Academic journal article Journal of Healthcare Management

Charity Care in Nonprofit Urban Hospitals: Analysis of the Role of Size and Ownership Type in Washington State for 2011

Academic journal article Journal of Healthcare Management

Charity Care in Nonprofit Urban Hospitals: Analysis of the Role of Size and Ownership Type in Washington State for 2011

Article excerpt

Joseph S. Coyne, DrPH, professor, Health Policy & Administration, and director, Center for International Health Services Research & Policy, Washington State University, Spokane; Natalie M. Ogle, health data analyst, Kaiser Permanente, Portland, Oregon; Sterling McPherson, PhD, assistant professor, Program in Excellence in Addiction Research, Washington State University; Sean Murphy, PhD, assistant professor, Health Policy & Administration, Washington State University; Gary J. Smith, PhD, clinical associate professor, Health Policy & Administration, Washington State University; and Gregg Agustín Davidson, FACHE, CEO, Skagit Regional Health, Mount Vernon, Washington

EXECUTIVE SUMMARY

Nonprofit hospitals are expected to serve their communities as charitable organizations in exchange for the tax exemption benefits they receive. With the passage into law of the Affordable Care Act, additional guidelines were generated in 2010 to ensure nonprofit hospitals are compliant. Nonetheless, the debate continues on whether nonprofit hospitals provide adequate charity care to their patient population.

In this study, charity care provided by 29 Washington State nonprofit urban hospitals was examined for 2011 using financial data from the Washington State Department of Health. Charity care levels were compared to both income tax savings and gross revenues to generate two financial ratios that were analyzed according to hospital bed size and nonprofit ownership type. For the first ratio, 97% of the hospitals (28 of 29) were providing charity care in greater amounts than the tax savings they accrued. The average ratio value using total charity care and total income tax savings of all the hospitals in the study was 6.10, and the median value was 3.46.

The nonparametric Kruskal-Wallis test results by bed size and nonprofit ownership type indicate that ownership type has a significant effect on charity care to gross revenue ratios (p = .020). Our analysis indicates that church-owned hospitals had higher ratios of charity care to gross revenues than did the other two ownership types-government and voluntary-in this sample.

Policy implications are offered and further studies are recommended to analyze appropriate levels of charity care in nonprofit hospitals given new requirements for maintaining a hospital's tax-exempt status.

For more information about the concepts in this article, contact Dr. Coyne at jsc@wsu.edu.

INTRODUCTION

Nonprofit hospitals are expected to serve their communities as charitable organizations. In return for receiving tax exemption status and tax-deductible contributions under the 501(c)(3) tax code of the Internal Revenue Service (1RS), they are expected to provide community benefit (1RS, 2012). The organization and operation of nonprofit hospitals should directly fall in line with "permissible exempt purposes" (Aitsebaomo, 2004). Specifically, the operations of a nonprofit hospital should not provide any benefit to private interests (1RS, 2012).

Nonprofits and the Affordable Care Act

In 2010, the Affordable Care Act (ACA) added section 501 (r) to the Internal Revenue Code. Under 501 (r), nonprofit hospitals are required to meet certain guidelines to maintain their tax-exempt status: create a community health needs assessment every 3 years, design plans to meet their communities' needs (1RS, 2011), and develop financial assistance policies that specify who is eligible for assistance and how the hospital will comply (Wells & McFadden, 2011).

Washington State law has required hospitals in the state to provide charity care since 1989. The law directs hospitals to provide free or discounted care to patients for inpatient and outpatient services depending on patients' income levels. In fart, Washington State requires every hospital, whether for-profit or nonprofit, to develop its own charity care policy (WSHA, 2013).

Nonprofits' Failure to Comply

Nonprofit hospitals have been scrutinized for their charitable contributions in recent years. …

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