Policy-makers in Washington should take a look at why so very little of the $100 billion set aside for charity care is actually helping those Americans who need it.
Policy-makers in Washington should take a look at why so very little of the $100 billion set aside for charity care is actually helping those Americans who need it.
T he financial benefits the federal government provides to nonprofit hospitals are significant. One might even describe them as staggeringly generous.
The Kaiser Family Foundation (KFF) recently reported that nonprofit hospitals received tax exemptions worth $28 billion in 2020, supposedly so that these hospitals can provide charity care for patients who cannot afford it. Yet, the KFF study suggests that the hospitals provided only $16 billion worth of charity care.
Federal support for charity care does not end with a tax exemption. By one estimate, the federal government’s required drug discounts for nonprofit hospitals — the 340B program — provided nonprofit hospitals with $40 billion in additional revenue in 2019 alone. As with the federal tax exemption, the statute creating the 340B law specifically states that the intent of Congress is to provide this additional revenue for hospitals’ charity-care efforts.
This waste would be bad enough, but nonprofit hospitals’ corruption doesn’t stop there. As the KFF study points out, many of the same hospitals that qualify for the tax exemption and the 340B discounts are also “disproportionate share hospitals,” which receive additional, “plussed-up” reimbursements from federal health programs to offset their charity-care spending. In 2020, those payments totaled $31.9 billion.
If these data are even in the ballpark, the federal government is providing approximately $100 billion in support for charity-care programs to eligible hospitals each year, while actual annual charity-care spending is a mere $16 billion.
Anecdotal accounts are even more troubling. The KFF report points to studies indicating that some hospitals are aggressively going after individual patients, “suing (them) over unpaid medical debt, including patients who are likely eligible for financial assistance.” Paired with reports that some hospitals may not be passing on 340B drug discounts to low-income or uninsured patients because there is no requirement in federal law that they do so, there is plenty of cause for concern.
This seeming lack of charity-care support comes at a troubling time. More and more patients in the United States are in high-deductible health plans with considerable out-of-pocket costs, even for serious diseases such as cancer or multiple sclerosis. Some of those with lower incomes, to say nothing of the uninsured, ought to be eligible to have their out-of-pocket costs offset with charity care. But that seems to be happening less and less, even as federal largesse for charity care grows exponentially.
What can policy-makers do?
Our advice would echo the Hippocratic Oath. First, do no harm. Despite the troubling reports above, many hospitals are doing the right thing and providing significant charity care to patients. Oftentimes, these same hospitals are also struggling financially because of artificially low reimbursements from the federal Medicaid program, labor shortages, and other challenges related to the pandemic. Policy-makers should be sure to help these valuable institutions stay afloat and continue helping underserved communities.
What policy-makers can do, moreover, is provide more transparency so that we can sort out which institutions serve their communities with distinction and which are feathering their own nests. One place to start would be setting a standard definition of charity care. With a uniform and precise definition, we could make hospitals tell us precisely how they spend the revenue they receive from tax exemptions and the 340B program. Then, we could confirm whether those funds are going toward charity for the community or toward executive salaries.
Policy-makers in Washington have lots of grand designs for the health-care system. But, at a time when many Americans are struggling to pay their medical bills, maybe they should first take a look at why so very little of the $100 billion set aside for charity care is actually helping those Americans who need it.
William S. Smith, Ph.D., is a senior fellow and director of the Life Sciences Initiative at the Pioneer Institute in Boston, Mass., where Robert Popovian, Pharm.D., MS, is a senior visiting health-policy fellow of the life sciences.