GAO Representatives NONPROFIT HOSPITALS Better Standards Needed for Tax Exemption ,‘.,’.I?.,L)‘,I,, _, +gjg / d“’ ,.:p.,,$4.” ._. .r:\,g’.:p“,“/j) C( ,‘/\i(“.(0,f .“\‘I ‘,,,:! ,,. 141681 Human Resources Division B-237838 May 30,199O The Honorable Edward R. Roybal Chairman, Select Committee on Aging Houseof Representatives Dear Mr. Chairman: This report responds to your request and later discussionswith membersof the Committee staff regarding the role played by nonprofit hospitals in delivering care to the medically indigent. We undertook this study in light of increasing cost constraints in the hospital sector that may be influencing hospitals to devote fewer resourcesto providing care to the indigent and conducting other charitable activities. This report concludesthat the Congressshould consider revising the criteria for hospitals’ tax exemption if it believes that providing charity care should be a fundamental basis for such an exemption. As agreed with your office, unless you publicly announceits contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies to the cognizant congressionalcommittees and subcommittees,the Commissionerof Internal Revenue,the Secretary of Health and Human Services,and the Director of the Office of Management and Budget. We also will make copies available to others upon request. This report was prepared under the direction of Janet Shikles, Director, Health Financing and Policy Issues,who may be reached on 275-5451 if you or your staff have any questions. Other major contributors are listed in appendix IV. Sincerely yours, Lawrence H. Thompson Assistant Comptroller General , Executive Summary In the wake of increasing pressure on hospitals to contain their costs, Purpose there are concernsthat somehospitals are reducing their provision of indigent care and other charitable activities. While changesin the mar- ket affect all types of hospitals, nonprofit hospitals are under more scrutiny becauseof their preferred treatment as charities under the tax code. The HouseSelect Committee on Aging asked that GAO assessthe role of nonprofit hospitals in providing (1) acute medical care to those who are unable to pay and (2) other community services,such as health education and screening. Just over half of the nation’s hospitals are private nonprofit (nonprofit) Background institutions; the rest are operated either by governments or on a for- profit basis. If they meet certain tests established by the Internal RevenueService (IRS),nonprofit hospitals are exempt from federal taxation; these hospi- tals are also generally exempt from state and local taxes. Poor people without public or private insurance gain accessto nonemergencyhospi- tal services only if the hospital is willing to admit them with little expec- tation of payment. (Seep. 12.) Between 1966 and 1969, the test for tax- exempt status included specific reference to providing (to the extent the hospital’s finances allowed) servicesto those not able to pay. Since 1969, however, IRS has not required such care so long as the hospital provides benefits to the community in other ways. (Seep. 16.) GAO analyzed the distribution of uncompensatedcare among hospitals in five states to analyze the role of nonprofit hospitals in supplying such care. (Seepp. 17-19.) Uncompensatedcare includes both charity care and bad debt expense.Where data were available, GAO also focused on that portion that represented charity care. In addition, GAO conducted casestudies in five communities and surveyed a nationwide sample of hospitals regarding the types of community servicesprovided. (Seepp. 19-20.) In the five states GAO reviewed, government-owned hospitals provided a Results in Brief disproportionate amount of the uncompensatedcare. Both nonprofit and for-profit hospitals provided a smaller share of the state’s uncompen- sated care than they provided of general hospital services. Moreover, the burden of uncompensatedcare was not distributed equally among the nonprofit hospitals in these five states. Large, urban Page 2 GAO/HRDf40-84 Nonprofit Hospitals Executive Summary teaching hospitals had a higher share of the uncompensatedcare expensethan did other nonprofit hospitals. Among the rest of the non- profit hospitals, the tendency was for those hospitals with the highest operating margins (and, therefore, the greatest ability to finance charity care) to have the lowest rates of uncompensatedcare. Variations in uncompensatedcosts can be attributed both to the hospitals’ geographic locations and to their particular operating policies, such as admissions practices. About 80 percent of the nonprofit hospitals in these states reported total uncompensatedcare costs in excessof GAO’S estimate of the value of their federal tax exemption. Where GAO was able to get information on the charity portion of uncompensatedcare costs, however, it found that a far lower percentageincurred charity care costs in excessof GAO’S estimate of the value of their tax exemption: 71 percent in New York and only 43 percent in California. A majority of nonprofit hospitals offered community servicesin addi- tion to providing charity care. These serviceswere generally offered to the community as a whole, however, and were not necessarily directed at the poor. If the Congresswishes to encouragenonprofit hospitals to provide char- ity care and other community services,it should consider revising the criteria for tax exemption. Principal Findings lJneven Distribution of Nonprofit hospitals provide a lower percentageof their states’ uncom- Uncompensated Care pensated care than the percentageof hospital care they provide in the states. For example, in California, nonprofit nonteaching hospitals pro- vide 55 percent of the total days of hospital care but only 27 percent of the state’s uncompensatedcare expenses.Further, uncompensatedcare expenseswere not distributed proportionately through the nonprofit sector, but were concentrated in large teaching hospitals in cities. (See pp. 21-23.) Page 3 GAO/HRD-90-84 Nonprofit Hospitals Executive Summary On average,the nonprofit hospitals with the lowest uncompensatedcare rates had better financial results than other nonprofit hospitals. In con- trast, those with the highest uncompensatedcare rates had the poorest financial results. (Seepp. 24-26.) Some Hospitals’ Potential Hospitals whose potential tax liability exceededtheir uncompensated Tax Liability Exceeds care expenseshad proportionately higher net incomesthan other hospi- tals in their state. Between 43 and 71 percent of the nonprofit hospitals Uncompensated Care in the five states provided less charity care than what GAO estimated as Provided the value of their tax exemption, (Seepp. 27-29.) Goals and Policies Do Not A hospital’s goals and policies influence the amount of uncompensated Encourage Elective care it provides. In the five communities GAO visited, the strategic goals of somehospitals did not focus on the health needsof the poor or under- Treatment for the served in their communities. Instead, the goals most often related to [Jninsured increasing their share of the patients within their market area, resem- bling goals of investor-owned institutions. Further, physician staffing and charity admissionspolicies discouraged admissionsof those unable to pay, except in emergencycases.(Seepp. 32-34.) In two of the commu- nities, one hospital bore a disproportionate share of emergencyor obstetrical care for the indigent, causing its administrators to take steps to reduce its role in caring for the community’s poor becauseof the resulting financial burden. (Seep. 36.) Location and proximity to other hospitals willing to provide uncompen- sated care are also factors in determining a hospital’s level of uncom- pensated expense.For example, in three communities, hospitals that were near a public or major teaching hospital known to serve the unin- sured were not affected seriously by uncompensatedexpensesbecause the burden fell on that other hospital. (Seep. 35.) Some Community Services A high percentageof nongovernmental hospitals, regardless of owner- Provided by Most ship type, provide community services,such as health screening,clinic services,and immunizations. Nonprofit hospitals were more likely than Hospitals investor-owned hospitals to offer these servicesbut were (1) equally likely to charge patients a fee for them and (2) more likely to recover the costs of providing them. (Seepp. 41-43.) ” Page 4 GAO/HRD-90-84 Nonprofit Hospitals Executive Summary Currently, there are no requirements relating hospitals’ charitable activ- Matters for ities for the poor to tax-exempt status. If the Congresswishes to Congressional encouragenonprofit hospitals to provide charity care to the poor and Consideration uninsured and other community services,it should consider revising the criteria for tax exemption, Criteria for exemption could be directly linked to a certain level of (1) care provided to Medicaid patients, (2) free care provided to the poor, or (3) efforts to improve the health sta- tus of underserved portions of the community. Page 5 GAO/HRD-90-84 Nonprofit Hospitals Contents Executive Summary 2 A Chapter 1 10 Introduction Indigent Care Financed by Government and Hospitals 11 Changing Marketplace Alters Hospital Incentives to 13 Provide Indigent Care Objectives,Scope,and Methodology 17 Chapter 2 21 Uneven Distribution of UncompensatedCare Concentrated in Relatively Few 21 Hospitals Indigent Care Rates of UncompensatedCare Vary Among States 23 Substantial Variance Between High- and Low- 24 Uncompensated-CareNonprofit Hospitals Levels of UncompensatedCare Relative to Value of Tax 26 Exemption Chapter 3 Factors Affecting Causesof Indigent Care Distribution Examined Through 30 CaseStudies Distribution of SomeHospitals Lack Proactive Goals or Policies for 32 Indigent Care Within NonemergencyIndigent Care Uneven Distribution of Indigent Care a Problem in Some 35 Comrnunities Communities Chapter 4 37 Community Services IssuesAddressed by Survey 37 SomeDistinctions Between Community ServicesDelivered 38 Provided by Hospitals by Nonprofit and Investor-Owned Hospitals Chapter 5 44 Conclusions and Conclusions 44 Matters for Consideration by the Congress 44 Matters for Congressional Consideration Appendixek Appendix I: Legal Basis for Hospital Tax Exemption 46 Page 6 GAO/HRD-90-84 Nonprofit Hospitals Contents Appendix II: Differences Between Low- and High- 48 Uncompensated-CareHospitals Appendix III: Most Frequently Reported Community 51 Services,by Ownership Type, for Each Service Category Appendix IV: Major Contributors to This Report 52 Tables Table 1.1: U.S. Hospitals by UncompensatedCare and 12 Ownership Type (1988) Table 2.1: Nonprofit Hospitals With Highest Amounts of 23 UncompensatedCare: Share of State’s UncompensatedCare Table 2.2: Comparison of Nonprofit Uncompensated 26 Expense Rates in Urban and Rural Areas Table 2.3: Value of Nonprofit Tax Exemption vs. 27 UncompensatedCare Costs Table 2.4: Hospitals for Which Tax Exemption Value 27 ExceedsUncompensatedCare Costs Table 3.1: Hospitals Visited in SelectedCommunities, by 31 Ownership Type Figures Figure 1.1: Indigent Hospital Care Funding (1986) 11 Figure 2.1: Hospitals’ Share of Patient Days and 22 UncompensatedExpenses,by Ownership Type Figure 2.2: UncompensatedExpenseRates,by Hospital 24 Ownership Type Figure 2.3: Profit Margins: Comparison of Nonprofit 28 Hospitals Not Meeting Tax Threshold With All Nonprofit Hospitals Figure 2.4: UncompensatedExpenseRates:Comparison of 29 Nonprofit Hospitals Not Meeting Tax Threshold With All Nonprofit Hospitals Figure 4.1: Types of Community ServicesOffered, by 39 Hospital Ownership Type Figure 4.2: Percent of Hospitals That Target Each 41 Community Service to Low-Income People Figure 4.3: Percent of Hospitals That Offer Each 42 Community Service at No Charge, by Hospital Ownership Type Figure 4.4: Percent of Hospitals That Reported 43 Community Servicesfor Which RevenuesCovered Costs,by Hospital Ownership Type Page 7 GAO/HRD-90-84 Nonprofit Hospitals Contents Figure II. 1: UncompensatedCare Rates for Low- and 48 High-Uncompensated-CareHospitals Figure 11.2:Medicaid Patient Mix of Low- and High- 49 Uncompensated-CareNonprofit Hospitals Figure 11.3:Total Profit Margins of Low- and High- 50 Uncompensated-CareNonprofit Hospitals Abbreviations AIDS acquired immunodeficiency syndrome IRS Internal RevenueService Page 8 GAO/HRD-90-84 Nonprofit Hospitals Y Page 9 GAO/HRD-90-84 Nonprofit Hospitals Chapter 1 - Introduction Medical care is provided by government-owned (public), private non- profit (nonprofit), and for-profit organizations. The nonprofit form of ownership predominates in the hospital sector. Nonprofit hospitals pro- vide medical and other health-related servicesto their communities and devote earnings to hospital improvements, instead of to private gain. Under a provision in the tax code exempting charities from federal income tax, most nonprofit hospitals have historically been exempt from such tax. They often also have received several other financial advantages.’ Growing efforts by employers, insurers, and government to contain the rapid growth of health care costs have led to an increasingly cost- conscioushospital sector. Increased numbers of uninsured people have strained someinner-city hospitals’ capacity in this new cost-conscious environment. While hospital occupancy rates have decreasednation- wide, government-owned hospitals in large cities have high occupancy ratesand are sometimesfull, Somehealth policy wdysts, legislators, and government officials believe that accessto someprivate hospitals has decreasedfor the medically indigent and that the financial burden of treating those unable to pay has fallen disproportionately on a rela- tively small number of public hospitals. Recentefforts to contain health care costs raise concernsabout non- profit hospitals’ continued ability and willingness to undertake certain charitable activities, especially those targeted to the poor. Nonprofit hospitals’ activities are under special scrutiny becauseof their preferred treatment as charities under the tax code.The Chairman, HouseSelect Committee on Aging, asked us to assessthe role of nonprofit hospitals in (1) providing acute medical care to those who are unable to pay and (2) providing other community services,such as health education and screening. ‘The lost federal tax revenues attributable to nonprofit hospital tax exemption have been estimated at $4.5 billion. The tax advantages that nonprofit hospitals may receive include (1) exemption from income tax; (2) exemption from property and other local taxes; (3) accessto charitable donations, which are tax deductible for the individual or corporate donor; and (4) tax-exempt bond financing. Page 10 GAO/HRD-90-84 Nonprofit Hospitals chapter 1 Introduction Indigent care2is funded from three major sources:(1) Medicaid,3 Indigent Care financed principally with federal and state tax funds; (2) other federal, Financed by state, and local tax-supported programs; and (3) hospital profits from Government and paying patients, philanthropy, or other revenue. Figure 1.1 shows the proportion of indigent hospital care financed from each of these sources Hospitals in the United States during 1986. Funding (1986) Medicaid State Payments Private Hospitals’ Uncompensated Care 8% Public Hospitals’ Uncompensated Care Medicaid Federal Payments Note. Aggregate data are not available for uncompensated care provided by private physicians and state or local funding (other than Medicaid) for primary medical care to the indigent. Source: Congressional Research Service and American Hospital Association, Hospital Statistics, 1988. More than 85 percent of hospital servicesto the indigent are financed with federal, state, or local tax funds. The principal financing for care to those who cannot pay is the federal-state Medicaid program, in which each state designsand administers its own program within federal guidelines. Federal and state governments share the costs of this pro- gram. In addition, when revenuesfrom fees charged to insured or pay- ing patients by local government-owned hospitals are insufficient to ‘We defined indigent care as care to both Medicaid eligibles and those ineligible for public assistance but unable to pay. 3Medicaid was enacted to enhance the poor’s accessto health care. Although each state designs and administers its own Medicaid program, at a minimum the program must cover people receiving cash payments from the Aid to Families With Dependent Children program and (in most states) people receiving them from the Supplemental Security Income program. By July 1, 1990, states must also cover pregnant women and infants with family incomes at or below the federal poverty level. Page 11 GAO/HRD-90-94 Nonprofit Hospitals Chapter 1 Introduction cover their costs,those governments usually finance the differences. Generally, government-owned hospitals treat all persons,regardless of their ability to pay. Many government-owned and nonprofit hospitals were constructed or renovated in whole or in part with money provided through the federal Hill-Burton program.4In these cases,the hospitals were required to provide a reasonableamount of uncompensatedser- vices to the indigent population6 At least one-third of the nation’s estimated 31 million uninsured people are poor but ineligible for public assistance.Hospital care for these peo- ple is now largely dependent on the willingness of hospitals and physi- cians to provide care at no charge. Private and government-owned hospitals finance uncompensatedcare6through (1) donations, grants, or philanthropy or (2) net income from paying patients. Government- owned hospitals may also finance someuncompensatedcare from tax revenues.The number of hospitals and the distribution of uncompen- sated care among hospital types are shown in table 1.1. Table 1.1: U.S. Hospitals by Uncompensated Care and Ownership Dollars in billions Type (1988) Percent Total distribution of Average No. of uncompensated uncompensated uncompensated Tvpe hosDitals care care care rate’ Nonprofit 3,440 $8.4 58 4.8 For-profit 1,149 1.4 9 5.2 State and local government 1,849 4.8 33 7.6 Total 6,430 $14.6 100 Note: Excludes federal hospitals. Wncompensated care as a percentage of total revenue Source: American Hospital Association, Annual Survey of Hospitals, 1988 estimated file 4Between 1946 and 1974, the Hill-Burton program provided federal grants for constructing public and nonprofit hospitals. In return, the hospitals were required to give assurance that they would make available, in the facility constructed with the financial assistance, a reasonable volume of ser- vices to persons unable to pay for medical services, if this was financially feasible. “The number of hospitals with outstanding Hill-Burton debt and obligations is decreasing. Hill-Burton obligated hospitals are presumed to have met their obligation if they make available annually the lower of (1) a dollar volume of services equal to 3 percent of the sum of operating costs minus Medi- care and Medicaid payments or (2) 10 percent of the federal assistance received. The length of the obligation is 20 years (in the case of grant recipients), or for the duration of the hospital’s indebted- ness (in the case of recipients of loans, loan guarantees, or interest subsidies). “Uncompensated care, which is defined as care provided to a patient that a hospital is not reimbursed for, consists of two parts: bad debt and charity care. Page 12 GAO/HRD-90-84 Nonprofit Hospitals Chapter 1 Introduction Changing Marketplace To the extent that recent private and public sector cost-containment ini- tiatives result in reduced hospital net incomes,it may be more difficult Alters Hospital for somehospitals to incur expensesfor community service activities, Incentives to Provide such as providing charity care. Somelegislators and policy analysts believe that hospital accessfor the indigent has declined. Nonprofit hos- Indigent Care pitals’ community role is the focus of scrutiny becauseinvestor-owned hospitals-subject to local, state, and federal taxes-are not treated as charities and many government-owned hospitals are reportedly unable to provide capacity sufficient to treat all indigent patients. Changes in Technology Advances in medical technology transformed the nature of hospital care and Financing Spur and broadened the patient base of hospitals from mostly the poor and disadvantaged to include also the middle and upper classes.Before the Changes to Nonprofit 20th century, the demand for general hospitals was relatively small: Hospitals nonprofit hospitals were created by various groups for those who had special health problems or who were unable to receive physicians’ ser- vices at home, such as the poor or those away from home. When these hospitals were established, hospital care was primarily custodial becausedrugs and other treatment for illnesseswere lacking and the risks of infection and death from surgery were great. Traditionally, most nonprofit hospitals refrained from charging a significant amount above the relatively low cost becauseit was assumedthat patients were too poor to pay for their care. Development of medical technology, espe- cially ways of treating diseaseand controlling infection, made hospitals more appealing to middle- and upper-income patients. As technology becamemore expensive and more people demandedaccessto hospitals, a smaller percentageof patients were free or charity cases. During the 20th century, the role of private philanthropy in financing hospitals was also reduced. As a result, nonprofit hospitals had a decreasingrole in channeling philanthropy into communities. Hospitals becameless reliant on philanthropic endowments and more reliant on medical insurance and public financing, such as that available through the Hill-Burton program. By the late 1950s someform of insurance pay- ment was made for about 75 percent of patients in nonprofit hospitals. Nonprofit hospitals’ role as providers of free care was further reduced by the enactment of the Medicare and Medicaid programs in 1965. By paying the costs of care for millions of the elderly and the poor, these programs reduced the need for the hospital and its medical staff to pro- vide care at no charge. Many of the patients who would have been char- ity caseswere now insured patients. Page 13 GAO/HRLb90-84 Nonprofit Hospitals Chapter 1 Introduction Growing Investor-Owned Another changein the hospital marketplace-the emergenceand Hospital Enterprise growth of national investor-owned hospital companies-was spurred by the availability of money accompanying the rise of third-party pay- ments by insurers, employers, and the Medicare and Medicaid programs. Since the 1960s the rate of growth of investor-owned hospital systems has outpaced that of nonprofit systems.Investor-owners have added 500 hospitals and nearly 62,000 beds since 1976, more than doubling their previous holdings. In 1988, investor-owned hospitals represented about 18 percent of nonfederal short-term hospitals nationwide. Although in no state do