Nonprofit, For-Profit, and Government Hospitals
Uncompensated Care and Other Community Benefits Gao ID: GAO-05-743T May 26, 2005Before 1969, IRS required hospitals to provide charity care to qualify for tax-exempt status. Since then, however, IRS has not specifically required such care, as long as the hospital provides benefits to the community in other ways. Seeking a better understanding of the benefits provided by nonprofit hospitals, Congress requested that GAO examine whether nonprofit hospitals provide levels of uncompensated care and other community benefits that are different from other hospitals. This statement focuses on, by ownership group, hospitals' (1) provision of uncompensated care, which consists of charity care and bad debt, and (2) reporting of other community benefits. The hospital ownership groups were (nonfederal) government, nonprofit, and for-profit. To compare the three hospital ownership groups, GAO obtained 2003 data from five geographically diverse states with substantial representation of the three ownership groups in each state. GAO analyzed cost data from two perspectives--each hospital group's percentage of (1) total uncompensated care costs in a state and (2) patient operating expenses devoted to uncompensated care.
Government hospitals generally devoted substantially larger shares of their patient operating expenses to uncompensated care than did nonprofit and for-profit hospitals. The nonprofit groups' share was higher than that of the for-profit groups in four of the five states, but the difference was small relative to the difference found when making comparisons with the government hospital group. Further, within each group, the burden of uncompensated care costs was not evenly distributed among hospitals but instead was concentrated in a small number of hospitals. This meant that a small number of nonprofit hospitals accounted for substantially more of the uncompensated care burden than did others receiving the same tax preference. Hospitals in the five states--nonprofit, for-profit, and government hospitals--reported providing a variety of services and activities, which the hospitals themselves defined as community benefits. Community benefits include such services as the provision of health education and screening services to specific vulnerable populations within a community, as well as activities that benefit the greater public good, such as education for medical professionals and medical research. GAO was unable to assess the value of these benefits or make systematic comparisons between hospitals or across states. These observations illustrate a larger point--namely, that current tax policy lacks specific criteria with respect to tax exemptions for charitable entities and detail on how that tax exemption is conferred. If these criteria are articulated in accordance with desired goals, standards could be established that would allow nonprofit hospitals to be held accountable for providing services and benefits to the public commensurate with their favored tax status.
GAO-05-743T, Nonprofit, For-Profit, and Government Hospitals: Uncompensated Care and Other Community Benefits
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Testimony:
Before the Committee on Ways and Means, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Thursday, May 26, 2005:
Nonprofit, For-Profit, and Government Hospitals:
Uncompensated Care and Other Community Benefits:
Statement of David M. Walker:
Comptroller General of the United States:
GAO-05-743T:
GAO Highlights:
Highlights of GAO-05-743T, a testimony before the Committee on Ways and
Means, House of Representatives
Why GAO Did This Study:
Before 1969, IRS required hospitals to provide charity care to qualify
for tax-exempt status. Since then, however, IRS has not specifically
required such care, as long as the hospital provides benefits to the
community in other ways. Seeking a better understanding of the benefits
provided by nonprofit hospitals, this Committee requested that GAO
examine whether nonprofit hospitals provide levels of uncompensated
care and other community benefits that are different from other
hospitals. This statement focuses on, by ownership group, hospitals‘
(1) provision of uncompensated care, which consists of charity care and
bad debt, and (2) reporting of other community benefits. The hospital
ownership groups were (nonfederal) government, nonprofit, and for-
profit.
To compare the three hospital ownership groups, GAO obtained 2003 data
from five geographically diverse states with substantial representation
of the three ownership groups in each state. GAO analyzed cost data
from two perspectives”each hospital group‘s percentage of (1) total
uncompensated care costs in a state and (2) patient operating expenses
devoted to uncompensated care.
What GAO Found:
Government hospitals generally devoted substantially larger shares of
their patient operating expenses to uncompensated care than did
nonprofit and for-profit hospitals. The nonprofit groups‘ share was
higher than that of the for-profit groups in four of the five states,
but the difference was small relative to the difference found when
making comparisons with the government hospital group. Further, within
each group, the burden of uncompensated care costs was not evenly
distributed among hospitals but instead was concentrated in a small
number of hospitals. This meant that a small number of nonprofit
hospitals accounted for substantially more of the uncompensated care
burden than did others receiving the same tax preference.
Figure: Average Percent of Patient Operating Expenses Devoted to
Uncompensated Care, by Hospital Ownership Type, 2003:
[See PDF for image]
[End of figure]
Hospitals in the five states”nonprofit, for-profit, and government
hospitals”reported providing a variety of services and activities,
which the hospitals themselves defined as community benefits. Community
benefits include such services as the provision of health education and
screening services to specific vulnerable populations within a
community, as well as activities that benefit the greater public good,
such as education for medical professionals and medical research. GAO
was unable to assess the value of these benefits or make systematic
comparisons between hospitals or across states.
These observations illustrate a larger point”namely, that current tax
policy lacks specific criteria with respect to tax exemptions for
charitable entities and detail on how that tax exemption is conferred.
If these criteria are articulated in accordance with desired goals,
standards could be established that would allow nonprofit hospitals to
be held accountable for providing services and benefits to the public
commensurate with their favored tax status.
www.gao.gov/cgi-bin/getrpt?GAO-05-743T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact A. Bruce Steinwald at
(202) 512-7101.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today as you discuss issues regarding tax
exemptions for nonprofit hospitals. At this Committee's recent hearing
on the tax-exempt sector as a whole, I emphasized the importance of
reviewing this sector, drawing parallels to our agency's call to
reexamine all major federal policies and programs in light of 21st
century challenges.[Footnote 1,2]. Provisions granting federally
recognized tax-exempt status and associated policies have been layered
on one another to respond to challenges at the time, but they need to
be reviewed and revised to reflect 21st century changes and challenges.
On a broad scale, a comprehensive reexamination could help address
whether exempt entities are providing services and benefits to the
public commensurate with their favored tax status, whether the current
number and nature of exemptions continue to make sense, whether the
conditions and restrictions on the activities of tax-exempt entities
remain relevant, and whether the framework for ensuring that exempt
entities adhere to the requirements attendant to their status is
satisfactory.
There are a number of issues that merit reexamination, including
whether nonprofit hospitals perform sufficiently different services of
benefit to the public to justify their tax exemption. To examine these
hospitals' tax-exempt status, we must look back several decades. Before
1969, the Internal Revenue Service (IRS) required hospitals to provide
charity care to qualify for tax-exempt status. Since then, however, IRS
has not specifically required such care for a hospital to be exempt
from federal taxation and have access to tax-exempt bond financing and
charitable donations, as long as the hospital provides benefits to the
community in other ways. Community benefits include such services as
the provision of health education and screening services to specific
vulnerable populations within a community, as well as activities that
benefit the greater public good, such as education for medical
professionals and medical research. Nonprofit hospitals may also be
exempt under state law from state and local taxes.
