all health systems calculate charity care the same way.

In Modern Healthcare's analysis, charity care included uncompensated care and the losses from care provided to Medicaid beneficiaries. It did not include bad debt, or write-offs from patients who do not pay. The analysis looked at charity care as a percentage of net operating expenses, which ranged from 0.46% to 16.69% in 2016.

On that scale, the Mayo Clinic Health System is in the middle. In 2016, its charity care constituted 5.98% of its operating expenses.

Among the top 20 hospitals by revenue, the average proportion of operating expenses devoted to charity care was 5.21% and the median was 3.99%.

The analysis sketched an outline of charity care that highlights key questions about the nature of tax-exempt institutions. How are the benefits they provide defined and measured? What standards, if any, exist regarding these benefits? And ultimately, how accountable and how fair is this system?

To Gary Young, director of the Center for Health Policy and Healthcare Research at Northeastern University in Boston, the huge range in charity care is not surprising. His own research, published in the New England Journal of Medicine, has found that tax-exempt hospitals in the U.S. provide a wide range of community benefits.

When he and his fellow researchers sorted hospitals into 10 groups based on their percentage of operating expenses spent on community benefits, hospitals in the top decile spent on average 20.1%. In the bottom decile, hospitals spent an average of 1.1%.

"We do know there is tremendous variation among hospitals in what they spend in total on community benefits overall," Young said. "Charity care has always been one of the most important, but it isn't the only type of community benefit."

As for the wide range of charity care provided by not-for-profit hospitals, Young said that in some instances, a lower level or a higher level of such care may be justified, depending on the hospital. "Hospitals in some communities have a much greater demand for charity care than in other communities," he said.

The IRS defines seven community benefits for tax-exempt hospitals: charity care; participation in government programs such as Medicaid; medical education; health services research; subsidized health services; community health improvement activities; and cash or in-kind contributions.

The extent to which hospitals provide those benefits, and which ones is largely up to the hospital to decide, Young said. "There's no question, some hospitals are probably not carrying their weight; but we haven't really defined what the appropriate weight is one has to carry."

At least one question raised by the vast disparities in charity care provided is whether they can actually be explained by community differences. If hospitals are located in wealthy communities, for example, it might be unrealistic for them to provide a high proportion of charity care.

"A larger societal concern is whether hospitals are being held equally accountable, and if they're pulling their weight given the value of their tax exemption," Young said.

The question of how the country figures that out still stands.