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State and local governments spend at least $5.9 billion in tax exemptions for non-profit hospitals, according to a 2006 Congressional Budget Office report. Non-profit hospitals are the most common type, accounting for 68% of the 630,000 Medicare-certified hospitals beds across the US. For-profit hospitals account for a mere 16%. Clearly, the investment in non-profit hospitals is vast and we need to ensure the public is getting real value for this investment.

It's counter-intuitive, but many US non-profit hospitals have bigger profits than their for-profit counterparts.  In April 2008, the Wall Street Journal reported that the combined net income of the 50 largest non-profit hospitals across the US increased nearly eight-fold from 2001 to 2006, to a staggering $4.27 billion.  77% of the 2,033 non-profit hospitals in the US routinely make money, compared with 61% of for-profit hospitals.  Congress exempts non-profits from income taxes and states free-up non-profits from paying property taxes. 

In return for their non-profit status and $12.6 billion in federal, state, and local tax exemptions, these hospitals must provide a "community benefit."  Many people assume this means charity care, or free care for the uninsured and indigent, but the term is so loosely defined that some non-profits have been reporting the wages they pay to employees as a community benefit.  Additionally, hospitals regularly assert that they cost-shift to paying and insured patients as a result of the free care they provide.  In other words, they simply shift the cost of free care to public and private payers.  A reasonable question for lawmakers to ask is whether "charity care" in this instance is providing a "community benefit" when the hospital is simply shifting the cost of free care to paying patients.  

To shed light on non-profit hospitals and the community benefits provided, the IRS will require hospitals to break-down their community benefit contributions starting in 2009.  The new reporting standards are welcome, but minimum standards for providing charity care and gaining non-profit status are a necessary next step.  

What Can States Do? State lawmakers can pass a "community benefits" program that defines what qualifies as a "community benefit," establishes standards for the provision of these services, and requires health care institutions to regularly report the "community benefits" they provide.  The Hospital Accountability Project, a project from Community Catalyst, provides a panoply of resources to ensure communities are getting value for the tax-exempt status of non-profit hospitals. Community Catalyst has developed model legislation -- the Health Care Institution Responsibility Model Act -- with the following objectives:

  • to ensure "community benefits" are equitably and fairly provided among communities
  • to ensure all health care institutions participate in providing "community benefits"
  • to raise the bar for all health care institutions, and
  • to ensure health care institutions know what is required of them in the provision of "community benefits"

To achieve these goals, Community Catalyst identifies the following priorities for legislation designed to better define and regulate the provision of "community benefits":

  • Accountability for all institutions - Establish requirements for all health care institutions in the provision of "community benefits," including for-profit and non-profit hospitals and Health Maintenance Organizations (HMOs).
  • Standards for "community benefits" - Establish standards that meet the needs of communities through "collective bargaining" between communities and institutions.  Massachusetts, for instance, has a target goal that non-profit hospitals provide community benefits up to 6% of total patient operating expenses.

A well-constructed community benefits plan can ensure health care institutions are holding up their end of the bargain to serve the public good and provide important transparency in the medical system.

Resources:

Congressional Budget Office - Non-Profit Hospitals and the Provision of Community Benefits, December 2006

Community Catalyst - Hospital Accountability Project

Strategy: Guide to Negotiating with Providers to Improve Access to Health Care Services