Seeking a better understanding of the benefits provided by nonprofit
hospitals, this Committee requested that we examine whether nonprofit
hospitals provide levels of uncompensated care--care provided to a
patient that a hospital is not reimbursed for--and other community
benefits that are different from other hospitals. My remarks today will
focus on our examination, for selected states, of (1) the provision of
uncompensated care by state and local government-owned, nonprofit, and
for-profit hospitals and (2) hospitals' reporting of other community
benefits.
To examine the provision of uncompensated care by the three hospital
ownership groups,[Footnote 3] we analyzed cost data from two
perspectives, namely each hospital group's percentage of (1) total
uncompensated care costs in a state and (2) patient operating expenses
devoted to uncompensated care. We obtained 2003 data from five states-
-California, Florida, Georgia, Indiana, and Texas. Hospitals in these
states include 46 percent of the nation's for-profit hospitals and more
than a quarter of all hospitals in the three ownership groups. We
selected these states because they represented geographically diverse
areas; had a number of hospitals in each ownership group sufficient to
make comparisons; and collected hospital-specific uncompensated care
data, which not all states maintain.[Footnote 4] We compared each
hospital ownership group's provision of uncompensated care by examining
each group's uncompensated care costs[Footnote 5] as a percentage of
its total patient operating expenses.[Footnote 6] Our measure of
uncompensated care includes the cost of charity care as well as bad
debt and deducts any payments made by or on behalf of individual
patients. We limited our analysis of uncompensated care to nonfederal,
short-term, acute care general hospitals.[Footnote 7] In doing our
work, we tested the reliability of the state data and determined they
were adequate for our purposes.[Footnote 8] To examine hospitals'
provision of community benefits other than uncompensated care, we
reviewed 21 hospital or hospital systems' reports and Web sites for
information about such benefits. These reports and Web sites covered
nonprofit, for-profit, and government hospitals in the five states. We
also examined laws in the five states regarding community benefit
requirements for nonprofit hospitals, reviewed the literature, and
interviewed state officials and state hospital association
representatives. In addition, we interviewed officials from the Centers
for Medicare & Medicaid Services (CMS), the American Hospital
Association, and the Federation of American Hospitals. We conducted our
work from February 2005 through May 2005 in accordance with generally
accepted government auditing standards. (See app. I for more detail on
our scope and methodology.)
In summary, the cost burden of providing uncompensated care varied
among the three hospital groups, but the burden was generally
concentrated in a small number of hospitals. In four of the five
states, government hospitals, as a group, devoted substantially larger
shares of their patient operating expenses to uncompensated care than
did nonprofit and for-profit hospitals. The nonprofit hospitals'
uncompensated care costs, as a percentage of patient operating
expenses, were higher on average than those of the for-profit hospitals
in four of the five states, but the differences were generally not as
great as the differences between the government hospitals and both
these groups. Further, the burden of uncompensated care costs was not
evenly distributed within each hospital group but instead was
concentrated in a small number of hospitals. For example, in
California's nonprofit hospital group, the top quarter of hospitals,
ranked by uncompensated care as a percentage of patient operating
expenses, averaged 7.2 percent devoted to uncompensated care compared
with an average of 1.4 percent for hospitals in the bottom quarter.
Regardless of ownership status, the hospitals we reviewed reported
providing a wide range of other community benefits, from health
education to clinic services specifically for the community's indigent
population. Variations in the types of community benefits hospitals in
the five states reported providing could be explained by differences in
the services hospitals chose to provide as well as by variation in the
applicability, specificity, and breadth of state requirements.
Background:
In 2003, of the roughly 3,900 nonfederal, short-term, acute care
general hospitals in the United States,[Footnote 9] the majority--about
62 percent--were nonprofit. The rest included government hospitals (20
percent) and for-profit hospitals (18 percent). States varied--
generally by region of the country--in their percentages of nonprofit
hospitals (see fig. 1). For example, states in the Northeast and
Midwest had relatively high concentrations of nonprofit hospitals,
whereas in the South the concentration was relatively low.
Figure 1: Geographic Distribution of Nonprofit Hospitals in 2003:
[See PDF for image]
Note: Hospitals include nonfederal, short-term, acute care general
hospitals, but not critical access hospitals that provide general acute
care.
[End of figure]
The five states we reviewed varied in number and ownership composition
of hospitals (see table 1). For example, in California and Indiana,
nonprofit hospitals accounted for over half of each state's hospitals.
In Texas, government hospitals made up the state's largest percentage,
although the distribution between nonprofit, for-profit, and government
hospitals was similar; in Florida, most hospitals were either nonprofit
or for-profit, while 11 percent were government.
Table 1: Distribution of Hospitals Reviewed, by Ownership Type, 2003:
California;
Total number of hospitals: 331;
Percent nonprofit: 51%;
Percent for-profit: 27%;
Percent state and local government: 22%.
Florida;
Total number of hospitals: 169;
Percent nonprofit: 43%;
Percent for-profit: 46%;
Percent state and local government: 11%.
Georgia;
Total number of hospitals: 133;
Percent nonprofit: 43%;
Percent for-profit: 21%;
Percent state and local government: 36%.
Indiana;
Total number of hospitals: 97;
Percent nonprofit: 56%;
Percent for-profit: 9%;
Percent state and local government: 35%.
Texas;
Total number of hospitals: 332;
Percent nonprofit: 33%;
Percent for-profit: 32%;
Percent state and local government: 35%.
Source: GAO analysis of state and CMS data.
Note: Hospitals include nonfederal, short-term, acute care general
hospitals.
[End of table]
The average size of hospitals in our study, as measured by patient
operating expenses, varied across the three ownership groups. (See
table 2.) On average, nonprofit hospitals were larger than for-profit
hospitals. The pattern held in all five states but the magnitude of the
difference varied. For example, in California, nonprofit hospitals were
twice as large as for-profit hospitals, whereas in Texas, this
difference was smaller.
Table 2: Average Hospital Size as Measured by Patient Operating
Expenses, 2003:
California;
Average patient operating expenses (in millions): For-profit: $71.7;
Average patient operating expenses (in millions): Nonprofit: $143.4;
Average patient operating expenses (in millions): State and local
government: $141.2.
Florida;
Average patient operating expenses (in millions): For-profit: $90.8;
Average patient operating expenses (in millions): Nonprofit: $181.8;
Average patient operating expenses (in millions): State and local
government: $229.3.
Georgia;
Average patient operating expenses (in millions): For-profit: $52.7;
Average patient operating expenses (in millions): Nonprofit: $91.8;
Average patient operating expenses (in millions): State and local
government: $72.4.