investor-owned hospitals represent more than 50 percent of all nonfederal short-term hospitals, they represent more than 30 percent of hospitals in about sevensouthern and western states. As well as consolidating into larger organizations and diversifying into related ventures, investor-owned enterprises are combining with non- profit hospitals to create hybrid organizations. Changes in Financing During the 198Os,changesin the way hospitals are reimbursed raised Make Care to Medically concernsabout the extent to which hospitals would be able to provide care to those who cannot pay. Increased competition between hospitals Indigent a Concern for patients and government-, employer-, and insurer-initiated attempts to contain costs make hospitals less able to subsidize uncompensated care. Hospitals have typically financed uncompensatedcare through various combinations of philanthropy, cost shifting,7 and general subsidies from state and local governments. Hospitals’ ability to subsidize uncompen- sated care may be decreasingas private insurers and employers attempt to contain their costs and state and local governments face fiscal pres- sures, These factors, combined with the cost-containment initiatives in the Medicare and Medicaid programs, have resulted in a general decline in profits throughout the hospital sector. There are someindications that accessto hospital care for the medically indigent in this cost-containment environment is declining. Demand for intensive hospital care neededto treat gunshot victims, acquired immu- nodeficiency syndrome (AIDS) patients, and illicit drug users, a substan- tial portion of whom are indigent, has outstripped the available capacity of somehospitals in large cities. Reportedly, the hospitals of last resort 713ybilling private insurers at rates exceeding costs, hospitals frequently attempt to shift some of the costs of uninsured patients to insured patients. Page 14 GAO/HRD-90-84 Nonprofit Hospitals Chapter 1 Introduction in these cities treat patients in hallways as their emergencyrooms overflow. Nonprofit Hospitals The changing hospital marketplace has led somepolicymakers and Scrutinized Because of researchersto question whether there is a significant difference between the amounts of charity care provided by nonprofit hospitals Tax-Exempt Status and investor-owned hospitals, who are subject to local, state, and fed- eral taxes. Becauseof inconsistenciesin the ways hospitals identify charity care, researchershave measured levels of uncompensatedcare instead. By this measure,national data show there is little difference in overall rates of uncompensatedcare between nonprofit and investor- owned hospitals. Studies have shown, however, that when uncompen- sated care data are analyzed on a state-by-state basis, nonprofit hospi- tals in somestates have higher average rates of uncompensatedcare than investor-owned hospitals. The rates of uncompensatedcare for both hospital organizational types vary substantially, and somenon- profit hospitals have uncompensatedcare rates below the average rate of investor-owned hospitals. Relatively little research has been per- formed, however, to assesswhether such hospitals distinguish them- selves in other ways as charitable institutions. The Internal RevenueService (IRS) has long granted an income tax exemption to hospitals meeting its qualifications for charitable organiza- tions under section 601(c)(3) of the Internal Revenue&de.* To qualify, a hospital applicant must show that it is organized and operated for a charitable purpose, that no part of its net earnings inure to an individ- ual, and that it does not conduct political or substantial lobbying activi- ties. Although hospitals are not exempt specifically in the Internal RevenueCode,IRS has long extended the tax exemption to qualifying hospitals. Importantly, nonprofit hospitals no longer need to provide care to indigents in order to retain tax-exempt status as they once did. However, qualifying hospitals must, in other ways, evince their exclu- sive commitment to the community, rather than to private benefit, in order to obtain the exemption, For a detailed discussion of the history of the hospitals’ ta.x exemption criteria, seeappendix I. “Section 501(c)(3) of title 26 of the United States Code exempts from federal income taxation “corpo- rations and any community chest, fund, or foundation, organized and operated exclusively for relig- ious, charitable, scientific...purposes....” (emphasis added). In regulations implementing section KOl(cX3),equires charities to be organized and operated exclusively for a charitable endeavor, and not for the benefit of private interests. Page 15 GAO/HRD90-84 Nonprof’it Hospitals Chapter 1 Introduction Recently, IRS and Treasury officials have voiced concernsabout complex nonprofit organizations, especially universities and nonprofit hospitals, with substantial unrelated for-profit businesses.R If somenonprofit hos- pitals are acting essentially as investor-owned institutions do, different tax treatment for them is harder to justify. At the state and local levels, the fiscal stress resulting from the provi- sion of indigent care has intensified debate about the availability of tax exemptions to nonprofit hospitals. The requirements of tax exemption have been defined differently in two recent state supreme court deci- sions. In the most broad-basedchallenge to tax exemption, the Utah SupremeCourt in 1986 interpreted the state constitution as requiring that hospitals undertake some “act of giving”-such as charity care-to the community in order to qualify for property tax exemption. The fol- lowing year, Utah voters turned down a referendum to changethe con- stitution to provide tax exemption to hospitals regardlessof their charitable activities. In Vermont, on the other hand, the supreme court held that the main test of whether a nonprofit hospital was a charity hinged on the availability of charity care, rather than the dollar amount of such care provided. Local officials have attempted to remove charitable status and property tax exemptions from nonprofit hospitals in at least 12 states. In addi- tion, at least 17 states have consideredor enacted legislation to prevent unfair competition by nonprofits, and somecities have considered charging nonprofit organizations a fee for the municipal servicesthey use. In general, these initiatives have (1) respondedto complaints from the businesscommunity of unfair competitive advantage by nonprofits when they offer goodsor servicesnot directly related to health care and (2) encouragedhospitals to provide indigent care. While few hospitals have lost their tax-exempt status, proposals to require nonprofit organi- zations to pay municipal service fees to local governments are becoming more common. Rather than assessingfees, other localities have revised criteria for continued tax exemption, such as by requiring that nonprofit hospitals provide a minimum proportion of Medicaid and charity care in order to retain tax exemption. Hospital associationshave respondedto these initiatives by creating tools, such as social accounting budgets, to help health care facilities “Chapoton, Deputy Assistant Revenue Secretary, Tax Policy, Department of the Treasury; and Gibbs, Commissioner of Internal Revenue; Testimony before the House Subcommittee on Oversight, Commit- tee on Ways and Means, June 22, 1987. Page 16 GAO/HRD90-84 Nonprofit Hospitals Chapter 1 Introduction plan for, administer, and report benefits provided to their communities, especially the poor.I0The W.K. Kellogg Foundation has funded the Hos- pital Community Benefit Standards Program to develop an accreditation program for certifying hospitals as community benefit organizations. This project has developed standards to help guide hospitals to improve community health status, addressspecial problems of medically under- served populations, and contain the growth of community health care costs. Objectives, Scope,and The Chairman, HouseSelect Committee on Aging, requested that we assessthe role of nonprofit hospitals in providing servicesto the indi- Methodology gent. Specifically, our objectives were to analyze . the relationship between nonprofit hospitals’ uncompensatedexpenses and the value of their tax exemption; l the distinctions between nonprofits that provide a high level of indigent care and those that offer a relatively low level, as well as the reasonsfor these differences; and . the extent to which nonprofit hospitals provide to their communities other services,such as health screening and education, in addition to indigent care. Financial Analysis To accomplish our first two objectives, we collected hospital financial information from five states for the most recent years for which data were available.” These data are used by the states to monitor and con- tain costs, or to adjust Medicaid reimbursement rates. The states-California, Florida, Iowa, Michigan, and New York-were selectedto include l different geographic regions; l a significant number of the nation’s hospitals; . states with a high prevalence of investor-owned hospitals, as well as states whose hospitals are principally nonprofit; and “‘For example, the Catholic Health Association has reported that although the Catholic health care ministry has a religious tradition of serving the poor and the needy, recent budget constraints and the tax exemption debate call for renewed activity by their member hospitals to target the poor and improve accounting and reporting of services that hospitals provide to their communities. “Data from fiscal year 1987 were used for Iowa, Michigan, and New York. Data from hospitals’ fiscal years ending between June 30, 1986, and June 29, 1987, were used for California, and data from fiscal year 1985 were used for Florida. Page 17 GAO/HRD-90-84 Nonprofit Hospitals Chapter 1 Introduction 9 states with relatively expansive and restrictive Medicaid benefits and eligibility standards.” Uncompensatedcare can be emergency,inpatient, or outpatient hospital care given to those who cannot or do not pay their bills. It includes both bad debt and charity care,I3We used uncompensatedcare, instead of charity care, as a measure of hospitals’ servicesto the indigent because of inconsistenciesin the way hospitals distinguish between charity care and bad debt. This overstates the magnitude of charity care provided by hospitals but avoids possible biasesin the results becauseof different ways hospitals categorize patient bills. Another measure of care to the medically indigent that we used was the percentageof hospital care a hospital provided to those eligible for Medicaid. For, although hospitals do not consistently identify charity care, they do consistently identify the amount they bill for Medicaid patients. We reviewed hospitals in selectedstates rather than a national sample of hospitals for two reasons.One,reliable national data on uncompen- sated care are lacking. Two, an intrastate comparison of uncompensated care is more meaningful becausethe amount provided by hospitals is affected by local factors, such as the features of the Medicaid program for the state in which a hospital is located. Using these data sets, we: l Determined which nonprofit hospitals provide uncompensatedcare in an amount higher than the value of their federal and state income tax exemption.14 12Wewere also limited to states with sufficient hospital-level financial data. t3Bad debt is defined as services to patients for which payment is possible but not made, such as debts of insured patients who