Nonprofit hospitals in communities with the greatest financial needs offer similar eligibility for free care as hospitals in less disadvantaged communities, according to a new national study from Tulane University researchers. The study , published Nov. 2 in Health Affairs, analyzed 10 years of Internal Revenue Service data from more than 1,600 nonprofit hospitals.
Nonprofit hospitals receive billions in tax breaks in exchange for providing benefits to the communities they serve. In 2021, those tax exemptions were estimated to be worth $37.4 billion.
One of the most direct ways hospitals provide community benefits is by offering free or discounted care, known as charity care, to patients who meet certain income-based eligibility thresholds. However, there is no federal standard for these thresholds, and they vary widely from hospital to hospital, according to researchers.
"Hospitals receive large tax exemptions and are expected to reinvest in their communities," said lead study author Tatiane Santos, assistant professor in the Celia Scott Weatherhead School of Public Health and Tropical Medicine. "A key way of doing that is through charity care, which is especially important given the ongoing medical debt crisis."
The researchers examined whether hospitals' income-based eligibility thresholds for charity care differed according to community need, which the study's authors measured by the share of low-income residents in each county who lacked health insurance. They found that hospitals in high-need communities had similar eligibility thresholds to those in lower-need communities, where household income averaged approximately 180% of the federal poverty level, or roughly $60,000 annually for a family of four.
"What surprised us was that hospitals in communities with greater financial need had essentially the same income eligibility thresholds for free care as hospitals in lower-need communities," Santos said. "Yet hospitals in high-need communities provided more charity care and reported more bad debt. These findings suggest that we should be paying closer attention to how hospitals' financial assistance policies align with the needs of the communities they serve."
The researchers suggest that charity care spending likely reflects both community need and hospitals' financial assistance policies. One possible explanation is that hospitals serving communities with greater financial need may face higher demand for financial assistance and therefore adopt more restrictive eligibility thresholds to manage limited resources. Conversely, hospitals in lower-need communities may have greater flexibility to offer more generous eligibility thresholds because fewer patients qualify for assistance.
Hospitals with higher income-based eligibility thresholds provided more charity care and had less bad debt, or unpaid bills that hospitals often send to collections. That link was about twice as strong in communities with many low-income, uninsured residents, where more generous policies were linked to about $383,000 more in charity care per hospital each year.
Whether the benefits nonprofit hospitals provide are proportional to their tax exemptions has been a hotly debated policy issue and has drawn renewed attention from lawmakers. With millions expected to lose health insurance due to Medicaid cuts and many more struggling with rising deductibles and copays, more patients are likely to need financial assistance, Santos said. The researchers say that tying financial assistance policies to community need could better protect patients from medical debt.
"Even in more affluent communities, people with insurance are struggling to pay their medical bills," Santos said. "Medical debt is affecting everybody."
The researchers caution that some hospitals, especially in rural areas, may not be able to afford to give more. However, others may be able to provide more help to their communities.
Researchers sought to identify these hospitals by creating a charity care benchmark: the amount the typical hospital spends on charity care, about 1% of its operating budget.
Among hospitals with charity care spending below the benchmark, 461 limited eligibility for free care to families earning no more than twice the federal poverty level, approximately $66,000 annually for a family of four. An additional 168 hospitals had even more restrictive limits, offering charity care only to families earning no more than the federal poverty level, approximately $33,000 annually for a family of four. Of those, 34 were located in areas with a large share of low-income, uninsured residents.
If those 168 hospitals raised their charity care eligibility to twice the federal poverty level, the researchers estimate each would provide about $710,000 more in free or discounted care per year. The researchers note that while that amount is modest compared with a typical hospital budget of $142 million, it's directly tied to how much patients may end up owing.
"There's really no guidance from the federal government on how much hospitals have to spend," Santos said. "Instead of saying how much they should spend, we used the data to identify hospitals that are providing less than their peers. There are some hospitals that could be doing more to help."