Indiana;
Average patient operating expenses (in millions): For-profit: $62.1;
Average patient operating expenses (in millions): Nonprofit: $116.1;
Average patient operating expenses (in millions): State and local
government: $47.6.
Texas;
Average patient operating expenses (in millions): For-profit: $73.9;
Average patient operating expenses (in millions): Nonprofit: $112.9;
Average patient operating expenses (in millions): State and local
government: $43.0.
Source: GAO analysis of state and CMS data.
Note: Hospitals include nonfederal, short-term, acute care general
hospitals.
[End of table]
Hospitals' Qualifications for Federal and State Tax-exempt Status:
Hospitals may be extended a federal tax exemption by IRS if they meet
the Internal Revenue Code's qualifications for charitable organizations
under section 501(c)(3).[Footnote 10] Hospitals that qualify for
nonprofit status are exempt from federal income taxes and typically
receive other advantages, including access to charitable donations--
which are tax deductible for the individual or corporate donor--and tax-
exempt bond financing. To qualify for federal tax-exempt status, a
hospital must demonstrate that it is organized and operated for a
"charitable purpose," that no part of its net earnings inure to the
benefit of any private shareholder or individual, and that it does not
participate in political campaigns on behalf of any candidate or
conduct substantial lobbying activities.[Footnote 11]
Before 1969, IRS required hospitals to provide charity care to qualify
for tax-exempt status.[Footnote 12] Since then, however, IRS has not
specifically required such care, as long as the hospital provides
benefits to the community in other ways. This "community benefit"
standard came into existence with an IRS ruling, which concluded that a
hospital's operation of an emergency room open to all members of the
community without regard to ability to pay promoted health in a way
consistent with other activities--such as advancement of education and
religion--that qualify other organizations as charitable.[Footnote 13]
In addition, the 1969 ruling identified other factors that might
support a hospital's tax-exempt status, such as having a governance
board composed of community members and using surplus revenue to
improve facilities, patient care, medical training, education, and
research.
Nonprofit hospitals may also receive exemptions from state and local
income, property, and sales taxes, which, in some cases, are of greater
value than the federal income tax exemption. Some states have defined
community benefits for nonprofit hospitals, but their statutes vary
considerably in their specificity and scope. Appendix II provides more
information on statutory definitions of community benefits in the
states we reviewed.
Government Payments for Uncompensated Care and Other Costs:
Hospitals may receive direct payments from different government sources
to help cover their unreimbursed costs, including those for charity
care, bad debt, and low-income patients. For example, Medicare and
Medicaid make payments to hospitals that serve a disproportionate share
of low-income patients under their respective disproportionate share
hospital (DSH) programs. Medicare bad debt reimbursement partially
reimburses hospitals for bad debt incurred for Medicare patients. Other
state payments may also be available to hospitals, although their
specific types vary widely. For example, hospitals may receive payments
from special revenues such as tobacco settlement funds, uncompensated
care pools that are funded by provider contributions, and payment
programs targeted at certain services such as emergency services. (See
app. III for more information on payments for uncompensated care and
other costs.)
Burden of Providing Uncompensated Care Varied among Hospital Groups,
but Burden Was Generally Concentrated in a Small Number of Hospitals:
In our review of hospitals' provision of uncompensated care in five
states, we analyzed cost data from two perspectives--namely, each
hospital group's percentage of (1) total uncompensated care costs in a
state and (2) patient operating expenses devoted to uncompensated care.
The former relationship showed hospitals' uncompensated care costs in
dollars, aggregated by groups; whereas the latter relationship showed
hospitals' uncompensated care costs as a proportion of their operating
expenses, thereby accounting for differences in hospital number and
size among the hospital groups. In general, government hospitals, as a
group, accounted for the largest percentage of total uncompensated care
costs and devoted the largest share of patient operating expenses to
uncompensated care costs. The uncompensated care cost burden was not
evenly distributed within each hospital group but instead was
concentrated in a small number of hospitals.
Government Hospitals Generally Accounted for the Largest Percentage of
the Uncompensated Care Costs in States Reviewed:
Government hospitals, as a group, accounted for the largest percentage
of the total uncompensated care costs in three of the five states--
California, Georgia, and Texas. Nonprofit hospitals, as a group,
accounted for the largest percentage of the uncompensated care costs in
Florida and Indiana. For-profit hospitals, as a group, provided 20
percent or less of total uncompensated care costs in each state we
reviewed. (See table 3).
Table 3: Total Uncompensated Care Costs Incurred by Hospitals Reviewed,
by State, 2003:
California;
Total uncompensated care costs (in millions): $2,307;
Nonprofit (percent of total): 34%;
For-profit (percent of total): 9%;
State and local government (percent of total): 57%.
Florida;
Total uncompensated care costs (in millions): $1,561;
Nonprofit (percent of total): 46%;
For-profit (percent of total): 20%;
State and local government (percent of total): 34%.
Georgia;
Total uncompensated care costs (in millions): $830;
Nonprofit (percent of total): 43%;
For-profit (percent of total): 10%;
State and local government (percent of total): 47%.
Indiana;
Total uncompensated care costs (in millions): $342;
Nonprofit (percent of total): 79%;
For-profit (percent of total): 3%;
State and local government (percent of total): 17%.
Texas;
Total uncompensated care costs (in millions): $2,101;
Nonprofit (percent of total): 39%;
For-profit (percent of total): 18%;
State and local government (percent of total): 43%.
Source: GAO analysis of state and CMS data.
Note: Hospitals include nonfederal, short-term, acute care general
hospitals.
[End of table]
In each of the five states, the nonprofit hospital groups accounted for
a larger percentage of total uncompensated costs compared with the For-
profit hospital groups. This difference was due, in part, to the larger
number of nonprofit hospitals and their larger size relative to the for-
profit hospitals. For example, in California, the nonprofit group's
percentage of total uncompensated care costs was almost four times
higher than that of the for-profit group, but this is not surprising,
as nonprofit hospitals outnumbered for-profit hospitals almost 2 to 1
and were twice the size in patient operating expenses.
Government Hospital Groups Generally Devoted Largest Share of Patient
Operating Expenses to Uncompensated Care, but Shares Varied across
States:
In four of the five states reviewed, government hospitals devoted
substantially larger shares, on average, of their patient operating
expenses to uncompensated care than did nonprofit and for-profit
hospitals.[Footnote 14] (See fig. 2.) In those four states, the
differences in average percentages between the government hospital
groups and the nonprofit hospital groups ranged from about 4.3
percentage points in Georgia to 11.3 percentage points in Texas. In
contrast, in the fifth state, Indiana, the nonprofit hospital group
devoted the largest share, on average, of patient operating expenses to
uncompensated care. Between the nonprofit and for-profit hospital
groups, the nonprofit hospitals' average percentages were greater in
four of the five states--ranging from 1.2 percentage points greater in
Florida to 2.3 percentage points greater in Indiana. In contrast, in
the fifth state, California, the nonprofit group's average percentage
was similar to that of the for-profit group.
