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Profitable Non-profit Hospitals and Charity Care

By February 20, 2020Commentary

Many of the largest health systems in the country are supposedly not-for-profit, which confers tax and other advantages on them, but they make very large amounts of profit and charge very high prices.  So with all those financial resources you might think these health systems would be very generous in providing charitable care, which is basically free services to patients who have no source of payment.  A research note in the Journal of  the American Medical Association Internal Medicine explores just how much, or little, charity care these institutions provide.   (JAMA Article)   Around 2650 not-for-profit hospitals were included in the analysis.  Overall these hospitals had $47.9 billion in net income.  That is a lot of money.  They provided $9.7 billion in charity care to uninsured patients and $4.5 billion in charity care to insured patients, largely in the form of writeoffs of deductibles, coinsurance and other patient cost-sharing.  These amounts were apparently calculated at billed charges, which exaggerates their value.  The more net income a hospital had, the less charity care it provided as a percent of that net income.  The top quartile of hospitals accounted for all the net income, because the remaining hospitals all had losses.  But this top quartile only dedicated around 16.6% of this net income to charity care.  By contrast, even though they didn’t have significant net income, the set of hospitals in the third quartile of net income, spent 142% of that on charity care.

The results are so pathetic I don’t even know how to comment on them, but it is apparent that some greater regulation of allegedly non-profit hospitals is needed.  They make very large amounts of profit, mostly from using market power to charge high prices to their commercially insured patients.  They pay their management exorbitant compensation and they waste money on marketing, fancy buildings and other extravagances.  The reform law greatly expanded Medicaid coverage and substantially reduced the number of people without insurance, which also reduced hospitals’ bad debt expense.  So overall these institutions are in great financial shape and there is no excuse for the lack of free care provided by these hospitals.  If you are going to be non-profit and get the benefits of that status, then you should reduce your prices or take other steps so that you aren’t actually making a profit.

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