In California Not-For-Profit Hospitals Spent More Operating Expenses On Charity Care Than For-Profit Hospitals Spent

In exchange for sizable tax exemptions, not-for-profit hospitals must engage in activities that meet the Internal Revenue Service’s community benefit standard. The provision of charity care—free care to those unable to pay—can help meet that standard. Bad debt, the other form of uncompensated care, cannot be used to meet the standard, although Medicaid shortfalls can. However, the ACA lacks guidelines for providing charity care, and federal law sets no minimum requirements for community benefit activities. Using data from California, we examined whether the levels of charity and uncompensated care provided differed across general acute care hospitals by profit status and other characteristics during 2011–13. The mean proportion of total operating expenses spent on charity care differed significantly between not-for-profit (1.9 percent) and for-profit hospitals (1.4 percent), in contrast to the mean proportion spent on uncompensated care. Both types of spending varied widely across hospitals. Policy makers should consider measures that remove disincentives to meeting the persistent considerable need for charity care—for example, increasing supports to offset rising Medicaid shortfalls resulting from program expansion—and facilitate the tracking of ACA impacts on the distribution of charity care and uncompensated care delivery.