AS HOSPITAL EXPENSES RISE, CHARITY CARE FALLS

Nonprofit hospitals’ median operating costs jumped roughly 20% from 2020 to 2022, according to a Modern Healthcare analysis of data from 255 health systems—comprising most U.S. nonprofit acute-care and specialty hospitals—compiled by Investortools-owned Merritt Research Services. The increase may explain, in part, why health systems’ median charity care as a percentage of operating expenses declined from 1.21% to 0.99% over that time period.

“When your purse is tight, you tighten the string,” said Ge Bai, an accounting and health policy professor at Johns Hopkins University who studies hospitals’ charity care spending.

Expanded Medicaid coverage—and the corresponding lack of need for discounted or free care—could have been another contributing factor to declining relative charity care spending. Medicaid enrollment grew by more than 21 million from February 2020 through 2022, according to KFF data. The federal government also allowed many Medicaid beneficiaries to remain enrolled during the public health emergency, even when their income should have excluded them from the program.

“The necessity to provide higher relative levels of charitable care has been suppressed by economic and political conditions,” said Richard Ciccarone, president emeritus of Merritt. “A true test of relative charity care spending levels will come later if unemployment goes up, uninsured patients rise, and the expanded Medicaid program is no longer reflected in the numbers.”

SCRUTINY RAMPS UP

Charity care spending relative to nonprofit health systems’ overall expenses has remained stagnant or dropped over the past decade, Modern Healthcare analyses show. The trend has prompted scrutiny from agencies and lawmakers regarding whether nonprofit hospitals are earning their tax-exempt status.

“Hospitals have been dinged for not sufficiently pursuing charity care for financially eligible patients and taking them to collections too soon,” said Katherine Hempstead, a senior policy adviser at the Robert Wood Johnson Foundation, a research institution. “It will be interesting to see as they are under more pressure for that, if they might increase charity care spending.”

On Nov. 20, Vancouver, Washington-based PeaceHealth agreed to pay up to $13.4 million to 15,000 patients following an investigation from Washington Attorney General Bob Ferguson (D) that found the nonprofit health system billed patients who likely qualified for financial assistance. Meanwhile, Washington enacted a bill in 2022 establishing mandatory discounts for patients with incomes below 200% of the federal poverty level.

In July, Oregon Gov. Tina Kotek (D) signed a bill that looks to increase access to charity care by requiring hospitals to proactively screen patients and streamline the signup process. A similar law went into effect in Minnesota in November.

Congressional members are also revisiting the conversation. Sens. Elizabeth Warren (D-Mass.), Raphael Warnock (D-Ga.), Dr. Bill Cassidy (R-La.) and Charles Grassley (R-Iowa) sent a letter in August to the Internal Revenue Service pushing, in part, for required standardized community benefit reporting, including charity care spending.

The senators cited a KFF report that found nonprofit hospitals received $28 billion in taxpayer subsidies in

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2020 but provided $16 billion in charity care.