Figure 2: Average Percent of Patient Operating Expenses Devoted to
Uncompensated Care, by Hospital Ownership Type, 2003:
[See PDF for image]
Notes: The average percent of patient operating expenses devoted to
uncompensated care for a hospital ownership group is calculated by
dividing the sum of uncompensated care costs for hospitals in that
group by the sum of the group's total patient operating expenses.
Hospitals include nonfederal, short-term, acute care general hospitals.
[End of figure]
The five states varied in their hospitals' shares of patient operating
expenses devoted to uncompensated care, ranging from an average 4.1
percent for all Indiana hospitals to an average 8.3 percent for Texas
hospitals. (See table 4.) Similar state-to-state variation found in
other studies was due, in part, to differences in states' proportions
of uninsured populations, variation in Medicaid eligibility or payment
levels, and the presence of state programs that provide health
insurance to low-income uninsured individuals.[Footnote 15]
Specifically, prior research showed that hospitals located in states
with more uninsured individuals and hospitals in states with relatively
more eligibility-restricted Medicaid programs may have higher levels of
uncompensated care. Our data are consistent with these studies'
findings on the uninsured. For example, in our five-state review, Texas
had the highest percentage of uninsured--25 percent--and the highest
share, on average, of patient operating expenses devoted to
uncompensated care, whereas Indiana had the lowest percentage of
uninsured--13 percent--and the lowest average share.
Table 4: Average Percentage of Patient Operating Expenses Devoted to
Uncompensated Care, by State, 2003:
California;
Average percentage of patient operating expenses devoted to
uncompensated care: 5.6%.
Florida;
Average percentage of patient operating expenses devoted to
uncompensated care: 6.4%.
Georgia;
Average percentage of patient operating expenses devoted to
uncompensated care: 8.2%.
Indiana;
Average percentage of patient operating expenses devoted to
uncompensated care: 4.1%.
Texas;
Average percentage of patient operating expenses devoted to
uncompensated care: 8.3%.
Source: GAO analysis of state and CMS data.
Notes: We calculated the average percent of patient operating expenses
devoted to uncompensated care for each state by dividing the sum of
uncompensated care costs for hospitals in the state by the sum of the
hospitals' total patient operating expenses in the state. Hospitals
include nonfederal, short-term, acute care general hospitals.
[End of table]
For Each Hospital Group, Uncompensated Care Costs Were Concentrated in
a Small Number of Hospitals:
For each group, uncompensated care costs were concentrated in a small
number of hospitals. We observed this pattern when examining the
percentages of patient operating expenses devoted to uncompensated care
costs as well as hospitals' shares of total uncompensated care costs in
a state. For the three hospital ownership groups, we ranked hospitals
according to their share of patient operating expenses devoted to
uncompensated care.
We found that, for all three hospital groups, the top quarter of
hospitals devoted substantially greater percentages of their patient
operating expenses to uncompensated care, on average, compared with the
bottom quarter of hospitals. (See fig. 3.) For example, in California's
nonprofit hospital group, the top quarter of hospitals devoted an
average of 7.2 percent compared with 1.4 percent for the bottom quarter
of hospitals. Similarly, in Florida's government hospital group, the
top quarter of hospitals devoted an average 19.6 percent compared with
an average 5.2 percent for the bottom quarter of hospitals. From state
to state, the difference in ranges between top and bottom quarters was
also substantial. For example, in Indiana's government group, the
average share of operating expenses devoted to uncompensated care for
hospitals in the top quarter was about 3 times larger than for those in
the bottom quarter; whereas in California, the average share for the
top quarter of hospitals was almost 13 times higher than that of the
bottom quarter.
Figure 3: Average Share of Patient Operating Expenses Devoted to
Uncompensated Care for Hospitals Ranked in Top and Bottom Quarters, by
Ownership Type, 2003:
[See PDF for image]
Notes: Hospitals were ranked by percentage of patient operating
expenses devoted to uncompensated care. The average percent of patient
operating expenses devoted to uncompensated care for a hospital
ownership group is calculated by dividing the sum of uncompensated care
costs for hospitals in that group by the sum of the group's total
patient operating expenses. Hospitals include nonfederal, short-term,
acute care general hospitals.
[End of figure]
When examining hospitals' shares of total uncompensated care costs in a
state, we found that uncompensated care costs remained concentrated in
a disproportionately small number of hospitals. Specifically, each
state's top quarter of hospitals accounted for a disproportionately
large share of the state's uncompensated care costs. For example, in
Texas, the top quarter of hospitals accounted for about 50 percent of
total uncompensated care costs, yet accounted for only 18 percent of
the total beds. (See table 5). Moreover, in Texas, six major government
teaching institutions accounted for 34 percent of total uncompensated
care costs, which amounted to over half of the contribution of the
hospitals in the top quarter. This pattern was also true for
California, Florida, and Georgia. For example, in California, 13 major
teaching hospitals accounted for 42 percent of total uncompensated care
costs.[Footnote 16] In contrast, in Indiana, total uncompensated care
costs were distributed more evenly across a greater number of hospitals.
Table 5: Percentage of Total Uncompensated Care Costs in a State for
Hospitals Ranked in Top Quarter, 2003:
State: California;
Percentage of state's total uncompensated care: 68%;
Percentage of states' hospital beds: 25%.
State: Florida;
Percentage of state's total uncompensated care: 47%;
Percentage of states' hospital beds: 22%.
State: Georgia;
Percentage of state's total uncompensated care: 39%;
Percentage of states' hospital beds: 19%.
State: Indiana;
Percentage of state's total uncompensated care: 21%;
Percentage of states' hospital beds: 14%.
State: Texas;
Percentage of state's total uncompensated care: 50%;
Percentage of states' hospital beds: 18%.
Source: GAO analysis of state and CMS data.
Notes: Hospitals were ranked by percentage of patient operating
expenses devoted to uncompensated care. Hospitals include nonfederal,
short-term, acute care general hospitals.
[End of table]
Several factors explain which hospitals were likely to be in their
group's top and bottom quarters. For example, in our five-state
analysis, we found that whether a hospital was a teaching institution
was an important predictor of whether it would be in the top quarter of
a state's government hospital group. Hospitals that had teaching
programs were more likely to be in the top quarter of a government
hospital group. In contrast, teaching status was not an important
predictor for either the nonprofit or for-profit hospital groups' top
quarter. For nonprofits, hospitals in rural areas were more likely to
be in the top quarter than hospitals located in urban areas. Other
factors that were outside the scope of this study, such as differences
in the proportion of uninsured populations in the hospital market, may
have also influenced the likelihood of a hospital's inclusion in the
top or bottom quarter.
