Do Nonprofit Hospitals Serve the Poor?

With all the discussion in the presidential campaign about health care, no one has asked just how well the nation’s hospitals serve the poor and the uninsured. The candidates should read the recent nationwide survey by the Internal Revenue Service of nearly 500 nonprofit hospitals. It revealed that the median nonprofit hospital spends less than 4 percent of its annual revenue on free care. Nearly a quarter of these hospitals reported spending less than 1 percent of their revenue on charity care.

In response to this report, Senator Charles Grassley (R-IA), ranking member of the Senate Finance Committee, said, “These are self-reported numbers. It’s troubling that even the overly broad figures paint a bad picture of a significant number of nonprofit hospitals doing very little charity care.”

Special Tax Breaks

Nonprofit hospitals have a long tradition of free medical care for those who cannot afford to pay. In part because of that charity work, they get special tax breaks and public funding. Most nonprofit hospitals receive at least half their funds from taxes – from federal, state, and municipal treasuries. In addition, they get tax relief. According to the Congressional Budget Office, nonprofit hospitals received more than $12 billion in tax breaks in 2002. Yet they appear to have provided only slightly more charity care than for-profit hospitals.

Congress has finally taken note of this situation. A proposal released last week by the Republican staff members of the Senate Finance Committee recommends that nonprofit hospitals allocate at least 5 percent of their operating expenses or revenues for charity care or lose their tax-exempt status.

This is the latest in a series of efforts by lawmakers and consumer advocates to make sure that nonprofit hospitals do more to serve the uninsured. It is a very modest proposal considering that the federal government loses about $40 billion each year by offering nonprofit hospitals tax-exempt status to serve more than 46 million uninsured Americans.

Here in New York City, the Health and Hospitals Corporation (HHC) comprises some 20 major public health institutions. The underlying rationale for the creation of HHC was to provide a place where the poor and the uninsured could get necessary health care. This is in keeping with the social history of New York City – that free health care for the poor is a public good. The health care system should be accessible to everyone.

Less than 4%
on free care

New Yorkers can take pride in the fact that our city is home to some of the finest public hospitals – and medical education facilities - in the world. But we have seen a disturbing trend in our public institutions: they are increasingly the preserve of the wealthy. This is reflected in many of our public institutions.

The City University – a major educational institution for Black and Latino New Yorkers - was once a model for affordable, high-quality urban education, offering free tuition to all city residents. Then, in the economic crisis of the 1970’s, CUNY started charging tuition, and the costs have continued to rise, denying many of our young people a quality higher education.

The city’s museums were once free; now some charge as much as $20 to get in the door. Recently, the city began charging membership fees at previously free public recreation facilities located in low-income neighborhoods.

Two-Tiered City

In realms of education, culture, health, and recreation, New York is moving rapidly toward a two-tiered city.

The city is increasingly divided by race, income, and class — with a largely White affluent population and a largely Black and Latino low-income population.

The situation is complicated because there is a lack of clarity about what hospitals need to do to qualify for tax benefits. Federal law requires that hospitals provide "community benefit," but the law does not set out what this means in practical terms.

Nevertheless, public officials in New York should be scrutinizing the extent of free medical care that our nonprofit hospitals provide. Other states are taking a closer look at the proportion of charity care by nonprofits, with some effect. Regulators in Illinois revoked property tax breaks for three hospitals that had provided too little charity care to qualify for relief.

Across the country, states are collecting detailed information about how much hospitals provide and, in some cases, how much they reap in tax exemptions. We need to determine the threshold of free medical care which qualifies a nonprofit hospital for tax exemptions and public funding. We must put an end to spending the tax dollars of all city residents to support a health care system that increasingly shuts out the poor and uninsured.

From the New York Amsterdam News
July 26 – August 1, 2007