Community Benefit during the Recession: An Analysis of Hospitals in Maryland Simone Rauscher, PhD Department of Health Systems Administration School of Nursing and Health Studies Georgetown University

Presenter Disclosures Simone Rauscher The following personal financial relationships with commercial interests relevant to this presentation existed during the past 12 months: No relationships to disclose.

Motivation During the recent economic downturn, many not-for-profit hospitals saw their profits decline Lower patient volumes and fewer elective procedures Higher shares of publicly insured and uninsured patients To weather the economic storm, many hospitals have cut costs by reducing staff and curtailing services, esp. money-losing services Little is known currently about whether hospitals changed their provision of community benefits during the recession

Legal Background Community benefits are unreimbursed or inadequately reimbursed services that not-for-profit hospitals provide to their communities Charity care Community health services Education of health professionals Health research IRS and most states require not-for-profits to provide community benefits in exchange for tax subsidies The IRS and most states, however, do not require that hospitals provide a minimum amount of community benefit Hospitals might cut back on community benefit spending in difficult economic times to reduce costs and increase profits

Research Questions Did hospitals reduce their provision of community benefit during the recession? Did hospitals change the composition of their community benefits? Which services did hospitals expand? Which services did hospitals cut back?

Data and Sample Study uses community benefit data for Maryland hospitals for 2006 (before recession) to 2009 (during recession) Maryland introduced a state-level community benefit reporting requirement for not-for-profit hospitals in 2001 Hospitals are required to report detailed information on their community benefit activities including the unreimbursed cost of providing community benefits Sample included all 47 not-for-profit hospitals

Composition of Community Benefits before the Recession (2006) 19.9% 9.1% 21.1% 38.5% 11.4%

Composition of Community Benefits during the Recession (2009) 39.8% 6.9% 18.9% 25.0% 9.5% Increases

Median Community Benefit Expenditures as % of Hospitals’ Operating Expenses 2006 2007 2008 2009 % change Charity care 2.0 2.1 2.2 2.5 +25% ** Community health services 0.5 0.6 +20% Mission-driven services 1.4 1.7 1.8 1.9 +26% * Health education 1.3 1.2 No change Other community benefit 0.4 Total 5.7 6.1 6.2 6.8 Note: * Difference in means between 2006 and 2009 is statistically significant at the 5% level. ** Difference in means between 2006 and 2009 is statistically significant at the 1% level.

Hospitals’ Profit Margins and Proportion of Profits spent on Community Benefits

Summary and Discussion Maryland hospitals did not cut their community benefit spending during the recent recession Total spending as % of operating expenses increased by 20% Total spending as % of net income skyrocketed (by over 250%), mainly because of reduced profits The composition of hospitals’ community benefits, however, changed during the recession Higher spending on critically needed services, such as charity care and mission-driven services, likely because of increased need for these services

Thank You Any Questions or Comments? Contact information: Simone Rauscher, PhD Phone: (202) 687-6628 Email: sr468@georgetown.edu