Hospitals Reported Providing a Wide Range of Other Community Benefits:
In addition to providing uncompensated care, hospitals may provide
other services to their communities for which they are not reimbursed.
In our review of hospitals' Web sites and reports about community
benefits--published documents specifying the types and value of
services hospitals provide to communities--we found that, regardless of
ownership status, hospitals reported providing a wide range of
community benefits.[Footnote 17] Variations in the types of community
benefits hospitals reported providing could be explained by differences
in the community benefits hospitals chose to provide as well as by
variations in the applicability, specificity, and breadth of state
requirements.
Certain hospital industry guidance defines community benefits as the
unreimbursed goods and services hospitals provide that address their
communities' health needs, including health education, screening, and
clinic services, among others. Consistent with this industry
definition, we found through our review of reports and Web sites that
hospitals reported providing similar types of services, including:
* community health education such as parenting education, smoking
cessation, fitness and nutrition, health fairs, and diabetes management;
* health screening services such as screening for high cholesterol,
cancer, and diabetes;
* clinic services, including clinics targeted to specific groups in the
community, such as indigent patients;
* medical education for physicians, nurses, and other health
professionals;
* financial contributions, including cash donations and grants, to
community organizations;
* coordination of community events and in-kind donations--such as food,
clothing, and meeting room space--to community organizations; and:
* hospital facility and other infrastructure improvements.
Community health education and health screenings were listed by most of
the reports and Web sites we reviewed. Clinic services, support groups,
community event coordination, cash contributions to charities, and
medical education for health professionals were listed by over half of
the reports we reviewed.[Footnote 18]
Because of the wide variation in hospitals' reporting of community
benefits, we were not able to discern clear patterns in the provision
of these benefits across hospital ownership groups. The variation could
be explained by differences in the community benefits hospitals chose
to provide as well as by variations in the applicability, specificity,
and breadth of state requirements. Specifically, the five states
reviewed require all hospitals to report financial data, including data
on the cost of charity care they provide. However, as shown in table 6,
California, Indiana, and Texas also have statutory requirements for
nonprofit hospitals to develop plans for meeting their communities'
health needs and to report annually on the types and value of the
community benefits they provide.[Footnote 19] Of these three states,
only Texas and Indiana require nonprofit hospitals to report using
standardized forms and have the explicit statutory authority to impose
fines for noncompliance as part of the requirements.[Footnote 20] The
Texas form is more specific, as it includes line-items that capture the
hospitals' unreimbursed costs associated with providing traditionally
"unprofitable" health services such as trauma care and community
clinics, education of medical professionals, medical research, and cash
and in-kind donations made by the hospital to local charities.
Indiana's form provides nonprofit hospitals more flexibility in
delineating the types and value of their community benefits but
includes supplementary guidance to nonprofit hospitals about what
should be considered community benefits, including financial or in-kind
support of public health programs, community-orientated wellness and
health promotion programs, and outreach clinics in economically
depressed communities. California has no form for annual community
benefit reports but requires that hospitals classify the services
provided into broad, statutorily defined categories, including cash and
in-kind donations to public health programs, efforts to contain health
care costs and enhance access, and services that help maintain a
person's health.
Table 6: Community Benefit Requirements for Nonprofit Hospitals:
State: California[A];
Description of requirements: Maintain community benefit plans that
include measurable objectives for meeting the community's needs within
specified time frames and mechanisms to evaluate effectiveness. In
addition, report annually on the plans, as well as the types and value
of community benefits provided;
Penalties for noncompliance: None explicitly authorized as part of
requirements.
State: Florida;
Description of requirements: None;
Penalties for noncompliance: Not applicable.
State: Georgia[B];
Description of requirements: None;
Penalties for noncompliance: Not applicable.
State: Indiana[C];
Description of requirements: Maintain and report annually on community
benefit plans that include measurable objectives for meeting the
community's health care needs within a specified time frames,
evaluation strategies, and a budget. In addition, must describe the
types and value of any additional community benefits;
Penalties for noncompliance: Fines explicitly authorized as part of
requirements for failure to make annual report.
State: Texas[D];
Description of requirements: Maintain and report annually on community
benefit plans that include measurable objectives for meeting the
community's health care needs within specified timeframes, mechanisms
for evaluating effectiveness, and a budget. In addition, must describe
the types and value of community benefits provided;
At a minimum, hospitals are required to provide:
(1) charity and government-sponsored indigent care at a level that is
reasonable in relation to community needs, the available resources of
the hospital, and the tax-exempt benefits received; (2) charity and
government-sponsored indigent health care equal to 100 percent of state
tax-exempt benefits; or; (3) charity care and other community benefits
equal to at least 5 percent of net patient revenue, provided that
charity care and government-sponsored indigent health care are provided
in an amount equal to at least 4 percent;
Penalties for noncompliance: Fines explicitly authorized as part of
requirements for failure to make annual report; Hospitals that fail to
provide the required community benefits must be reported annually to
attorney general and comptroller.
Source: GAO analysis.
[A] CAL. HEALTH & SAFETY CODE §§ 127345, 127350, and 127355 (2004).
[B] Georgia requires all "hospital authorities," which create or
operate nonprofit hospitals, to submit "community benefit reports" that
disclose the cost of charity and indigent care provided. GA. CODE ANN.
§ 31-7-90.1 (2004). However, this information is otherwise required of
hospitals in all groups in Georgia as part of financial reporting
requirements. GA. CODE ANN. § 31-6-70 (2004).
[C] IND. CODE § 16-21-9-4 - 16-21-9-8 (2004).
[D] TEX. HEALTH & SAFETY CODE ANN. §§ 311.043 - 311.047 (2004).
[End of table]
According to state officials or state hospital association
representatives in the five states we reviewed, for-profit and
government hospitals are not required to report on the community
benefits they provide outside of the requirements to report financial
data, including data on the cost of charity care they provide. However,
as we found through our review, some of these hospitals report
publicly--for promotional purposes--on the community benefits they
provide, either through published reports or by posting general
information on their Web sites.
Moreover, the three states with community benefit reporting
requirements--California, Indiana, and Texas--conduct limited
monitoring of nonprofit hospitals' community benefit reports. For
example, according to officials from state agencies, none of the three
states conducts audits of nonprofit hospitals' self-reported community
benefits information, although Texas reviews the reports to ensure that
"reasonable" types of services are listed as community benefits. In
addition, these states do not routinely use the data collected through
community benefit reports to review hospitals' tax-exempt status.
Concluding Observations:
Our comparison of the hospital ownership groups' uncompensated care
costs, as a percentage of patient operating expenses, was instructive.
Differences between the nonprofit and for-profit groups were often
small when compared with the substantial differences between the
government group and the other two groups. Moreover, the burden of
uncompensated care costs was not evenly distributed among hospitals,
which meant that a small number of nonprofit hospitals accounted for
substantially more of the uncompensated care burden than did others
receiving the same tax preference.