do not pay their copayments or deductibles, or debts of the nonpoor uninsured. Charity care is defined as services to patients who do not have the means to pay all or a portion of their bills. Each state we reviewed issues accounting guidelines and principles to help assure that uncompensated care and other data elements are reported consistently. t4To estimate the value of nonprofit hospitals’ income tax exemption, we applied the average effec- tive tax rate of a sample of for-profit hospital corporations to the nonprofits’ net incomes. Because of the imprecise nature of such an estimate, the potential tax liability is presented as a range of values rather than as a point estimate, We did not adjust our estimates to account for potential changes in laws regarding the property tax exemption, tax-exempt bond financing, and tax-deductible donations if the federal tax exemption were eliminated. Hence our calculation potentially overstates the federal income tax liability but understates the total value of tax-exempt status because it does not include the value of the other tax advantages. Page 18 GAO/HRD-90-84 Nonprofit Hospitals Chapter 1 Introduction . Analyzed the extent to which the following factors are associatedwith high or low amounts of uncompensatedcare relative to their expenses: (1) profit,‘” (2) affiliation with a teaching institution, (3) rural or urban location, (4) patient mix, and (5) size. We discussthe results of this analysis in chapter 2. Community Case Studies To analyze the reasonsfor varying levels of indigent care provided by hospitals within the samegeographic area, we conducted fieldwork in five communities-one in each state included in our review-to provide examples of how hospitals interact at the community level and what factors most affect the distribution of indigent care. The communities we visited were San Diego, California; Albany, New York;‘” Ann Arbor, Michigan;17Orlando, Florida; and Des Moines, Iowa. In each community, for the years 1984-87 and 1988, if available, we collected information on trends in (1) the community’s indigent care, (2) methods of financing indigent care by state and local governments, and (3) each hospital’s relative contribution of indigent care. We also col- lected available data and hospital officials’ opinions on factors affecting the distribution of indigent care within the communities’ hospitals, including hospital admissions and patient transfer policies, physician staffing policies, and types of medical serviceseach hospital provided. We discussthe results of our community casestudies in chapter 3. Questionnaire To accomplish our third objective, we surveyed a nationally representa- tive random sample of nonprofit and investor-owned hospitals to deter- mine the type and extent of community servicesthey provided in fiscal year 1988. Although there are various estimates of hospitals’ uncom- pensated care, there is no estimate of the extent to which hospitals pro- vide servicesother than acute care to their communities. Of 776 surveys that we mailed to hospitals, we received 522, or about 67 percent. In our survey, we defined community services as activities undertaken to serve ‘“Like an investor-owned organization, a nonprofit organization’s “profit” refers to net income-the difference between revenues and expenses. Unlike an investor-owned organization, however, none of a nonprofit organization’s profit can inure to individuals, such as stockholders. “‘We also reviewed two hospitals in Schenectady, New York 17Wereviewed hospitals in Ann Arbor and surrounding towns within Washtenaw County, including Chelsea, Saline, and Ypsilanti. Page 19 GAO/HRD90-84 Nonproflt Hospitals Chapter 1 Introduction the community in addition to providing acute medical care to patients. We discussthe results of our survey in chapter 4. We did not independently examine the internal and automatic data processingcontrols for the automated state data systems we used. The states rely, however, on the data obtained from these systems as a basis for Medicaid reimbursement rates and/or partial reimbursement for uncompensatedcare. Except for this limitation, our work, which was done from October 1988 through June 1989, was performed in accor- dance with generally acceptedgovernment auditing standards. Page 20 GAO/HRD-90-84 Nonprofit Hospitals Chapter 2 Uneven Distribution of Indigent Care The amount of uncompensatedcare provided by nonprofit hospitals is a large part of their benefit to the poor in their communities. Hospitals that treat patients who are uninsured or underinsured with little pros- pect of payment give community residents accessto hospital care that might otherwise be unavailable. When we compared the amount of hos- pitals’ uncompensatedcare expenseswith the money they saved by not having to pay federal and state taxes, we found that nonprofit hospitals as a group provided more uncompensatedcare than their estimated tax savings. Depending on how charitable care is defined, however, between 16 and 67 percent of the nonprofit hospitals provided less charitable care than the value of the tax exemption they received. Nonprofit hospitals’ rates of uncompensatedcare vary widely both within and between states. Hospitals with low rates of uncompensated care served fewer Medicaid patients, had higher profit margins, and, with few exceptions, were not major teaching hospitals. Hospitals with high rates of uncompensatedcare served more Medicaid patients and had lower profit margins. Major teaching hospitals were generally high- uncompensated-carehospitals. Generally, nonprofit hospitals as a group provided more uncompensated Uncompensated Care care than did for-profit hospitals. However, nonprofit nonteaching hos- Concentrated in pitals provide less uncompensatedcare than would be expected based Relatively Few on their share of the states’ hospital market. In Florida, for example, these hospitals provide 43 percent of the total days of hospital care but Hospitals only 33 percent of the state’s uncompensatedcare expenses.In general, only nonprofit hospitals with major teaching’ programs provided an amount of uncompensatedcare equivalent to their share of the hospital inpatient market. The distribution of uncompensatedcare by type of hospital ownership is shown in figure 2.1. ‘WC have defined major teaching hospitals as those that are members of the Council of Teaching Hospitals. Council hospitals are affiliated with colleges of medicine and participate in training residents. Page 21 GAO/HRD-90-84 Nonprofit Hospitals Chapter 2 Uneven Dietrlbution of Indigent Care Figure 2.1: Hospitals’ Share of Patient Days and Uncompensated Expenses, by Ownership Type Porcoti of Stat0 Total 100 -- El Government-owned Hospitals Nonprofit Teaching Hospitals Nonprofit NonteachIng Hospitals Inwstor-owned Hospitals Note: Florida data are from 1985; California data are from 1986; and the remaining data are from 1967. Iowa and Michigan have Insignificant numbers of investor-owned hospitals. In each of the states, uncompensatedcare expenseswere concentrated in relatively few nonprofit hospitals, most of which were major teaching institutions in urban areas. Ranking the nonprofit hospitals by the dollar amount of uncompensatedcare provided, we found that less than 7 per- cent of them provided at least 26 percent of the total nonprofit contribu- tion of uncompensatedcare. For example, nine major teaching hospitals in New York City accounted for 38 percent of all uncompensatedcare provided by nonprofit hospitals statewide, though they had only 16 per- cent of the state’s hospital beds. Most of these hospitals belongedto the Page 22 GAO/HRD90&4 Nonprofit Hospitals Chapter 2 Uneven Distribution of Indigent Care Council of Teaching Hospitals, or were approved to participate in resi- dency programs and were affiliated with a medical school. Table 2.1 shows the portion of the total nonprofit uncompensatedcare expenses borne by relatively few of each state’s hospitals. Table 2.1: Nonprofit Hospitals With Highest Amounts of Uncompensated Number of Percent of nonprofit Percent of nonprofit Care: Share of State’s Uncompensated State hospitals0 uncompensated care hospital beds Care Iowa 4 40 28 Michigan 6 33 13 New York 9 38 16 California 10 26 11 Florida 5 31 17 % each state, these hospitals constitute less than 7 percent of the state’s hospitals The average rate of uncompensatedcare for all hospitals varied sub- Rates of stantially among the states, ranging from 2.7 percent for Iowa hospitals Uncompensated Care to 7.9 percent for Florida hospitals. This variation in rates of uncompen- Vary Among States sated care among states mirrors the interstate variation in (1) the per- centagesof state residents without medical insurance and (2) the extent to which the Medicaid program covers residents with incomes below the federal poverty standard. Among the states we reviewed, Florida and California have the highest rates of uninsured residents. Similarly, Flor- ida’s Medicaid program has the strictest income eligibility criteria. Accordingly, hospitals in these states have significantly higher rates of uncompensatedcare on average. Although overall levels of uncompensatedcare varied among states, nonprofit hospitals without major teaching programs in California, Iowa, Michigan, and New York had similar rates of uncompensatedcare. In California and Florida, states with relatively high average uncompen- sated care rates, government-owned hospitals tended to absorb the addi- tional burden. That is, their uncompensatedcare rates were much higher than in other states. The rates of uncompensatedcare by state and hos- pital type are shown in figure 2.2. Page 23 GAO/HRD-90-84 Nonprofit Hospitals , Chapter 2 Uneven Distribution of Indigent Care Rates, by Hospital Ownership Type 20 Percent UncompensatedExponsr to Total Exponr Calitomla Florida (WS) Iowa (1987) Michigan (1987) New York (1@@9 (1W StaW I 11 Government-owned Hospitals Nonprofit Teaching Hospitals Nonprofit Nontaaching Hospltats Investor-owned Hospitats Note: Iowa and Mtchigan have inslgnlficant numbers of investor-owned hospitals. California and Florida have significant numbers of both investor-owned and nonprofit hospitals. In California, the averageinvestor-owned rate of uncompensatedcare was slightly higher than the nonprofit rate. In Florida, the averagenonprofit rate was higher than the investor-owned rate. We arrayed nonprofit hospitals by uncompensatedcare rates to identify Substantial Variance characteristics of hospitals with significantly higher- and lower-than- Between High- and average rates. By state, we compared selectedcharacteristics of all non- Low-Uncompensated- profit hospitals at or below the 25th percentile of uncompensatedcare rates (low-uncompensated-carehospitals) with nonprofit hospitals fall- Care Nonprofit ing at or above the 75th percentile of uncompensatedcare rates (high- Hospitals y uncompensated-carehospitals). We found that high-uncompensated-care hospitals bore a substantially greater burden of uncompensated Page 24 GAO/HRD-90-84 Nonprofit Hospitals Chapter 2 Uneven Mstrlbution of Indigent Care care-from three to nine times greater-than low-uncompensated-care hospitals. (Seep. 48.) As well as having significantly different uncompensatedcare rates, low- and high-uncompensated-carehospitals were significantly distinct in at least two other respects.Compared to high-uncompensated-carehospi- tals, low-uncompensated-carehospitals (1) served fewer Medicaid patients and (2) had higher profit margins. Low-IJncompensated-Care In