Nonprofit hospitals fail even more to provide charity care

Numbers have dropped precipitously since last review

Despite increased scrutiny in recent years, culminating in a decision this spring by California Attorney General Xavier Becerra to reject appeals by three California hospitals to be exempted from charity care obligations, a new report released in June by the California Nurses Association shows a sweeping drop this decade in what California nonprofits overall are providing in charity care.

The percentage of charity care provided by California nonprofit hospitals, as a percentage of their operating expenses, fell by one-third from 2011 through 2016, the most recent year for which public data is available. California nonprofit hospitals reduced spending on charity care even while recording a total of $37 billion in net income (profits) during that same period. The findings were based on information reported by the hospitals themselves to the Office of Statewide Health Planning and Development agency and other publicly available information.

Since the expansion of Medicaid (known as Medi-Cal in California) as a result of the Affordable Care Act (ACA), California nonprofit hospitals are providing even less charity care, a fall of 42 percent in the years 2013 through 2016. Some hospitals have asserted they no longer need to provide the same level of charity care as a result of the ACA, even though more than 12 million Californians, according to another CNA-sponsored study, struggle to pay inflated medical bills.

Nonprofit hospitals reap enormous financial benefits from taxpayers in the form of exemption from property, income, and sales taxes, as well as profiting from non-taxed charitable contributions and tax-exempt bond status. In exchange for these tax exemptions, they are supposed to provide “community benefits” to the public, such as free or low-cost medical care (charity care), but these benefits are loosely defined and the amounts are not specified.

“Attorney General Becerra’s recent actions, and the new data, are a reminder that the concerns over California’s lax requirements on charity care, as well as community benefit programs, remain an important public policy issue that should be addressed by lawmakers,” said CNA Copresident Deborah Burger, RN.

Both figures are a comparison to the amount of charity care nonprofits provided prior to 2011 and update numbers from a 2012 CNA research study that documented how California private, not-for-profit hospitals reaped more than $1.8 billion in government subsidies and benefits from their tax-exempt status beyond what they provided in charity care in 2010.

“Instead of increasing the level of charity care they provide after the glare of that spotlight, the hospital industry has shamefully acted with arrogance and indifference, even as millions of Californians continue to struggle with inflated, unpayable hospital bills,” said Burger.

What makes the numbers even more disturbing, says CNA, is the relatively small difference between nonprofits and for-profits in charity care, especially following implementation of the ACA. From 2013 through 2016, the nonprofits’ percentage drop of 42 percent nearly mirrored the percentage drop of 48 percent for the for-profit California hospitals.

Hospital industry representatives have defended the big decline in how much charity care they provide by citing other activities, including STD prevention, nutrition and health education classes, and even participation in farmers markets.

“None of those programs compensate for the hospital care needed by patients who can’t afford the increasingly high costs of essential medical care when they are sick or injured,” said Burger. “The decline in charity care, and the escalating out-of-pocket costs put lives, health, and security in jeopardy,” Burger said.

In addition, the new findings show that nonprofit hospitals reported just under $3.9 billion in “bad debt” from 2011 to 2016. Bad debt is unpaid charges for patient care the hospital wanted, but failed, to collect — as opposed to charity care for which it does not expect payment. Hospitals arbitrarily classify what is bad debt based on patient income.

Hospitals could, nurses say, increase their charity care provision by not demanding payment for what are typically inflated hospital bills. Instead, most aggressively pursue payment from patients, a high percentage of whom are unable to pay the high cost, and whose “bad debt” are then often sold by the hospital to collection agencies that typically hound people for payment, file court charges if unable to collect, and burden those who can’t pay with negative credit ratings.

CNA’s 2012 study followed a report by the California state auditor expressing similar concerns and a state legislative public hearing at which an auditor’s office official decried lax standards by the state in what is formally required of nonprofit hospitals. Subsequent legislation sponsored by CNA in 2013 and 2014 to establish these standards was defeated after intensive lobbying by the hospital industry.

“It’s long past time for the state legislature to finally establish mandatory, minimum levels of charity care all hospitals must meet to maintain eligibility for nonprofit status, including to qualify for tax-exempt bonds, and to clearly define what constitutes charity care as CNA has long advocated,” Burger said. — Staff report

National Nurses United, with more than 175,000 members nationwide, is the largest union and professional association of registered nurses in U.S. history.