As for the other community benefits hospitals reported providing, we
were not able to discern a clear distinction among the government,
nonprofit, and for-profit hospital groups. Hospitals in the five states
reported conducting a variety of activities, which the hospitals
themselves considered community benefits. We were unable to assess the
value of these benefits or make systematic comparisons between
hospitals or across states.
These observations illustrate a larger point that I and others raised
at the hearing last month--namely, that current tax policy lacks
specific criteria with respect to tax exemptions for charitable
entities and detail on how that tax exemption is conferred. If these
criteria are articulated in accordance with desired goals, standards
could be established that would allow nonprofit hospitals to be held
accountable for providing services of benefit to the public
commensurate with their favored tax status.
Mr. Chairman, this concludes my prepared statement. I will be happy to
answer questions you or the other Committee Members may have.
Contact and Acknowledgments:
For further information regarding this testimony, please contact A.
Bruce Steinwald at (202) 512-7101. Kristi Peterson, Thomas Walke,
Joanna Hiatt, Kelly DeMots, Mary Giffin, Emily Rowe, Craig Winslow, and
Hannah Fein contributed to this statement.
[End of section]
Appendix I: Scope and Methodology:
To examine the provision of uncompensated care by the three hospital
ownership groups, we obtained 2003 uncompensated care data from five
states--California, Florida, Georgia, Indiana, and Texas. We obtained
all other data, such as cost-to-charge ratios,[Footnote 21] patient
operating expenses,[Footnote 22] and all descriptive statistics, from
2002 and 2003 Medicare hospital cost reports.[Footnote 23] We selected
the five states because they represented geographically diverse areas;
had a number of hospitals in each ownership group sufficient to make
comparisons; and collected hospital-specific uncompensated care data,
which not all states maintain.[Footnote 24] The 2003 state
uncompensated care data and 2002 and 2003 Medicare hospital cost
reports were the most recent available at the time of our analysis. We
also interviewed health officials from all five states as well as
officials from the Centers for Medicare & Medicaid Services (CMS), the
American Hospital Association, and the Federation of American
Hospitals. We limited our analysis to nonfederal, short-term, acute
care general hospitals for which a cost report was available.[Footnote
25] This analysis included critical access hospitals that provide
general acute care. Our study included about 92 percent of nonfederal,
short-term, acute care hospitals in the five states.
We defined uncompensated care as the sum of charity care and bad debt
costs as reported in the state data. To determine uncompensated care
costs, we multiplied uncompensated care charges by a hospital-specific
cost-to-charge ratio. Although specific definitions of charity care
varied, states generally defined it as charges for patients deemed
unable to pay all or part of their bill, less any payments made by, or
on behalf of, that specific patient. States generally defined bad debt
as the uncollectible payment that a patient is expected to, but does
not pay. Our definition of uncompensated care does not include any
contractual allowances or cost shortfalls.[Footnote 26] In addition, we
did not subtract any charity care-specific block grants or donations a
hospital may receive, as this information was not available for all
states.
We analyzed uncompensated care cost data from two perspectives----
namely, each hospital ownership[Footnote 27] group's percentage of (1)
total uncompensated care costs in a state, and (2) average patient
operating expenses devoted to uncompensated care. To examine factors
that could explain differences in the provision of uncompensated care
by hospital ownership groups, we examined certain hospital
characteristics including a hospital's size, teaching status, and
location. We used patient operating expenses to measure hospital size.
For teaching status, we defined major teaching hospitals as those
hospitals having an intern/resident-to-bed ratio of 0.25 or more and
minor teaching hospitals as those having an intern/resident-to-bed
ratio greater than 0 and less than 0.25. We defined a hospital as urban
if it was located in a metropolitan statistical area and as rural if it
was not located in a metropolitan statistical area. We supplemented our
analysis with a review of the literature to determine other factors
that could explain differences in the provision of uncompensated care
by hospital ownership groups.
We assessed the reliability of the hospital Medicare cost reports and
the reliability of state uncompensated care cost data from California,
Florida, Georgia, Indiana, and Texas in several ways. First, we
performed tests of data elements. For example, we examined the values
for uncompensated care costs and patient operating expenses to
determine whether these data were complete and reasonable. We also
verified that the dollar amount of uncompensated care in the 2003 data
was consistent with the amount in 2002. Second, we reviewed existing
information about the data elements. For example, we compared
descriptive statistics we calculated from the Medicare hospitals cost
reports with statistics published by CMS. Third, we interviewed state
and agency officials knowledgeable about the data in our analyses and
knowledgeable about hospital uncompensated care costs. We determined
that CMS and all five states performed quality assurance tests on the
data before releasing them. Overall, we determined that the data we
used in our analyses were sufficiently reliable for our purposes.
To examine hospitals' provision of community benefits other than
uncompensated care, we reviewed 21 hospital reports and Web sites for
information about such benefits in five states. Specifically, we
reviewed 12 publicly available reports about the community benefits
provided by nonprofit and for-profit hospitals and 3 reports for For-
profit hospital systems representing multiple hospitals. We also
reviewed 6 government hospitals' Web sites to determine the extent to
which they publicized the provision of services that are generally
considered community benefits. We also examined laws in five states
regarding community benefit requirements for nonprofit hospitals,
reviewed the literature, and interviewed state officials and hospital
association representatives.
We conducted our work from February 2005 through May 2005 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Statutory Definitions of Community Benefits in the Five
States Reviewed:
Table 7 summarizes the statutory definitions of community benefits for
nonprofit hospitals in the states we reviewed. We found that the
statutes vary considerably in their specificity and scope. In addition,
of the five states we reviewed, only the Texas statute contains an
explicit link between the statutory definition of community benefits
and hospitals' qualifications for state tax exemptions.
Table 7: Statutory Definitions of Community Benefit for Purposes of
Requirements Specific to Nonprofit Hospitals:
State: California[A];
Statutory definition of community benefit: Hospital activities to
address community needs and priorities through disease prevention and
improvement of health status, including, but not limited to:
(1) health care services, rendered to vulnerable populations (e.g.,
charity care and unreimbursed costs of providing services to uninsured
and underinsured); (2) health promotion, prevention services, adult day
care, child care, medical research and education, nursing and other
professional training, home delivered meals, aid to the homeless, and
outreach clinics; (3) financial or in- kind support of public health
programs; (4) donation of funds, property, or other resources for a
community priority; (5) health care cost containment; (6) enhancement
of access to health care; (7) services offered without regard to
profitability to meet a community need; and; (8) goods and services to
help maintain a person's health;
Cross-reference to tax exemption in community benefit provisions: No
provisions explicitly cross-referencing definitions and related
requirements to tax exemption.
State: Florida;
Statutory definition of community benefit: Not defined;
Cross-reference to tax exemption in community benefit provisions: Not
applicable.
