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Charity begins, and nearly ends, with a handful of hospitals
Many uninsured Californians receive medical care from nonprofit or government facilities. Increased scrutiny of tax breaks for nonprofits may combine with funding cuts to threaten patients’ safety net

| 29 October 2003

Do nonprofit hospitals deserve the tax breaks they get? California policymakers debating this question are seeking to put a value on the amount of charity health care these hospitals provide for the medically indigent and uninsured.

But because the state provides no clear guidelines for what determines charity care, the dollar figures cited can vary 12-fold — from $437 million to $5.3 billion — in a single year, according to a series of three policy briefs by UC Berkeley researchers. The briefs were released Monday, Oct. 27, by the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at Berkeley’s School of Public Health.

The narrowest definition of unreimbursed care — pure charity care — refers to services provided to patients who are unable to pay and for which the hospital does not bill. Based upon that definition, California hospitals provided $437 million in unreimbursed care in 2000.

Expanding the definition to include “bad debt,” or unpaid bills, in addition to pure charity care ups the level of unreimbursed care provided by California hospitals in 2000 to $1.5 billion. Critics of that definition say, however, that bad debt relates more to inadequate hospital collection practices than to true charitable care.

A third, even broader definition of unreimbursed care is based upon the premise that the payments hospitals accept from Medi-Cal and other indigent-care programs are lower than the actual cost of the services they provide. Viewed this way, the amount skyrockets to $5.3 billion.

Says Richard Scheffler, professor of health economics and public policy and director of the Petris Center: “The problem with having such a wide range of unreimbursed-care estimates is that it makes it difficult to make sound health-policy and budget decisions, because it’s not clear how much funding is at stake. As the debate over whether nonprofit hospitals deserve the benefits they receive heats up, policymakers must decide whether to preserve programs that enable hospitals to provide unreimbursed care.”

Lisa Simonson Maiuro, a consultant to the Petris Center and co-author of the report, notes that there are valid arguments for each definition of unreimbursed care, but that policymakers need clear guidelines to accurately evaluate the distribution of charity care provided by hospitals.

There is also concern about the financial viability of hospitals that provide the most services for the indigent and uninsured. The researchers point out that California hospitals are facing increasing financial pressures stemming from the costs needed to comply with a recent spate of state and federal regulations.

Moreover, nearly all the hospitals providing high levels of unreimbursed care are part of the Disproportionate Share Program, which provides federal funding for hospitals that serve a disproportionate share of Medi-Cal patients and the uninsured. The federal Balanced Budget Act of 1997, however, has significantly reduced funding for the program.

All those funding cuts could translate into a high-stakes impact on people’s health and well-being, the authors say.

In 2001, there were 6.2 million residents under 65 without health insurance in California, more than any other state in the country. Hospital charity care provides a critical safety net for a large percentage of the uninsured.

The findings show that from 1998-2000, the average yearly amount of uncompensated care — pure charity care plus bad debt — provided in California totaled more than $972 million. During that time, 50 percent of the uncompensated care in California was provided by just 12 percent of the state’s hospitals.

“The fact that so few hospitals shoulder the bulk of providing uncompensated care shows just how fragile the safety net for the uninsured can be,” says Scheffler. “California needs to rethink how charity care is provided, given the growing number of uninsured.”

Nonprofit hospitals provided the majority — 61 percent — of uncompensated care. However, when adjusted for the proportion of total staffed beds, government-owned hospitals provided twice as much uncompensated care per bed as nonprofit hospitals, and three times as much as investor-owned hospitals.

The report ultimately points to the need for more clarity in how hospitals report charity care, said the authors.

“This is the public’s wallet,” says Petris Center consultant Maiuro. “They have the right to know how and where the money is being spent.”

A copy of three policy briefs based upon the report is available online at www.petris.org.

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