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The majority of nonprofit hospitals are failing to follow through on expected charity commitments, despite the generous tax breaks they receive, according to a report from the Lown Institute.
The result of this neglect is $17 billion in unrealized community investment, according to the analysis from the health care think tank, which examined 3,641 hospitals based on their Medicaid revenue, charity care spending, and other investments that have direct benefit to the community–like health clinics, housing, and food security.
Nearly three-quarters (72%) are not spending their fair share, meaning they have a fair share deficit, spending less on charity care and community investment than they receive in tax breaks, according to the report.
Deficits range from a few thousand dollars to $261 million, with Cleveland Clinic leading the list of those with fair share deficits.
Even among hospitals in the same city, where tax rates, community needs, and percentages of uninsured patients are similar, performance varied widely.
This was the case in Boston, where Lown found Boston Medical Center had a fair share surplus of $11 million, but Massachusetts General Hospital had a community benefit spending deficit of $179 million.
“The biggest reason that hospitals haven’t invested their fair share is that they don’t have to,” Dr. Vikas Saini, president of the Lown Institute, told Healthcare Finance News. “And there’s no real auditing of the spending reported.”
He said that although the IRS requires hospitals to spend on community benefit, it doesn’t specify what type, for what purpose or how much.
“So, if hospitals can receive a huge tax break no matter what they spend, it makes sense that many would choose to just spend the bare minimum,” Saini said.
WHY THIS MATTERS
In exchange for the tax exemption, there is an understanding that the hospitals should be providing benefits to their local communities.
Saini said this neglect has become a big deal as non-profit hospitals have evolved into big businesses that handle a trillion dollars of the economy.
“That means there are a lot of taxes that haven’t been collected and that would have paid for more schools, safer streets and so on,” he said. “For low-income families, having access to financial assistance can be the difference between going into medical debt, or not. People may also choose to delay or go without care that they really need.”
Saini noted community health investment can also help address social determinants of health that are upstream, so that people don’t get sick in the first place.
Many hospitals do address the social determinants of health for better patient outcomes and to lower the cost of more expensive care in the emergency room or hospital stays. In this way, money spent on SDOH creates a return on investment.
For instance, Montefiore Health System in the Bronx tackled the social determinants by investing in housing, a move that cut down on emergency room visits and unnecessary hospitalizations for an annual 300% return on investment.
The Lown Report listed the 50 hospitals in the country that are investing the most in community health. Five in the top ten are in the metropolitan area in and around New York City.
Leading the rankings of community health investors are Paradise Valley Hospital in California, Elmhurst Hospital Center in New York, Queens Hospital Center in New York, Metropolitan Hospital Center in New York, Woodhull Medical and Mental Health Center in New York, Leonard J. Chabert Medical Center in Louisiana, and NYC Health + Hospitals Coney Island in New York, Lallie Kemp Medical Center in Louisiana, Zuckerberg San Francisco General Hospital and Trauma Center in California and University Hospital in New Jersey.
THE LARGER TREND
Saini said while the COVID pandemic laid bare the many inequities in our system, it was known that even before the pandemic people were struggling to afford care and were deferring or delaying care.
The business model of hospitals, (and indeed much of healthcare) leads them to seek high-margin service lines and leaves a lot of investment in the things that can prevent hospitalization, unfunded, according to Saini. This means that the burden of disease will tend to grow in a vicious cycle.
“Transparency is an important first step, so that communities can hold their local hospitals accountable. That’s why we created this metric,” he said. “But we also need more regulation from the IRS and from states.”
Saini pointed to states like Oregon, which has created community benefit spending minimums for each hospital, and Massachusetts, which created more specific reporting requirements that tie community benefit spending to specific local health needs.
ON THE RECORD
“Hospitals say they want to be great community partners, and the ones at the top of our list have followed through,” Saini said by statement. “With the pandemic shining a light on health inequity in America, we need more hospitals to give back as much as they take in tax breaks.”
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