Charity Care and Nonprofit Hospitals

Charity Care and Nonprofit Hospitals — Response to Forbes Magazine

The following is my response to a September 19, 2012 Forbes magazine web site article.  Here’s the link to the article:

ObamaCare Could Cause Nonprofit Hospitals To Lose Their Tax-Exempt Status: Here’s How

My response:

The article presents an interesting theory, but it conflates several issues.

State laws governing establishing and maintaining status as a nonprofit corporation are different from the federal (IRS) regulations regarding tax-exempt recognition. Generally, incorporation as a nonprofit precedes application for tax-exempt recognition from the IRS. Once state incorporation and IRS tax-exempt recognition are established, it’s unclear how one is related to the other.

The definition of “charity care” is rather inexact. Congress abandoned setting a specfiic level (3%?) of charity care for nonprofit hospitals in the late 1960s, which, in part, has led to questions about charity care levels in the decades since.

Also, what is “charity care”? I am aware of at least three variants being discussed.

The first is the classic definition – not billing poor people for care they receive. Of course, this definition is not valid anymore, because it’s standard practice for hospitals to attempt to get poor patients approved by Medicaid and have Medicaid pay all or part of covered expenses.

The second definition is identifying the difference between the cost of services a poor person receives and the amount received through third parties (private insurance, Medicare, Medicaid) plus the amount, if any, paid by the patient in deductibles and co-pays. This definition is also problematic, as many hospitals refer residual unpaid debt to collection before ultimately writing it off as a business expense. This process makes it more difficult to identify it as “charity.”

The third definition is commonly referred to as “uncompensated care,” and refers to the difference between a hospital’s posted rates for services and the rates paid by third party insurers, whether private or governmental.

There are those who believe that all three definitions should be expressed as a single percentage and identified as a hospital’s contribution to the community, or even added to the “communtiy benefit” monies spent on everything from commuity-based wellness screenings to advertising campaigns promoting access to a hospital’s services.