Spending on Charity Care Stalled as Medicaid Expanded

PHILADELPHIA— In the years following the enactment of the Affordable Care Act (ACA), non-profit hospitals across the country benefited from the expansion of state Medicaid programs, which alleviated financial stresses from previously uninsured patients. However, while many experts hoped that hospitals would directly invest these savings into their communities, the growth in funds from Medicaid expansion did not translate into greater community benefit spending, according to a JAMA Network Open study from health policy researchers at Penn Medicine and PolicyLab at Children’s Hospital of Philadelphia (CHOP).

“We know that Medicaid expansion helps lift financial burdens that hospitals face, but it wasn’t clear if those savings were being redirected back into the community because of it,” said first author Genevieve P. Kanter, PhD, an economist and assistant professor of Medicine, Medical Ethics, and Health Policy in the Perelman School of Medicine at the University of Pennsylvania. “Surprisingly, that’s not what we observed after reviewing the publicly available tax documents for more than 1,600 non-profit hospitals. As these state programs rolled out, we saw the relief from the expansion led to either no change or a decline in direct community spending.”

To better understand community benefit spending, the researchers analyzed hospital IRS-reported changes in different types of community benefit spending between 2011 and 2017, which represents a period before and after enactment of the Affordable Care Act (ACA) and its associated expansion of Medicaid coverage. Community benefit spending includes providing free or heavily subsidized care — for example, treating uninsured patients or providing free care out in the community—as well as direct community spending, such as investing in or creating health programs that benefit the community. Non-profit hospitals are required to make these investments to maintain their non-profit status.

For 1,666 hospitals, the researchers compared community benefit spending in states that expanded Medicaid with states that did not. The team found that Medicaid expansion was associated with a decrease in overall spending on charity care and subsidized care.

The researchers also found that hospitals that experienced net gains — because declines in uncompensated care were greater than increases in unreimbursed Medicare expenses — did not necessarily increase their direct community spending. In particular, urban hospitals and large hospitals, which experienced the greatest net gains, decreased their community-directed spending, the authors reported.

The study’s senior author David Rubin, MD, MSCE, director of PolicyLab at CHOP, said that it is important to consider the results of the study, as well as the time period that the researchers observed, in appropriate context, especially in light of the current pandemic.

“While we observed that non-profit hospitals did not increase community benefit spending following the expansion of Medicaid coverage, we have to consider this information in the context of the contributions our hospitals make in their communities and the sacrifices of their staff to care for patients — especially in light of COVID-19 and the surge in Medicaid enrollment we are expecting as a result of massive unemployment across the country,” said Rubin, who is also a professor of Pediatrics in the Perelman School of Medicine. “Nevertheless, as our hospitals recover financially from this crisis, our study illustrates that they may have a larger role to play in direct investment in aid and services to revive their communities.”

Currently, hospitals do not have minimum community benefit requirements, which has come under scrutiny by some lawmakers questioning the amount of contributions to qualify for tax-exempt status. Before the ACA, in 2009, IRS reports show community benefit spending averaged 7.5 percent of hospital operating expenses, about 85 percent of which were in the form of charity care and other non-reimbursable care services, according to the study.

“As we move beyond the COVID-19 epidemic, I hope these findings will motivate policymakers to return to this very important subject,” Kanter said. “I think the goal with this research is to inform and provide data that can be used to refine policies and develop a clearer definition around community benefit spending for tax-exempt entities.”

Co-authors on the study include Bardia Nabet, MPH, of Manatt, Phelps & Phillips, LLP, and Meredith Matone, DrPH, MHS, of CHOP’s PolicyLab.

The work was funded by CHOP.

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