How Much Free Care Do Hospitals Provide?

By Vivian Ho, PhD
April 9, 2021

This week’s contributor is Vivian Ho, a health economist and professor at Rice University and Baylor College of Medicine. She studies the cost and quality of hospital care.

The American Hospital Association reports 2,946 nonprofit hospitals in the U.S., which amounts to 57% of all community hospitals. These hospitals must provide so-called community benefits in order to obtain an exemption from paying federal taxes. These may include community education and research, but the most common benefit is providing free patient care, known as charity care. There are no formal minimum amounts of charity care nonprofit hospitals are required to provide, but given that 12.5% of adults were uninsured in 2020 and the average cost of a hospital stay is thousands of dollars, one would expect the need for hospital charity care to be substantial.

The Affordable Care Act introduced new reporting requirements for hospital charity care, but a new analysis out this week in Health Affairs is the first to compare charity care nationwide by hospital ownership type. Researchers Ge Bai, Hossein Zare, Matthew Eisenberg, Daniel Polsky and Gerard Anderson analyzed Medicare Cost Reports from 2018 to compare the ratio of charity care to total expenses for nonprofit, government and for-profit hospitals. 

They found that for every $100 of expenses incurred, nonprofit hospitals collectively spent less on charity care ($2.30) than for-profit hospitals ($3.80) or government hospitals ($4.10). Their analysis also showed significant variation in charity care offered by hospitals of the same ownership type, reflecting a lack of consistency and, potentially, differences in patient preference and need in different communities. One might be concerned that limited revenues may be preventing hospitals from devoting more resources to charity care. However, the March 2020 MedPAC report calculated 2018 profit margins of 6.4 percent for nonprofit hospitals, suggesting they have sufficient resources to provide more charity care.

The authors note that charity care is only one measure of community benefit, and nonprofit hospitals may provide other benefits that were not captured in this analysis and are worth further study. Still, they argue that Congress may wish to reconsider the tax exemption rules for nonprofit hospitals. Another less aggressive approach cited by the authors is a “floor-and-trade” system in which nonprofit and government hospitals could be required to meet a minimum charity care amount (“floor”) by either providing charity care in their own facilities or purchasing credits from other hospitals (“trade”). At the very least, Bai and colleagues suggest that policymakers could publish an annual ranking of hospitals by amount of charity care provided, ownership type and geographic area to motivate more desirable behavior.

Hospitals have played a crucial role in the battle against COVID-19. But when the pandemic is over, this study suggests that nonprofit hospitals can do more to help care for the country’s poorest patients.

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