State: Georgia[B];
Statutory definition of community benefit: Not defined, but community
benefit reporting requirement refers to charity and indigent care;
Cross-reference to tax exemption in community benefit provisions: No
provisions explicitly cross-referencing definitions and related
requirements to tax exemption.
State: Indiana[C];
Statutory definition of community benefit: Unreimbursed cost to
hospitals of providing charity care, government- sponsored indigent
care, donations, education, government-sponsored program services,
research, and subsidized health services. Does not include hospital
taxes or other government assessments;
Cross-reference to tax exemption in community benefit provisions: No
provisions explicitly cross-referencing definitions and related
requirements to tax exemption.[D].
State: Texas[E]; Statutory definition of community benefit:
Unreimbursed cost to hospitals of providing charity care, government-
sponsored indigent health care, donations, education, government-
sponsored program services, research, and subsidized health services,
but not hospital taxes or other government assessments;
Cross-reference to tax exemption in community benefit provisions:
Numerous provisions cross-referencing definition of community benefit
and related requirements to tax exemption.
Source: GAO analysis.
[A] CAL. HEALTH & SAFETY CODE §§ 127340 and 127345(c) (2004).
[B] GA. CODE ANN. § 31-7-90.1 (2004).
[C] IND. CODE ANN. §§ 16-18-2-64.5 and 16-21-9-1 (2004).
[D] There are no provisions explicitly cross-referencing community
benefits to nonprofit hospitals' tax exemption, but hospital-owned
physician offices or practices, or other property not substantially
related to inpatient facilities, must provide or support charity care
or community benefits, as it is defined above, to qualify for property
tax exemption. IND. CODE ANN. § 6-1.1-10-18.5 (2004).
[E] TEX. HEALTH & SAFETY CODE ANN. §§ 311.042 and 311.045 (2004).
[End of table]
[End of section]
Appendix III: Government Payments for Uncompensated Care and Other
Unreimbursed Costs:
Hospitals may receive direct payments from different government sources
to help cover their unreimbursed costs. Such payments may include
special Medicare and Medicaid payments, known as disproportionate share
hospital (DSH) payments, Medicare bad debt reimbursement, and other
state payments.
Medicare DSH: The Medicare DSH adjustment provides payments to
hospitals that serve a disproportionate share of low-income patients.
The Congress mandated this adjustment in 1986 to address the concern
that hospitals that serve such patients have higher Medicare costs per
case because they have higher overhead and labor costs and their
patients are in poorer health with more complications and secondary
diagnoses. Hospitals qualify for the Medicare DSH adjustment based on
their low-income patient share.[Footnote 28] The low-income patient
share is computed as the percentage of a hospital's Medicare inpatient
days attributable to patients that are eligible for both Medicare part
A and Supplemental Security Income[Footnote 29] plus the percentage of
total inpatient days attributable to patients eligible for Medicaid,
but not Medicare part A. For hospitals that qualify for a DSH
adjustment, their actual adjustment is based on several factors,
including the number of acute care beds, number of patient days for low-
income patients, and location (rural or urban). See table 8 for
Medicare DSH payments in 2003 to the hospitals in the selected states
we analyzed.
Table 8: Medicare DSH Payments to Hospitals Reviewed, 2003 (in
millions):
State: California;
Medicare DSH payment to hospitals (in millions): $1,122.
State: Florida;
Medicare DSH payment to hospitals (in millions): $486.
State: Georgia;
Medicare DSH payment to hospitals (in millions): $209.
State: Indiana;
Medicare DSH payment to hospitals (in millions): $94.
State: Texas;
Medicare DSH payment to hospitals (in millions): $637.
Source: GAO analysis of state and CMS data.
Note: Hospitals include nonfederal, short-term, acute care general
hospitals.
[End of table]
Medicaid DSH: The Medicaid statute requires that states make DSH
adjustments to the payment rates of certain hospitals treating large
numbers of low-income and Medicaid patients. The Medicaid DSH
adjustment was established by the Congress in 1981 and establishes
broad guidelines for hospital eligibility to receive Medicaid DSH and
for the methods used to compute the amount of payment. States have
discretion in designating DSH hospitals and calculating adjustments for
them.[Footnote 30] States also vary in terms of program rules and
resource levels as well as the degree to which they target payments to
different types of hospitals.[Footnote 31]
Medicaid DSH is the largest source of financial support for hospital
uncompensated care and is funded jointly by the states and the federal
government. State approaches to financing the state portion of Medicaid
DSH include obtaining funds from hospitals through provider taxes or
intergovernmental transfers in order to establish the state's
contribution required to obtain the federal match for Medicaid DSH
funding. Therefore, it is not always possible to determine what portion
of Medicaid DSH payments to individual hospitals is the net additional
payment to the hospital.
Medicare bad debt reimbursement: Medicare partially reimburses acute
care hospitals for bad debts resulting from Medicare beneficiaries'
nonpayment of deductibles and copayments after providers have made
reasonable efforts to collect unpaid amounts. If a hospital can
document that a Medicare patient is indigent, the hospital can then
forgo collection efforts from the patient. Medicare pays hospitals 70
percent of their reimbursable bad debts, except critical access
hospitals,[Footnote 32] for which it pays 100 percent of their
reimbursable bad debts. See table 9 for total Medicare bad debt
reimbursements in 2003 to the hospitals in the selected states we
analyzed.
Table 9: Medicare Bad Debt Reimbursements to Hospitals Reviewed, 2003:
State: California;
Medicare bad debt reimbursement to hospitals (dollars in millions):
$160.
State: Florida;
Medicare bad debt reimbursement to hospitals (dollars in millions): $55.
State: Georgia;
Medicare bad debt reimbursement to hospitals (dollars in millions): $45.
State: Indiana;
Medicare bad debt reimbursement to hospitals (dollars in millions): $20.
State: Texas;
Medicare bad debt reimbursement to hospitals (dollars in millions): $78.
Source: GAO analysis of state and CMS data.
Note: Hospitals include nonfederal, short-term, acute care general
hospitals.
[End of table]
Other state sources: Other state sources of payment to hospitals for
uncompensated or unreimbursed care vary widely, and may include special
revenues such as tobacco settlement funds, uncompensated care pools
that are funded by provider contributions, and payment programs
targeted at certain services such as emergency services. For example,
Massachusetts has used a portion of the state's tobacco settlement fund
to help cover uncompensated care costs.
FOOTNOTES
[1] GAO, Tax-Exempt Sector: Governance, Transparency, and Oversight Are
Critical for Maintaining Public Trust, GAO-05-561T (Washington, D.C.:
Apr. 20, 2005).
[2] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
[3] The state and local government-owned hospitals in this statement
refer to state-owned hospitals, such as those at state universities,
and locally owned hospitals, such as county and city hospitals. In this
statement we will refer to these as government hospitals. Federal
hospitals, such as those operated by the Department of Veterans
Affairs, are not included in this definition.
