Not-for-profit hospitals with the healthiest finances provide disproportionately less free care to the uninsured and underinsured, new research shows.
Hospitals that are exempt from income, property and sales taxes reaped $47.9 billion in net income in 2017, offering $9.7 billion in charity care to the uninsured and $4.5 billion in charity care for the insured who needed help covering their bills and deductibles, according to an analysis of 2,563 of not-for-profit hospitals published in JAMA Internal Medicine.
The top quartile of hospitals by financial performance provided $11.50 in charity care for the uninsured and $5.10 for the insured for every $100 of their overall net income. The third quartile of hospitals, many of which recorded financial losses, provided $72.30 for the uninsured and $40.90 for the insured for every $100 of their net income.
Not-for-profit hospitals are supposed to help taxpayers by providing free or discounted care for the most vulnerable, said Ge Bai, lead author of the study and an associate professor of accounting and health policy and management at Johns Hopkins University.
But medical bills are a major reason poor people fall out of the workforce and into the welfare trap, which increases the burden on taxpayers. This contradicts not-for-profits' missions, she said.
"There is a corporatization of not-for-profit healthcare," Bai said. "Profit motives dominate their charitable mission in many cases."
The research supports Modern Healthcare's analyses revealing that charity care and community benefit spending have stagnated or declined as many not-for-profit health systems expand. In an era of consolidation, taxpayers and policymakers are asking not-for-profit health systems to do more to prove they are earning their tax exemptions.
"We must make sure consolidation is not purely profit driven," Bai said. "Not-for-profits could have lowered their prices and adjusted their financial-assistance policies to provide more charity care instead of accumulating more hospitals, more profit and increasing prices."
The 20 largest health systems dedicated only 1.4% of their operating revenue in fiscal 2016 to charity care—about the same as the previous year, Modern Healthcare found. Uncompensated care, which is the sum of outstanding bills and free or discounted care, as a percentage of total expenses fell to a 25-year low in 2015, according to the American Hospital Association, which has since stopped tracking that metric.
While uncompensated care does not include the gap between hospitals' cost to treat Medicaid beneficiaries and reimbursement levels, that shortfall is recorded in hospital's community benefit spending. Community benefit spending, tracked in the IRS' Schedule H of the Form 990, also includes other community investments, although there isn't a uniform methodology and those numbers can be misleading.
Community benefit spending in Illinois dipped from fiscal 2013 to 2016, falling from 9.1% of the hospitals' total expenses to 8.2%, a Modern Healthcare analysis found. The Medicaid shortfall, which many economists claim is not a fair measure, has made up an increasing share of not-for-profits' community benefit spending.
"My concern is the shift is going from indigent care to Medicaid shortfall," Sara Rosenbaum, health law and policy professor at George Washington University's Milken Institute School of Public Health, previously told Modern Healthcare. "If private insurance discounts don't count as community benefit, why should Medicaid discounts? I really don't see why a payment discount is a community benefit."
Hospitals in states that expanded Medicaid paid less charity care, bolstering that concern, Bai and her fellow researchers found. Hospitals in expansion states provided $12 in charity care for the uninsured for every $100 of their net income and $8.70 for the insured, compared to $37.80 and $11 for hospitals in non-expansion states.
The AHA said in a statement that the research letter was flawed because it overlooked Medicaid and Medicare underpayments. The analysis also didn't include community benefit spending, the AHA said. The hospital lobbying organization cited its own analysis concluding that tax-exempt hospitals provided $95 billion in total benefits to their communities in 2016 alone, which dwarfed the estimated $9 billion value of their tax exemptions.
"A new research letter on charity care published in JAMA Internal Medicine is misleading at best," the AHA said.
Oftentimes, hospitals in wealthier areas have stronger finances. Many argue that since they care for more financially stable individuals who are often covered by private insurers, they do not need to dole out as much charity care.
But Bai disagrees with that argument.
"There is always room for hospitals to help the uninsured—they have absolute discretion in crafting their financial-assistance policies," she said. "It is wrong to say that it is out of our control."
While hospitals in affluent areas tend to provide less charity care, some invest incrementally more in community programs, said Gary Young, director of the Center for Health Policy and Healthcare Research at Northeastern University. But it is varied, he said.
"Whether or not that justifies a tax-exempt status is another thing," Young said.
Hospitals have relied on their political clout given their standing as a job creator and economic engine. But as research mounts, policymakers closely scrutinize tax-exempt hospitals, some of which record exemptions of tens of millions dollars a year. Some experts have suggested a community benefit spending threshold based on total expenses, or requiring top systems to subsidize other hospitals' community benefit programs, similar to the cap-and-trade system.
Meanwhile, executive salaries continue to climb as not-for-profit hospitals sue low-income patients, drawing more criticism. The 25 highest-paid not-for-profit health system executives received a combined 33.2% increase in total compensation in 2017 as some executives raked in more than $10 million a year, a Modern Healthcare analysis found.
Top not-for-profit hospitals should consider more generous financial assistance eligibility criteria to reduce harm on uninsured and underinsured patients, many of whom grapple with higher deductibles, the study researchers said.
"Hospitals cannot and should not take the employment they provide as leverage to push for more profit and higher prices," Bai said. "That leads to a lack of accountability."
Tara Bannow contributed to this report.