every state, hospitals providing low rates of uncompensatedcare Hospitals Served Medicaid served lower percentagesof Medicaid patients than did high- uncompensated-carehospitals. (Seep. 49.) The hospitals with high Patients at Lower Rates levels of Medicaid patients are sometimesless able to subsidize uncom- pensated expensesbecauselarger percentagesof Medicaid patients often mean lower percentagesof privately insured patients to whom chargescan be increasedto help offset losseson nonpaying patients. Further, a number of states have hospital payment systems for Medicaid that result in lower payment rates than other public and private insur- ance programs. Both of these factors tend to exacerbatethe financial burdens of hospitals’ provision of uncompensatedcare. Low-Uncompensated-Care The amount of uncompensatedcare provided by a hospital must be eval- Hospitals More Profitable uated in connection with the resourcesavailable to finance that care. Hospitals can finance uncompensatedcare with nonoperating revenue2 and operating income-earned by the hospital from its patient care operations. One way to finance uncompensatedcare is to bill private insurers at rates exceedingactual costs and use the profits for uncom- pensated care. Nonprofit and investor-owned hospitals can make better use of this option than government-owned hospitals can becausea larger proportion of their patients are privately insured. Nevertheless,hospi- tals’ ability to subsidize uncompensatedcare through nonoperating reve- nue or operating income has been constrained in recent years by various health care cost-containment measuresadopted by both public and pri- vate insurers. We found that nonprofit hospitals with resourcesavailable to finance uncompensatedcare-either nonoperating revenue or operating ‘Nonoperating revenue consists of investment income and charitable donations, gains or losses on sales of investments, and other items that are not directly related to providing care to patients. Page 26 GAO/HRD-90-84 Nonprofit Hospitals Chapter 2 Uneven Distribution of Indigent Care income” -were often the lowest volume uncompensatedcare hospitals. Differences in profitability between nonprofit hospitals having low- and high-uncompensated-carerates are shown on page 50. Rates of Uncompensated Only in Florida were average rates of uncompensatedcare higher for Care Vary Slightly by nonprofit hospitals in rural areas than for those in urban areas. In Iowa, Michigan, and New York, rural hospitals were more likely than urban Location hospitals to be low-uncompensated-carehospitals. Table 2.2 shows the difference between nonprofit hospital rates of uncompensatedcare in urban and rural areas, by state. Table 2.2: Comparison of Nonprofit Uncompensated Expense Rates in Urban State Urban rate Rural rate and Rural Areas California (1986) 3.4 3.3 Florida (19851 7.1 10.4 Iowa (1987) 2.5 2.1 Michigan (1987) 2.8 2.4 New iork I1 9871 -- 3.6 2.4 The amount of tax revenue lost as a result of excluding or exempting ILevelsof certain income from taxes can provide an indication of the relative cost Uncompensated Care of policies designedto achieve specified public goals. To estimate the tax Relative to Value of revenue lost as a result of exempting nonprofit hospitals from federal and state income taxes, we applied the averageeffective tax rate of a Tax Exemption sample of for-profit hospital corporations to the nonprofits’ net incomes.4We did not attempt to estimate the value of nonprofit hospi- tals’ local property tax exemption or the value of tax-exempt bond financing or charitable donations, which constitute a substantial portion of the total value of the tax expenditure. We compared the hospitals’ estimated tax exemption value to the uncompensatedcare they provided-one measure of hospitals’ charita- ble activities. In the five states we reviewed, nonprofit hospitals as a group provided more uncompensatedcare than the estimated value of their income tax liability. (Seetable 2.3.) “To measure hospitals’ ability to finance uncompensated care, we examined their total margin: the percentage of revenues converted into net income. 4Net income is defined as the excess of revenues over expenses. In this calculation, we assumed that a nonprofit hospital’s net income would remain the same if it were subject to tax. Page 26 GAO/HRD-90-84 Nonprof’it Hospitals Chapter 2 Uneven Distribution of Indigent Care Table 2.3: Value of Nonprofit Tax Exemption v8. Uncompensated Care Dollars in millions costs Uncompensated Value of care costs tax exemption’ Iowa $27 $8 - $28 Michigan 161 ll- 36 New York 457 28 - 92 California 301 84 - 278 Florida 253 35 - 117 %ecause of the imprecise nature of such an estimate, the potential tax liability is presented as a range of values, rather than as a point estimate. The range represents one standard deviation around the mean. About 15 percent of nonprofit hospitals, however, provided uncompen- sated care that was less than the estimated value of the tax exemption. Table 2.4: Hospitals for Which Tax Exemption Value Exceeds Dollars in millions Uncompensated Care Costs No. of Percent of Uncompensated Value of tax __^_-__ hospitals hospitals care costs exemptiona Iowa ___._._ 14 24 $8 $11 Michigan ---- 7 5 1 4 New York - 23 12 5 11 California 50 24 55 9i Florida 8 9 10 13 % companng the uncompensated care costs to the value of the tax exemption, we used the median tax exemption value. Becausetheir profit margins are significantly higher than those of other hospitals, these hospitals’ tax liability would also be higher. Where aver- age profit margins in the five states ranged from a loss of 2.7 percent to a profit of 5.6 percent, profit margins for these hospitals ranged from 4.5 to 14.2 percent. In addition to higher profits, these hospitals gener- ally had uncompensatedcare expensesless than the average hospital in the state in which they are located. Figures 2.3 and 2.4 compare the profit margin and uncompensatedcare rate of the hospitals with the statewide nonprofit hospital averages, Page 27 GAO/HRD90-84 Nonprofit Hospitals , Chapter 2 Uneven Distribution of Indigent Care Figure 2.3: Profit Margins: Comparison of Nonprofit Hospitals Not Meeting Tax 16 P&It Margln Threshold With All Nonprofit HO8pital8 10 5 0 -5 Califomla Florida (1995) lovm(1997) Michigan (1957) New York (1W 0-7) States 1 1 All Nonprofit Hospitals Nonprofit Hospitals with Tax Liability > Uncompensated Costs Y Page28 GAO/HRD-90-84 Nonprofit Hospitals Chapter 2 Uneven Matributfon of Indigent Care Figure 2.4: Uncompensated Expenee Rates: Comparison of Nonprofit 10 Uncompsnaatsd Expanse Rate HO8pltals Not Meeting lax Threshold With All Nonprofit HO8pitdS Callfomla Flcrlda (1965) Michigan (1967) New York VW (1987) All Nonprofit Hospitals Nonprofit Hospitals with Tax Liability > Uncompensated Costs When only charity care is considered,more hospitals-about 57 per- cent-provide care whose value is less than the value of their potential tax liability. For example, in New York and California, 43 and 71 per- cent of nonprofit hospitals, respectively, had an estimated potential tax liability that exceededthe amount of charity care they provided. In Cali- fornia, Florida, Iowa, and New York, the states we reviewed in which hospitals differentiated between charity and bad debt, charity care made up 23 percent of uncompensatedcare expenses.This is consistent with the conclusionsof a previous analysis, which found that of the $6.2 billion in uncompensatedcare provided by hospitals in 1982, only $1.7 billion (about 27 percent) was charity care.” Becausehospitals may have inconsistent methods for categorizing bad debt and charity care, however, any distinction drawn between the two is imprecise. The rela- tive proportions reported, however, indicate that a substantial percent- age of uncompensatedcare represents care to those expected to pay, such as unpaid deductibles of privately insured patients, rather than the medically indigent. “Sloan, and others. IJncompensated 1Iospital Care, Rights and Responsibilities. Page 29 GAO/HRD-90-84 Nonprofit Hospitals Factors Affixting Distribution of Indigent Care- Within Communities Factors that can influence the distribution of indigent care among hospi- tals include the hospitals’ admissions and staffing policies and practices, their services,and their locations. To better understand the factors influencing the amount and distribution of uncompensatedcare and Medicaid patient care among hospitals, we conducted casestudies of hospitals in five communities- one in each of the states we reviewed. In each community, somenonprofit hospitals’ policies-such as those governing patient admissions and transfers, physician staffing, and the setting of strategic goals- discouragedthe provision of nonemergency care to those unable to pay for it. Most care for the medically indigent was provided by hospitals that historically have provided such care- that is, government-owned or university-affiliated nonprofit teaching hospitals. In the communities with adequate funding and capacity to treat the communities’ indigent, nonprofit hospitals’ uncompensated-carerates were relatively low and not perceived as a significant problem. In the communities where the numbers of medically indigent people in need of servicesoutstripped the capacity or willingness of the nonprofit teach- ing hospitals to meet the demand, the amount and distribution of uncompensatedcare was a significant issue among hospital administra- tors. In these communities, somehospitals were undertaking actions to reduce the amount of treatment provided to those who could not pay. Causesof Indigent Available research demonstrates a large and increasing indigent care burden on government-owned hospitals, especially in large cities. For Care Distribution our casestudies, we selectedfour communities in which there was no Examined Through government-owned hospital so that we could examine the factors affect- ing the distribution of indigent care among hospitals in the absenceof a CaseStudies government-owned hospital. We also selecteda community in a predomi- nantly rural state. In California and Florida, the two states with signifi- cant numbers of both for-profit and nonprofit hospitals, the hospitals we visited included a mix of both types. In the three other states, the communities contained government-owned and nonprofit hospitals only. Table 3.1 shows the hospitals visited in each community, by ownership type. Page 30 GAO/HRD-90-84 Nonprofit Hospitals Chapter 3 Factors Affecting Distribution of Indigent Care Within Communities ,. - -. -.-,_-...- _, , Table 3.1: Hos~ttals Visited in Selected Communities. bv Ownership Tv~e Nonfederal Member of Council government- of Teaching Community hospitals _..- . .- _.__ -__.____- . ....______- Numbif~dq: owned Hospitals Other nonprofit Investor-owned Central San Diego, California Unfversfty of California at San Diego 406 X X M&y _ .__...- -.._-- 411 X Paradise Valley - .-...-- .__.---- 210 X Harbor Vtew -. _..- ---- --_. ____ 176 X PhysiciansfSurgeons~ 69 -_ X Orlando, _. .~ Florida Orlando Re ronal Medical L?enter-~ -~.._--- 733 X F&da. 964 X Winterpark Memorial -_301 X Humana 267 X k&II .-.-.-____--- 153 X Des Moines, Iowa Broadlawns ~ 294 X Des Moines General 231 X towa Lutheran 347 X Iowa Methodfst -.- .- ~~~._.~ .. -680 X M&y 500 X Washtenaw Cdunty, Michigan Universrty of Michigan 799 X St, Joseph Mercy ~-. -. 511 X Saline Commun”ity 63 X Chelsea Communrty .-...137 ____- X l%eyer Memorraf ‘-- 148 X Capital Dia&,‘New i&k@ _- .