One of the pioneers of nonprofit Catholic healthcare, the late Sister Irene Kraus, recognized early on that nonprofit hospitals and health systems need a sustainable financial margin to fulfill their mission. She was the founding CEO of the Daughters of Charity national health system, served as chair of the Catholic Health Association and was the first woman to chair the American Hospital Association. Today, that nonprofit mission includes providing high-quality 24/7 care for all patients, investing in new and innovative treatments and, perhaps most importantly, serving as anchor organizations for communities without resources.
More recently, some researchers, policymakers, health insurers and drug companies have questioned that thesis, but its simple truth is more evident today than perhaps ever before.
Related: Hospitals facing stricter charity care oversight
Nonprofit hospitals and health systems recognize that their tax-exempt status comes with the responsibility to deliver on their mission to care for the communities they serve. Reflective of that responsibility, those organizations provided nearly $130 billion in total benefits to their communities in 2020, based on the most recent data available. That’s a $20 billion increase from the prior year despite it being during one of the most significant and challenging periods in healthcare history.
Benefits include improving community health by addressing social needs like housing and transportation, supporting medical research and health professions education, and subsidizing high-cost and often negative-margin essential services, such as wound care and behavioral health.
The programs address social drivers of health and improve community health in the long term, which is why it’s critical to focus not only on financial assistance alone but also on all categories of community benefit and the broader benefits that enhance public health outcomes.
Still, some academics and other observers argue that nonprofit hospitals aren’t doing enough given their tax breaks. They have suggested that these organizations should just break even financially, operate at a loss or even forfeit their tax-exempt status. They ignore the reality that starving hospitals of needed resources would only end up harming the patients and communities that rely on them for care.
For hospitals and health systems, sustained financial losses make preserving 24/7 access, quality and innovation incredibly difficult in the short term and nearly impossible in the long term. It also threatens hospitals’ ability to maintain operations in the face of crises like a pandemic, natural disasters, local emergencies and large-scale cyberattacks, such as the recent Change Healthcare data breach that crippled cash flow at many hospitals and other providers for months.
The rapid transformations and challenges that healthcare has encountered in recent years, and continues to confront with the advent of new care delivery models, make Sister Kraus’ observation more important than ever. A recent report by Deloitte affirms that nonprofit hospitals need a margin to meet their mission, particularly in light of the expanded role they play in their communities, from providing traditional inpatient medical services to acting as de facto public health and social services agencies. Nonprofit hospitals also need improved margins to invest in facilities, cutting-edge technology and the skilled professionals necessary to provide the quality, advanced care that patients expect and deserve.
To accomplish this, nonprofits rely on a combination of reimbursement for direct patient care and borrowed funds. This is important because, unlike for-profit businesses, community hospitals don’t have access to equity markets. Instead, they seek financing through debt issuance in the bond markets or other forms of borrowing. To maintain access to that lifeline, they must reach certain financial performance thresholds in the form of margins and reserves. Those thresholds are based on various factors unique to each hospital’s situation, including location, facility size, payer mix and patients served.
Healthcare leaders and policymakers must strive to ensure that all hospitals have the resources needed to provide the right care to everyone in their communities. That’s why Congress should reject Medicare and Medicaid cuts to hospital care, including harmful so-called “site-neutral” proposals and forthcoming reductions to Medicaid Disproportionate Share hospitals. They also should scrap proposals that would significantly diminish the scope of the 340B drug pricing program, which helps hospitals maintain and expand access to care.
Barely making ends meet or operating at a loss should never be the goal or an acceptable status quo for any nonprofit healthcare organization. It’s not just bad economics; it also impedes institutions’ ability to deliver services and improve health outcomes.
As Congress considers new proposals to enhance healthcare equity, access and affordability, it’s imperative to recognize the significant contributions nonprofit hospitals and systems provide and align our healthcare policy discussions accordingly — so they can continue to serve those who need care the most.
Sister Mary Haddad is president and CEO of the Catholic Health Association of the United States. Rick Pollack is president and CEO of the American Hospital Association.
