1. Hospitals’ Provision of Community Benefit: Is there a Trade-off between Charity Care and other Community Benefit Activities? Simone Rauscher, PhD Daniel Rubin, JD(c), PhD(pc) Mark Vyzas, BS, MHSA(c)

2. Presenter Disclosures Simone Rauscher, Daniel Rubin, Mark Vyzas The following personal financial relationships with commercial interests relevant to this presentation existed during the past 12 months: No relationships to disclose for any of the three presenters listed above.

3. Motivation In exchange for tax exemptions, not-for-profit hospitals are required to provide a public benefit to the community Traditionally, hospitals have focused on charity care to justify tax exemptions Affordable Care Act (ACA) is expected to decrease need for charity care, so community benefit activities other than charity care will gain in importance Little is known currently about hospitals’ provision of community benefits besides charity care

4. Legal Background The Internal Revenue Services’ community benefit standard is the touchstone for the exemption of not-for- profit hospitals from federal taxation Charity care has been the central feature of this standard Historically, most states and localities have adopted this same standard for the purposes of state and municipal tax exemption

5. Legal Developments With the passage and implementation of the ACA, the number of uninsured individuals will be reduced, and the need for charity care will diminish –This calls into question the current focus on charity care State innovation: Increasingly, states have implemented their own standards –Reporting requirements –Minimum standards –Increased accountability Federal innovation: IRS redesigned Form 990 Schedule H –Reporting requirements –Increased accountability

6. Research Questions How much community benefit besides charity care do not-for-profit hospitals provide? What are the relationships among different elements of hospitals’ community benefit activities? Do hospitals that provide more free and reduced cost care spend more or less on other community benefits?

7. Data and Sample Since IRS data is just becoming available, we used state-level data from California hospitals’ community benefit reports Community benefit information was for the year 2009 Sample was limited to 91 of 218 hospitals (42%) –State provided reports for 141 hospitals –50 hospitals were excluded because of insufficient financial information or because reports were not at individual hospital level

8. Sample Representativeness Final sample (n=91) All hospitals (n=232) Number of beds198171 System affiliation** 59%71% Av. length of stay4.7 days Occupancy rate65.1%63.3% Operating margin2.5% Total margin2.7% Table shows medians; ** denotes statistically significant difference in means at 5% level.

9. Measures of Community Benefits Charity care – Unreimbursed cost of free care provided to patients who are unable to pay Government payer payment shortfalls – Unreimbursed cost of care provided to patients in means-based government programs Other community benefits – Unreimbursed cost of all other community health services To facilitate comparisons, all measures are expressed in terms of dollars per adjusted discharge

10. Median Expenditures per Adjusted Discharge

11. Statistical Analysis Nonparametric Spearman’s rho correlation coefficients to test relationships among key community benefit indicators Is there any—not necessarily linear— relationship between any two of the three community benefit indicators?

12. Charity Care and Government Payer Payment Shortfalls corr = 0.28 (p=0.009)

13. Charity Care and Other Community Benefits corr = 0.22 (p=0.048)

14. Government Payer Payment Shortfalls and Other Community Benefits corr = 0.27 (p=0.014)

15. Summary and Discussion California hospitals provide substantial community benefits besides charity care and government payer payment shortfalls –Other community benefits ≈ 20% of spending Reduced need for charity care as a result of ACA will likely be more than offset by Increased government payer shortfalls due to greater numbers of Medicaid-eligible patients Increased spending on other community benefits due to new requirements (e.g., community needs assessments)

16. Summary and Discussion For California hospitals, there is no trade-off between charity care and other community benefits Hospitals that currently provide substantial charity care to justify tax exemptions also provide substantial other community benefits Even as need for charity care declines, these hospitals are in good shape Hospitals that currently provide little charity care do not compensate for their below-average spending Revised Form 990 will increase transparency and require these hospitals to rethink their approach to community benefit

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