-_-. Albany Medfcal Center 654 ---- X St. Peters 437 --- X Memonal 233 X ElIIS i...--.--...--- 413 X St. Clare’s 227--- X Notes: Number of beds available for use as of September 30, 1987. Data are from American Hos ital Association Guide to the Health Care Field, 1988 edition We did not review federal + ospltals, such as f%@ii%ent of Veterans Affairs hospitals. %cludes selected hospitals In Albany and Schnectady. Page 31 GAO/HRD-90-84 Nonprofit Hospitals r Chapter 3 Factors Affecting Distribution of Indigent Care Within Communities Across communities, we found that somenonprofit hospitals’ admis- SomeHospitals Lack sions, transfer, and physician staffing policies generally discouragedthe Proactive Goals or provision of nonemergencycare to those unable to pay for treatment. Policies for The lack of proactive policies for the indigent results in a distribution of uncompensatedcare largely basedon historic treatment patterns or geo- Nonemergency graphic area. Indigent Care Many Hospitals’ The admissions policies of many hospitals we visited-both nonprofit Admissions and Transfer and investor-owned-limited a majority of charity care to that initiated in the emergencyroom. Nonprofit hospitals in Des Moines, for example, Policies Limit Elective referred patients needing elective care to the publicly financed hospi- Care for Those Unable tals, Among hospitals we visited, few had admissionsor physician staff- to Pay ing policies that facilitated elective admissions for those who could not pay. In the communities we visited with a mix of hospital ownership types, we found similar admissions and physician staffing policies at nonprofit nonteaching and investor-owned hospitals. Teaching hospi- tals’ physician staffing policies, however, were different in that medical residents could assist in treating the indigent. Both nonprofit and investor-owned hospitals participating in Medicare are required by law to provide necessarymedical examinations to indi- viduals with emergencymedical conditions and women in active labor. In certain circumstances,the hospital may provide for an appropriate transfer to another facility. Four of the states in our review have similar statutes or administrative regulations to assurethat all patients are sta- bilized in emergencies,regardlessof whether they can pay their bills. In contrast, hospitals are not required to provide nonemergencycare to those unable to pay. Policies of both nonprofit and investor-owned hos- pitals we reviewed generally limit the nonemergencycare they provide to those who have insurance or have a physician to treat them. In Albany, three of the hospitals still had Hill-Burton obligations to pro- vide charity care. These hospitals used Hill-Burton criteria to determine eligibility for charity care. The other two hospitals had satisfied prior Hill-Burton obligations and did not have specific criteria for charity care. Officials at these two hospitals told us that uncompensatedcare is usually the result of bad debt rather than charity care. Page 32 GAO/HRD-90-84 Nonprofit Hospitals Chapter 3 Factom Affecting Distribution of Indigent Care Within Communities In Ann Arbor, another community without a nonfederal government- owned hospital, hospitals we visited had similar policies regarding admissions.To receive outpatient servicesor to be admitted other than from the emergency room, the patient generally must make financial arrangements before services are rendered. A hospital official told us, however, that indigent patients generally sought servicesthrough the emergencyroom. If a patient is ineligible for Medicaid or another state- subsidized program for indigent care, the hospitals attempt to negotiate a financial arrangement with the patient. Hospitals generally billed all patients and made efforts to collect the amounts owed. Only two of the hospitals have written charity care policies. The policies of both hospi- tals allowed for the elective admissions of persons regardless of their ability to pay. In the two communities with a mix of nonprofit and investor-owned hos- pitals, admissions policies of the two types of hospitals were similar. In Orlando, both nonprofit and investor-owned hospitals sought to deter- mine whether patients were able to pay before admitting them for non- emergency treatment. Two of the three nonprofit hospitals in this community generally referred patients unable to pay to state and county clinics for elective care. Similarly, in San Diego, hospital officials told us that most uncompensatedcare stemmed from mandatory treatment pro- vided in emergencies,not from nonemergencycare. For elective admis- sions, the hospital administrators of both nonprofit and for-profit hospitals generally made a decision in each casewhether to admit patients after determining that they could not pay. For example, one hospital’s policy was to admit such patients only if they were employed. Some Hospital Staffing The willingness of physicians to treat Medicaid patients or other Policies Allow Emergent patients unable to pay for treatment can affect the amount of nonemer- gency indigent care a hospital can provide. Although the hospitals we Care but Not Elective visited allowed the medically indigent to receive care in the emergency Treatment for Indigents room, subsequentadmission to the hospital dependedon physicians’ willingness to provide treatment without reimbursement. At the teaching hospitals we reviewed, officials told us that indigent patients can be treated by supervised residents, helping to facilitate residents’ experience in treating different kinds of problems. Nonteach- ing hospitals we visited, however, rely on the medical staff to volunta- rily treat indigent patients who need to be admitted to the hospital. The Page 33 GAO/HRD-90-84 Nonprofit Hospitals Chapter 3 Factors Affecting Distribution of Indigent Care Within Communities “on-call” duty was generally made a condition of maintaining staff priv- ileges. Generally, physicians providing treatment were not paid by the hospital, but billed patients directly for the servicesthey provided. In the communities with relatively high numbers of medically indigent, hospital administrators told us that it was often difficult to obtain phy- sicians to treat the indigent. In addition to receiving little or no payment from indigent patients, physicians often have to interrupt their regular practice to treat indigents. Somehospital administrators feared that if they increased the on-call duties of physicians practicing at their hospi- tal, somewould eventually move their practices to hospitals without many indigent patients. Physician practice patterns can also affect a hospital’s proportion of Medicaid patients. In Orlando, for example, officials from one nonprofit hospital told us that becausefew of the physicians admitting patients to the hospital participated in the Medicaid program, they admitted few Medicaid patients to the hospital. Hospitals Did Not The hospitals we visited provided us information on their strategic Generally Have Strategic goals’ and, in somecases,recent minutes of meetings of hospitals’ boards of directors. We used this information to determine the types of Goals Designed to Expand goals being set and issuesbeing addressedby the boards. From these or Improve Indigent sources,we identified goals related to provision of charity care or com- Access to Care munity health services. A majority of goals concernedmaintaining the hospitals’ financial vial bility, improving their competitive positions, expanding services and facilities, or developing employee skills and personnel practices. Although the hospitals set numerous goals related to expanding medical services due to increasedpatient demand or to increasetheir market share, generally no goals were directed at serving low-income commu- nity residents. Of the 24 private nonprofit and investor-owned hospitals we visited, 7 had strategic goals related to provision of care to the medically indigent: 3 in Washtenaw County, Michigan; 2 in Albany, New York; and 2 in Des Moines, Iowa. Someof these goals were not specific to the needsof the community and were not linked to dollar amounts or other quantifiable ‘The Joint Commission on Accreditation of Healthcare Organizations requires for certification that hospitals develop and maintain a set of strategic goals and a b-year strategic plan. Page 34 GAO/HRD-90-84 Nonprofit Hospitals chaptlx 3 Factors Affecting Diatrlbution of Indigent Care Wlthin Communities targets, such as numbers of people to be served. As a result, they were ambiguous. For example, two hospital goals were to (1) ensure contin- ued financial commitment to health care of the poor while strengthening financial viability and (2) develop an analysis and policy regarding care for the medically indigent. Uneven Distribution of The absenceof proactive policies among nonprofit hospitals can cause problems in delivering servicesto the indigent and could eventually Indigent Care a causegaps in servicesfor entire communities. Delivering servicesto the Problem in Some indigent was a greater problem in somecommunities we visited than in others. Communities In three communities-Des Moines, Ann Arbor, and Albany-most uncompensatedcare was provided by either a government-owned or a major teaching nonprofit facility. Although teaching hospitals provided the largest share of uncompensatedcare, their uncompensatedcare rates were not substantially higher than the average rate of uncompen- sated care provided by other hospitals in the state. In Des Moines, a nonfederal government-owned hospital financed through local tax revenuesprovided most indigent care, resulting in rel- atively low and stable indigent expensesfor the community’s private nonprofit hospitals. Similarly, in both Ann Arbor and Albany, a large teaching nonprofit hospital provided a majority of indigent care. Uncompensatedcare did not represent a large expenserelative to total expensesfor any of these communities’ other hospitals. In two of the communities we visited, the uncompensatedcare costs were relatively high and the nonprofit hospitals providing the largest share of such care were seeking ways to reduce these costs. Hospital administrators in these communities were most concernedabout control- ling the costs of emergency and obstetrical servicesto the indigent. In 1986, the hospital that traditionally served the indigent in Orlando adopted several policies to stem its indigent care costs, including refusing to treat patients unable to pay except those needing urgent l medical treatment and those residing in the hospital’s catchment area, encouraging indigent patients to go to a hospital in the area covered by l the zip code of their residence,and . rotating their medical residents to a military hospital, rather than the adjacent county clinic, for obstetrical training. Page 36 GAO/HRD-90-84 Nonprofit Hospitals Chapter 3 Factors Affecting Distribution of Indigent Care Within Cmnmunities Other hospitals in the community opposedthese policies. Becauseof the absenceof a nonfederal government-owned hospital, several hospitals, including an investor-owned hospital, were inundated with obstetrical patients. In response,a local health council devised an allocation method to redistribute indigent obstetrical patients more evenly among the com- munity’s hospitals. Although participating hospital administrators believe that the allocation system lessenedthe problem, disagreements remain. For example, officials at the hospital traditionally serving indi- gents are concernedthat other hospitals’ requests to