Cleveland Clinic, New York-Presbyterian Hospital, UCSF Medical Center and Massachusetts General Hospital received tax exemptions worth almost $900 million more than the not-for-profit hospitals spent providing community benefits in 2018, a new report found.
All told, 72% of the roughly 2,400 not-for-profit hospitals in the analysis had a “fair share deficit” that year, meaning they spent less on free or discounted care and community investment than the value of their tax breaks, according to report released Monday by the Lown Institute.
Lown calculated a total fair share deficit of $17 billion in 2018, the latest year for which tax forms were available. Individual hospital deficits ranged from a few thousand dollars to $261 million at Cleveland Clinic’s main campus.
“What we’re finding is, based on the dollar benefit of the non-profit status, there are a lot of hospitals that really aren’t meeting that social contract, if you will,” said Dr. Vikas Saini, president of the Lown Institute, a nonpartisan think tank focused on healthcare cost, quality and equity issues.
The report compared hospitals’ spending on free or discounted care, also known as charity care, and community investment to the value of their tax exemptions. A 2018 study found not-for-profit hospitals’ tax exemptions were worth 5.9% of their expenses, so Lown said hospitals met their fair share if charity care and community investment exceeded 5.9% of expenses.
Lown’s community investment calculation included subsidized health services, community health improvement programs, contributions to community groups and community building activities. The thinktank excluded spending on teaching and research, which may be why the biggest deficits are at academic medical centers. Saini explained that neither physician training nor research tend to be coordinated based on local community needs.
“While it’s laudable and very admirable that there’s this research going on, we think the ways we fund research really should not depend on communities losing tax dollars,” he said.
The federal government doesn’t set specific rules around how much hospitals have to dedicate to community benefits, so spending runs the gamut. As mergers expand health systems’ market share, public officials and academics are questioning whether they can still justify their tax exemptions.
Saini said he thinks Lown’s newest report shows there needs to be more scrutiny and oversight of hospital community benefit spending, and local communities should be much more involved in how the money is spent.
But providers, lawmakers and other still debate how to fix the problem. Oregon in 2019 became the first state to pass a law that will mandate community benefit spending minimums.
Spending floors are tricky because they can become ceilings and people disagree on where to set them, said Sara Rosenbaum, a health law and policy professor at George Washington University’s Milken Institute School of Public Health. It would be more helpful for lawmakers to set stricter guidelines about reportable community benefits and whether those programs actually reduce inequity, she said.
“I’m certainly a proponent of a serious reconsideration of what falls within the definition of community benefit and for which hospitals,” Rosenbaum said.
Cleveland Clinic said in a statement it hadn’t reviewed the report, but its 2019 community benefit spending was its highest ever. All extra funds are invested back into the system, it said.
The University of Michigan Health’s flagship campus in Ann Arbor had the fifth highest deficit in Lown’s report at $169 million. The system said in a statement that Michigan’s Medicaid expansion and Affordable Care Act programs have lowered demand for charity care, and that the report excludes its school-based health centers, older adult services and insurance enrollment help.
In a separate analysis of about 3,600 hospitals in the report, Lown identified the top community benefit spenders across all hospital types, including not-for-profit, public and for-profit hospitals, in 2018.
Prime Healthcare’s for-profit hospital, Paradise Valley Hospital in National City, Calif., topped the list. Saini said the team was “very surprised” by that.
A recent Health Affairs study found not-for-profit hospitals doled out less charity care than their for-profit and public peers in 2018. Charity care was 2.3% of expenses at not-for-profits, compared with 3.8% and 4.1% at for-profit and public hospitals , respectively.
To calculate hospitals’ community benefit scores, Lown gave equal weight to three elements: charity care as a ratio of expenses, Medicaid revenue as a ratio of total patient revenue and community investment as a ratio of expenses.
Eight of NYC Health + Hospitals’ 11 acute-care hospitals made the report’s top 50 list for community benefit spending, including Elmhurst Hospital Center in Elmhurst at number two and Queens Hospital Center in Jamaica at number three. NYC H+H, a public system in New York, has a long history of financial strain, partly because almost 70% of its inpatient care is provided to patients who are on Medicaid or uninsured.
NYC H+H’s patient mix also contributes to its high public funding. Local taxpayers shelled out $2 billion in 2020, the health system said. That’s projected to reach $2.3 billion in fiscal 2023, according to the Independent Budget Office, an agency that analyzes the city’s budget.
That hasn’t prevented NYC H+H from losing money. It lost $90 million on $7.9 billion in operating revenue in fiscal 2019, a 1% loss margin. The health system declined to comment.
Lown has released several reports examining hospital performance. In May, Lown found for-profit, non-teaching and Southern hospitals performed the highest rates of unnecessary medical procedures.
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