[4] Reliable, hospital-specific data were not available nationwide. In
addition, some states do not have sufficient diversity in hospital
ownership to make comparisons for the purpose of this analysis; in
particular, some states have very few for-profit hospitals.
[5] To obtain uncompensated care costs, we multiplied hospitals'
uncompensated care charges reported in the state data by hospital-
specific, cost-to-charge ratios from Medicare hospital cost reports.
These cost-to-charge ratios are specific to hospital costs and charges
as a whole, not to Medicare costs and charges.
[6] Patient operating expenses include those expenses incurred for
patient care. They exclude such expenses as those incurred for
operating a parking garage, gift shop, and certain other nonmedical
expenses.
[7] Cost, charge, and other data obtained from the states and other
sources are for individual hospitals, even if a hospital is part of a
larger hospital system.
[8] We excluded 8 percent of the hospitals in the five states because
certain key information, such as total patient operating expenses, was
not available.
[9] This total does not include critical access hospitals that provide
general acute care. Critical access hospitals are small, rural
hospitals that receive payment for their reasonable costs of providing
inpatient and outpatient services to Medicare beneficiaries, rather
than being paid fixed amounts under Medicare's prospective payment
systems. By excluding critical access hospitals, which are numerous and
small, we removed the effect that they would have on the distribution
of hospitals by ownership group.
[10] Section 501(c) specifies 28 types of entities that are eligible
for tax-exempt status. Over 1.5 million entities have been recognized
as exempt by IRS.
[11] Charitable activities may include those that relieve the poor,
distressed, or underprivileged; those that lessen the burdens of
government; and those that promote social welfare.
[12] See, for example, IRS Rev. Rul. 56-185, 1956-1 C.B. 202.
[13] See IRS Rev. Rul. 69-545, 1969-2 C.B. 117. A revenue ruling is a
formally published interpretation of tax law by the IRS upon which
taxpayers are entitled to rely.
[14] These results are consistent with studies showing a similar
relationship. See L. Fishman, "What Types of Hospitals Form the Safety
Net?" Health Affairs, vol. 16, no. 4 (July/August 1997); J. Mann, et
al., "A Profile of Uncompensated Hospital Care, 1983-1995," Health
Affairs, vol. 16, no. 4 (July/August 1997); and S. Zuckerman, et al.,
"How Did Safety-Net Hospitals Cope in the 1990s?" Health Affairs, vol.
20, no. 4 (July/August 2001).
[15] See G. Atkinson, W. Helms, and J. Needleman, "State Trends in
Hospital Uncompensated Care," Health Affairs, vol. 16, no. 4 (July/
August 1997); L. Fishman, "What Types of Hospitals Form the Safety
Net?" Health Affairs, vol. 16, no. 4 (July/August 1997); A. Davidoff,
A. LoSasso, G. Bazzoli, and S. Zuckerman, "The Effect of Changing State
Health Policy on Hospital Uncompensated Care," Inquiry, vol. 37 (Fall
2000); K. Thorpe, E. Seiber, and C. Florence, "The Impact of HMOs on
Hospital-Based Uncompensated Care," Journal of Health Politics, Policy
and Law, vol. 26, no. 3 (June, 2001); and GAO, Nonprofit Hospitals:
Better Standards Needed for Tax Exemption, GAO/HRD-90-84 (Washington,
D.C.: May 30, 1990).
[16] We defined major teaching hospitals as those hospitals having an
intern or resident-to-bed ratio of 0.25 or more and minor teaching
hospitals as those having an intern or resident-to-bed ratio greater
than 0 and less than 0.25.
[17] To determine the types of community benefits hospitals reported
providing, we reviewed 15 publicly available reports about community
benefits for nonprofit and for-profit hospitals and six government
hospitals' Web sites.
[18] Our findings on the types of community benefits hospitals reported
providing are consistent with our findings in GAO/HRD-90-84 and
industry publications.
[19] Georgia requires all "hospital authorities," which create or
operate nonprofit hospitals, to submit "community benefit reports" that
disclose the cost of charity and indigent care provided. GA. CODE ANN.
§ 31-7-90.1 (2004). However, this information is otherwise required of
hospitals in all groups in Georgia as part of financial reporting
requirements. GA. CODE ANN. § 31-6-70 (2004).
[20] In Texas, for-profit and government hospitals receiving Medicaid
DSH payments are generally required to meet the same community benefit
reporting requirements as nonprofit hospitals. TEX. HEALTH & SAFETY
CODE ANN. § 311.046(e) (2004).
[21] These cost-to-charge ratios are specific to hospital costs and
charges as a whole, not to Medicare costs and charges.
[22] Patient operating expenses include those expenses incurred for
patient care. They exclude such expenses as those incurred for
operating a parking garage, gift shop, and certain other nonmedical
expenses.
[23] The reporting period of certain hospitals differed between the
state data and the cost reports. Therefore, we combined the 2003 state
data with the cost report, either 2002 or 2003, that best overlapped
the state data's reporting period.
[24] Reliable, hospital-specific data were not available nationwide. In
addition, some states do not have sufficient diversity in hospital
ownership to make comparisons for the purpose of this analysis; in
particular, some states have very few for-profit hospitals.
[25] Cost, charge, and other data obtained from the states and other
sources are for individual hospitals, even if a hospital is part of a
larger hospital system.
[26] Contractual allowances are the difference between a hospital's
full charges for a service and the payment it has agreed to accept for
that service from a particular insurer. Cost shortfalls are the
difference between the accepted payment for a service and the actual
cost of that service, in the case that the payment is less than the
cost.
[27] In order to determine a hospital's ownership status, we compared
its ownership from the state data (if available) to that from the
Medicare cost report data. Where the two sources did not match, we used
the 2002-2003 AHA Guide to confirm one of the sources as correct. If
possible, we also confirmed ownership status using the hospital's Web
site.
[28] To qualify for Medicare DSH, a hospital must have a share of low-
income patients that exceeds 15 percent. Alternately, large hospitals
located in urban areas can qualify if more than 30 percent of their
total net inpatient care revenue is for indigent care and comes from
state and local governments (excluding Medicare and Medicaid funds).
[29] Medicare Part A pays for inpatient hospital stays, care in a
skilled nursing facility, hospice care, and some home health care. The
Supplemental Security Income program makes payments to people with low
income who are at least 65 or are blind or have a disability.
[30] Congressional Research Service, Medicaid Disproportionate Share
Payments (Washington, D.C.: 2005), 15.
[31] Congressional Research Service, Medicaid Reimbursement Policy
(Washington, D.C.: 2004), 36.
[32] See GAO, Medicare: Modest Eligibility Expansion for Critical
Access Hospital Program Should Be Considered, GAO-03-948 (Washington,
D.C.: September 2003).