transfer women having a high risk of complications during labor are basedon the patients’ financial, not medical, condition. Conversely, someof the area’s hospital administrators expressedconcern that the hospital tradi- tionally serving indigents is not accepting transfers of all patients who are at high risk. Similarly, hospitals in San Diego were attempting to restrict their indigent care expensesin responseto reductions in state and county indigent care funding as well as to increasesin the numbers of undocu- mented aliens lacking means to pay. Administrators’ concern focused on emergencyservices.The administrator of an investor-owned hospital located adjacent to a low-income section of the community estimated that 76 percent of 3,000 emergency visits monthly involved people with no insurance or inadequate insurance. To reduce its losses,the hospital corporation planned to closethe emergency room, potentially causing a domino effect throughout the community. In response,officials from a nonprofit hospital were considering donating money to the investor- owned hospital to keep its emergency room open. To avoid financial stresses,another investor-owned hospital closed its emergency room to ambulance traffic by downgrading it to an urgent care center. In addi- tion, it chosenot to contract with the state to provide inpatient services for Medicaid patients and did not contract with the county to provide emergency servicesto county-sponsoredindigent patients. Nonprofit hospitals were also beginning to take actions to reduce the effect of expensesassociatedwith treating the indigent. At the time of our visit, the hospital traditionally treating indigents was investing in a new facility in a suburb to increase its market share of patients able to pay. Another nonprofit hospital in the area planned to downgrade its emergency room, closing it to ambulance traffic. Page 36 GAO/HRD-90-84 Nonprofit Hospitals Chapter 4 (Ihumni@ ServicesProvided by Hospitals In addition to providing care to those unable to pay, nonprofit hospitals also sponsor research or provide education and various types of health screeningservices for their communities. Our nationwide survey of hospital administrators showed that overall, a high percentageof nongovernmental hospitals, regardlessof ownership type, provide community services.Nonprofit hospitals were more likely than investor-owned hospitals, however, to provide such services. Although relatively few serviceswere targeted to low-income residents, nonprofit hospitals were more likely to target than investor-owned hos- pitals. A majority of nonprofit and investor-owned hospitals offered somecommunity services at no charge. When they did charge a fee, few hospitals of either ownership type reported that the revenuescollected for a particular service covered its costs, We undertook a nationwide survey of hospitals to ascertain the types Issues Addressed and extent of activities that they perceive as providing community bene- by Survey fits. Providing acute medical servicesto people unable to pay is only one measureof the extent to which communities benefit from the presence of a hospital. For example, somehospitals, though not reporting high amounts of uncompensatedcare, may serve their communities’ low- income residents through clinics that offer servicesor low-cost or free screeningto all community residents. Data are not collected on the extent of such community servicesprovided, and the associatedcosts are frequently not reported in uncompensatedexpensestatistics. Our survey questionnaire asked hospital officials whether they had offered various broad categoriesof community servicesduring their most recent fiscal year. It also asked them more detailed questions regarding the characteristics of the servicesthey offered and their costs. The categoriesof community serviceswe asked about included l health screening,such as cancer or cholesterol screening; l health education, such as clinics to help people stop smoking or classes to help prevent the spread of AIDS; . clinic services,such as ambulatory clinics or clinics targeted to specific groups in the community, such as glaucoma clinics for the elderly; . immunizations, such as flu shots for the elderly; . housing, usually provided to family members of patients; l transportation services for patients; . food and clothing drives sponsoredfor the poor; and . basic scienceor clinical research subsidies. Page 87 GAO/HRD-90-84 Nonprofit Hospitals Chapter 4 Cmmuulty Services Provided by Hospitals One way we assessedthe delivery of community servicesby nonprofit SomeDistinctions hospitals was by comparing the types of services and method of deliv- Between Community ery they used with those offered by investor-owned hospitals respond- Services Delivered by ing to our survey. Though a majority of both types of hospitals offered a wide range of community services,a higher percentageof nonprofit Nonprofit and than investor-owned hospitals offered such servicesand provided them Investor-Owned to more people. A majority of servicesprovided by nongovernmental Hospitals hospitals were not targeted to low-income persons.Nonprofit hospitals were more likely to target than investor-owned hospitals, however. Non- profit and investor-owned hospitals were equally likely to charge a fee for community services,but nonprofit hospitals were more likely to cover the costs of providing the services. Types of Services Offered We estimate that nonprofit hospitals provided community servicesto at least 54 million people, while investor-owned hospitals served at least 5 million. On average,a nonprofit hospital served about twice as many people as an investor-owned hospital of the samesize. Figure 4.1 shows the percentageof responding nonprofit and investor-owned hospitals reporting that they provided various types of community services dur- ing 1988. Page 39 GAO/HRD-90-84 Nonprofit Hospitals . Chapter 4 Community Servicer Provided by Hospitals Figure 4.1: Types of Community Services Offered, by Hospital Ownership Type Porcortt of Ho8pltalr 100 90 so 70 60 80 40 30 20 10 0 I Nonprofit Hospitals Investor-owned Hospitals Note, These estimates have confidence Intervals of no greater than plus or minus 8 percentage points ‘Not statiskally significant at the 95percent confidence level The community servicesreported were generally diagnostic or prevent- ative tests or lectures. In comparing nonprofit and investor-owned hos- pitals that reported providing one of these types of services,we found that both types of hospitals were likely to provide similar services.For example, both nonprofit and investor-owned hospitals identified blood pressure tests, cholesterol tests, and various types of cancer screening as their major health screeningservices.The most frequently reported services under each community service category are shown in appendix III. Page 39 GAO/HRD-90-84 Nonprofit Hospitals Chapter 4 Community Services Provided by Hospitals Nonprofit Hospitals More Community servicesoften reflect the character of the neighborhood in Likely to Target Services which the hospital is located. A hospital in a relatively high-income neighborhood may offer types of servicesdesignedto attract paying to Low-Income People patients or increaseits market share, such as free childbirth classesto women who plan to use the hospital’s birthing center. In contrast, a hos- pital in a poor urban area may offer prenatal care as a service to women who would otherwise not receive treatment. In our survey, hospital administrators reported that a majority of ser- vices were not targeted to a low-income population. Nonprofit hospitals were more likely than investor-owned hospitals to target servicesto low-income people. Sixty-eight percent of nonprofit hospitals and 39 percent of investor-owned hospitals reported that they targeted at least one program, Figure 4.2 comparesthe extent to which nonprofit and investor-owned hospitals targeted each type of community service to low-income people. Page 40 GAO/HRD90-84 Nonprofit Hospitals Chapter 4 Community 8ervices Provided by Hospitals Figure 4.2: Percent of Horpltalr that Target Each Community Service to 50 Porcont of hospitals Low-Income People 46 El Nonproflt Hospltals Investor-owned Hospitals Note: These estimates have confidence intervals of no greater than plus or minus 11 percentage points. Nonprofit and Investor- Another way to differentiate between community servicesis to distin- Owned Hospitals Were guish servicesthat were offered free from those that were generally offered at a fee. Most private hospitals offered somecommunity ser- Equally Likely to Offer vices at no charge. Although philanthropic grants may subsidize the Community Services at provision of these servicesin nonprofit hospitals, these hospitals were No Charge no more likely to provide somecommunity services at no charge than were investor-owned hospitals. Figure 4.3 shows the extent to which someservices were provided to the community at no charge. Page 41 GAO/HRB90-84 Nonprofit Hospitals Chapter 4 Community Services Provided by Hospitals Figure 4.3: Percent of Hospitals That Offer Each Community Service at No I 00 Porcenl of Hospitals Charge, by Hospital Ownership Type 90 so 70 60 50 40 30 20 10 0 TypCi Of SSNiC0 El Nonprofit Hospitals Investor-owned Hospitals Note, These estimates have confidence Intervals of no greater than plus or minus 10 percentage points. Nonprofit Hospitals More Both nonprofit and investor-owned hospitals did not generally recover Likely to Cover Costs of the costs of providing community servicesby charging fees to recipients. Nonprofit hospitals were more likely than investor-owned hospitals to Providing Service recover the costs of delivering particular community services.Figure 4.4 shows the extent to which the costs of somecommunity services exceededor equaled the revenuesgenerated. Page 42 GAO/HRD-90-84 Nonprofit Hospitals Chaptm 4 Community service% Provided by Hoepit& Figure 4.4: Percent of Hospitals That Reported Community Services for Which so P8roml of HaopM8 Revenues Covered Costs, by Hospital Ownership Type 65 so 45 40 35 30 26 20 18 10 II 0 1 Nonprofit Hospitals Investor-owned Hospitafs Note, These estimates have confidence intervals of no greater than plus or minus 5 percentage points “Not statistically significant at the 95.percent confidence level. Page 43 GAO/HRD-90-84 Nonprofit Hospitals Chapter 6 Conclusionsand Matters for CongressionalConsideration As reflected in IRS rulings implementing the tax code,federal policy Conclusions regards most nonprofit hospitals as charitable institutions. Although IRS formerly specified that tax-exempt hospitals provide charity care com- mensurate with their financial ability, it eliminated this criterion in the late 1960s. There are significant disparities in the level of charity care that non- profit hospitals provide. Typically, in the states we reviewed, large urban teaching and public hospitals provide a disproportionate share of charity care. Further, our review of several communities indicates that it is not uncommon for nonprofit hospitals’ strategic goals to resemble those of investor-owned institutions in that they relate to increasing market share, rather than targeting underserved populations or addressing particular health problems of their communities. Finally, many nonprofit hospitals’ community service activities do not distin- guish them from investor-owned hospitals. Clearly, the link between tax-exempt status and the provision of chari- table activities for the poor or underserved