Defining (Refining?) “Community Benefit”

A closer look at non-profit hospitals.  

Hospital care is perhaps the only major American industry that has been dominated by non-profit companies. It is true that several significant for-profit hospital corporations have emerged over the past several years but the hospital landscape is still largely non-profit. These non-profit facilities can be sorted into two general categories; public hospitals, fully or partially supported by tax revenues and private non-profit organizations. Hospitals in the latter group support themselves by a combination of patient care revenues, income from ancillary services (e.g. parking), and philanthropy. Additionally, they are exempt from local, state, and federal taxes and, in exchange, they are supposed to provide so called “community benefit”. In other words, through our elected officials, we have determined that these hospitals provide benefits to our communities that are at least equivalent to the taxes paid by for-profit companies. However, there is a problem. There is no one accepted definition of “community benefit” and so some egregious disparities between hospitals are allowed to persist. Imagine two hospitals of relatively similar size in the same community. Both are non-profit teaching hospitals. But, one of the two hospitals is a busy, Level I trauma center. Its commitment to trauma care virtually guarantees that it will care for many uninsured and under-insured people. Therefore, in the current healthcare environment, this hospital is also virtually guaranteed to have a razor thin margin and every business, whether for-profit or not, needs a margin in order to maintain its facilities and build for the future. This facility’s “community benefit” is obvious but in addition to treating many underserved patients and functioning as a trauma center, it is also a major teaching and research site for a medical school. Hospitals like this one are true gems of American healthcare and, in the current economic climate, they are in danger.

Contrast the first hospital with its cross-town competition. The other hospital is not a trauma center. In fact, its emergency department is relatively small and poorly marked. The hospital operates the emergency center primarily for the convenience of its successful, private physicians and their well-heeled patients. This hospital cares for very few indigent and underinsured patients. It makes a very healthy margin every year and its cash reserves are figured in the hundreds of millions of dollars. The leaders of this facility claim that its “community benefit” is the education it provides to residents and medical students.

Despite very different approaches and, in my opinion, very different real contributions to their community, these facilities are treated equally under the tax code. If you think that I am exaggerating, I can assure that I am not. I know of one community in which the largest provider of indigent care is a private not for profit health system. The public hospital system, which was established to care for the community’s poor, is the second largest provider of these services and the third largest provider is a for-profit system. And yet, in this same community, there are several other large not-for-profit hospitals that treat relatively few poor people. Across the country, this story is repeated again and again. A relative handful of hospitals, mostly public facilities and non-profit hospitals like the first of my examples, treat the lion’s share of the 47 million Americans who lack health insurance and the millions more who are covered by public insurance programs that pay both facilities and physicians relatively poorly.

In some subtle and not so subtle ways, the remaining non- profit hospitals erect barriers that largely keep the poor and underinsured out of their facilities. Like the example above, they can keep their emergency departments small and relatively inaccessible. They can and do close inner city facilities in favor of suburban locations, and they can elect not to become trauma centers. Some paramedics have told me that the staff in one of these hospital’s emergency departments make them feel unwelcome when they try to bring an uninsured patient to the hospital. So, the paramedics bring well dressed patients from good neighborhoods to that facility and take not so well dressed patients from poor neighborhoods to those facilities that do more indigent care.

Even in good economic times, patterns like these can threaten the survival of hospitals that have made a commitment to trauma care or the care of the less fortunate. In bad economic times these facilities, sometimes called “safety net” hospitals in honor of the vital role they plan in our communities, are at risk of failure.

The current situation is neither right nor fair. Additionally, should safety net hospitals ultimately fail, the uninsured will eventually have little choice; they will eventually flock to the very hospitals that are trying so hard to keep them out.

So what can be done to correct this situation?

I see can see only two ways. Many states or communities have considered or implemented a so called “pay or play” policy. Safety net hospitals continue to do what they have always done; extending the metaphor they “play”. On the other hand the hospitals that do not wish to directly participate in indigent care can pay into a fund that allows them, again in a metaphorical sense, to buy an indulgence; they “pay”. And their payments are distributed to the safety net hospitals, allowing them to offset some of their losses. I think this is the best and most logical way to solve the problems of institutional inequity.

Alternatively, we can finally define the term “community benefit” and then expect institutions that receive tax advantages to meet this definition or start paying taxes on their margins. I suspect that many, if not most, would choose the latter option. In my view, this is the “sucker’s choice” because there is no guarantee and, in many places, little chance that these new tax funds would actually find their way into the institutions that actually need them. There are simply too many open hands and loud voices the doors of city councils and state legislatures.

No matter which course is chosen, however, something must change or we must solve the problem of the uninsured. If we don’t change something we risk the loss of our medical “safety net” hospitals. Even those that don’t actually close will be severely under-funded and, therefore, constrained in their ability to accomplish the vital missions upon which we all depend.