is weak for many nonprofit hospitals. To the extent that one of the goals of the tax exemption is to recognizethe charitable role of the hospital and encouragehospitals to continue or expand current levels of charity care and other servicesto the poor in an increasingly competitive hospital environment, changesin tax policy may be needed.One option would be to reestablish the link between tax exemption and the level of charity care provided by hospi- tals. In this way, the tax exemption would be retained by nonprofit hos- pitals providing a valuable community service. On the other hand, those that do not provide a reasonablelevel of charity care or other services to the poor would have their tax exemption withdrawn. Although IRS could revise the standard for charitable hospitals without a legislative mandate, given the important implications for health and tax policy, it would be preferable to have congressionaldirection for such a policy change. Currently, there are no requirements relating hospitals’ charitable activ- Matters for ities for the poor to tax-exempt status. If the Congresswishes to Consideration by the encouragenonprofit hospitals to provide charity care to the poor and Congress ” underserved and other community services,it should consider revising the criteria for tax exemption. Criteria for exemption could be directly linked to a certain level of (1) care provided to Medicaid patients, (2) Page 44 GAO/HRD-9084 Nonprofit Hospitals Chapter 0 Conclusions and Matters for Congreseional Consideration free care provided to the poor, or (3) efforts to improve the health sta- tus of underserved portions of the community. Page 45 GAO/HRD-90-84 Nonproflt Hospitals Appendix I LegalBasis for Hospital Tax Exemption Unlike someother activities, such as education, hospital activities are not specifically exempt in the tax code.However, IRS has long inter- preted qualifying hospitals to be charitable organizations, which are specifically exempt. Charitable activities include those that relieve the poor, distressed,or underprivileged; those that lessenthe burdens of government; and those that promote social welfare. Unlike sometypes of tax-exempt organizations, which rely more on donations and endowments and less on fees, most tax-exempt hospitals principally provide services for fees, produce income, and appear in many respectslike taxable, investor-owned businesses. Before 1969 IRSinterpreted the status of nonprofit hospitals as charita- Tax-Exempt Law and ble organizations to require that they provide care to those unable to Theory Focuseson pay in order to qualify for a continued tax exemption. Since 1969, how- Organizations, Not ever, IRS has not specifically required such care, so long as the hospital provides benefits to the community in other ways. Treating patients Operations receiving public assistance,allowing physicians from the community to have privileges to admit patients, and using surplus funds to make hos- pital improvements are indications of public benefit that IRS has most recently deemedsufficient to qualify a hospital for the income tax exemption. Nonprofit organizations can be profitable; however, the profits cannot be paid out to owners or anyone else associatedwith the organization. Instead, they must be devoted to the organization’s tax-exempt pur- pose.’ In exchangefor the above restrictions, the organization is exempted from federal income tax and receives a number of subsidies and advantages,such as accessto tax-exempt bond financing and enhancedaccessto individual philanthropy. Earlier in this century, when hospitals customarily provided a great deal Historical Basis for of care to nonpaying patients, they could easily be categorized as chari- Tax Exemption ties. As the percentageof paying patients in hospitals increased due to the growth of health insurance and the creation of public medical assis- tance, IRS identified other criteria that might indicate that a hospital was organized and operated exclusively for charitable purposes and not for the benefit of private interests. ‘&u-ton Weisbrod. The Nonprofit Economy, Harvard University Press, 1988. Page 46 GAO/HRD-90-84 Nonprofit Hospitals Appendix I Legal Ba& for Hospital Tax Exemption In 1966, IRS issued a revenue ruling establishing criteria to be met by hospitals in order to qualify for the income tax exemption contained in section 601(c)(3). Relying upon a 1934 SupremeCourt decision directing that section 501(c)(3) not be narrowly construed, IRSdetermined that the term “charitable” in that section “contemplates an implied public trust constituted for somepublic benefit, the income or beneficial inter- est of which may not inure to the benefit of any private shareholder or individual.” The ruling set forth four criteria to be met by a hospital requesting the tax exemption: (1) that it be organized as a nonprofit organization for the care of the sick, (2) that it operate to the extent of its financial ability for those not able to pay for the servicesrendered, (3) that its facilities not be restricted to a particular group of physicians, and (4) that earnings not inure directly or indirectly to the benefit of any private shareholder or individual. In 1969, IRS expressly modified its earlier ruling to remove requirements relating to caring for patients without charge or at rates below cost. IRS also held that in considering whether a nonprofit hospital claiming exemption is operated to serve a private benefit, it would weigh all of the relevant facts and circumstancesin each case.IRS indicated that the absenceof particular factors or the presenceof others will not necessa- rily be determinative. The hospital described in the ruling provided care to indigents only in its emergencyroom. 2 In a 1983 revenue ruling, IRS decided to extend the tax exemption to a hospital that did not operate an emergencyroom, becausea state health planning agency determined that an emergencyroom would provide unnecessaryand duplicative services.IRS held that several aspectsof the facility indicated that the hospital operated exclusively to benefit the community. For example: (1) the board of directors was drawn from the community; (2) the hospital established an open medical staff policy allowing physicians from the community to practice; (3) the hospital treated persons paying their bills with the aid of public programs like Medicare and Medicaid; and (4) surplus funds were used to improve facilities, equipment, patient care, medical training, education, and research.The hospital did not provide care to indigent patients. “Groups representing indigent patients challenged the 1969 revenue ruling in federal court, asserting that the ruling encouraged hospitals to deny services to indigents and constituted an erroneous inter- pretation of section 501(c)(3). The case was dismissed on other grounds. The Supreme Court ruled that the groups failed to establish their standing to bring the suit. Simon v. Eastern Kentucky Welfare Rights Organization, 426 IJS. 26 (1976). Page 47 GAO/HRD-90-84 Nonprofit Hospitals Appendix II Differences Between Low- and High- ’ Uncompensated-CareHospitals Figure 11.1:Uncompensated Care Rates loi Low- and Hlghkncompensated-Care 14 Uncompo~atod Care Rat0 Hospitals 12 10 8 Calltomia Florida (1985) Iowa (lsw) Michigan (1987) Now York ww (1967) StOtW3 L 1 Low-UncompfmsatedCar Hospitals High-Uncompensated-Care Hospitals Note: We ranked the nonprofit hospitals by their rates of uncompensated care from lowest to highest Low-uncompensated-care hospitals were below the 25th percentile, while high.uncompensated-care hospitals were above the 75th percentile. Page 48 GAO/HRD-90-84 Nonproflt Hospitals Appendix II Differences Between Low- and High- Uncompensated-Care Hospitals Figure 11.2:Medicaid Patient Mix of Low- and High-Uncompensated-Care 25 Madlcald as a Percant of Total Patlsnt Daya Nonproflt HOSpital8 20 16 10 5 0 Callfomla Florida (1985) Iowa (1987) Michigan (1987) New York ww wJ;r) stataa n. u Low-Uncompensated-Care Hospitals High-Uncompensated-Care Hospitals Note: We ranked the nonprofit hospitals by their rates of uncompensated care from lowest to highest Low-uncompensated-care hospitals were below the 25th percentile, while high-uncompensated-care hospitals were above the 75th percentile. Page 49 GAO/HRD90-84 Nonprofit Hospitals Appendix II Diff’erences Between Low- and High- Uncompensated-Care Hospitals Figure 11.3:Total Profit Margins of Low- and Hlgh-Uncompensated-Care Total Proffl Margln Nonprofit Hospitals 8 -4 statea Low-Uncompensated-Care Hospitals High-Uncompensated-Care Hospitals Notes: Total profit margin is the difference between total net revenue and total expense, divided by total net revenue. We ranked the nonprofit hospitals by their rates of uncompensated care from lowest to highest. Low- uncompensated-care hospitals were below the 25th percentile, while high-uncompensated-care hospi tals were above the 75th percentrle. Page 50 GAO/HRD90-84 Nonprofit Hospitals Appendix III Most Frequently Reported Community Services, by Ownership Type, for Each Service Category Nonprofit hospitals Investor-owned hospitals Health Screening Services: Cholesterol (67) Cholesterol (73) Cancer (62) Blood pressure (63) Blood pressure (62) Glucose (43) Health fairs/promotions (45) Cancer (40) Glucose (40) Health fairs/promotions (36) Glaucoma (17) Lung (20) Lung (14) Glaucoma (9) Health Services Education: Obsterical/gynecological (51) Heart disease (34) Diabetes (39) Diabetes (33) Heart disease (28) Obsterical/gynecological (28) Cancer (28) Cancer (25) Emergency procedures (27) Emergency procedures (23) AIDS (21) Smoking cessation (20) Lectures (21) Hypertension (15) Health fairs/promotions (19) Health fairs/promotions (14) Smoking cessation (19) Stress management (14) Cholesterol (14) Nutrition (13) Nutrition (12) Cholesterol (12) Drug/alcohol (11) AIDS (11) Weight control (11) Weight Control (10) Clinic Services: Women and children (64) General walk-in (36) General walk-in (42) Eye, ear, nose, and throat (23) Eye, ear, nose, and throat (17) Senior citizens (16) Specific diseases (16) Women and children (14) Cancer (12) Specific diseases (7) Mental health (9) Cancer (5) Other Community Services: Meeting rooms (29) Meeting rooms (25) Senior citizens’ programs (23) Holiday drives (24) Health information services (13) Fitness programs (19) Ivleals(l3) Senior citizens’ programs (18) Lifelines (IO) Meals (11) Note: Percentage of hospitals offering the services is in parentheses. Page 61 GAO/HRD-SO-84 Nonproflt Hospit& “,, Appendix fV , Major Contributors to This Report Mark V. Nadel, Associate Director, (202) 2756195 Human Resources Edwin P. Stropko, Assistant Director Division, Sarah D. Strum, Evaluator-in-Charge Darrell J. Gaskin, Economist Washington, D.C. Mark Vinkenes, Social ScienceAnalyst Michael O’Dell, Social ScienceAnalyst Chester A. Sipsock, Regional Assignment Manager Detroit Regional Office Jerry w, Aiello, Site Senior Javier J. Garza, Evaluator Darryl W. Dutton, Regional ManagementRepresentative Los Angeles Regional Monica Kelly, Site Senior Office DeniseDias, Evaluator Leah Gear, Evaluator Anthony Lofaro, Regional ManagementRepresentative New York Regional Robert McKay, Site Senior Office Bonnie Derby, Evaluator Terrie Bijeau, Evaluator ( 1OH70I ) Page 62 GAO/HRD-99-84 Nonprofit Hospitals ---...---I___ --..---- _ll*,l_-“ll”.l”_-l..-.--.-
Nonprofit Hospitals: Better Standards Needed for Tax Exemption
Published by the Government Accountability Office on 1990-05-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)