Standardizing community benefit between not-for-profit and investor-owned hospitals

ABSTRACT

This research investigates whether investor-owned (IO) hospitals provide equivalent charity care as not-for-profit (NFP) hospitals in a reduced uncompensated care environment (post Affordable Care Act). Gross revenues, Total Uncompensated Charges (TUC), and a new measure, Standardized Patient Service Benefits (SPSB), are computed for not-for-profit and investor-owned hospitals. The SPSB is calculated based on Diagnostic Related Groups (DRGs) for each discharge and does not allow for local hospital price manipulation. This eliminates pricing differences between hospitals for similar services when evaluating charity care. Using patient discharges classified as charity care, IO hospitals appear to provide more charity care than NFP hospitals when measuring by the TUC. When the TUC is adjusted for the corresponding DRG value (SPSB), the amount of charity care for not-for-profit hospitals exceeds investor-owned hospitals, a reversal from the TUC results. This research adds to the existing body of knowledge by introducing a new standardized measure, SPSB. This method eliminates pricing differences and may be used for ownership comparisons when hospitals charge varying amounts for similar services. Additionally, the results indicate that revenue manipulation may inflate the perceived amount of charity care and potential tax benefit.

KEYWORDS:

• Charity care
• inpatient discharges
• Florida hospitals
• diagnostic related groups
• DRGs

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Nonprofit hospitals have never been expressly categorized as tax-exempt organizations under section 501(c)(3) of the Internal Revenue Code. However, these hospitals are able to qualify for federal tax exemption under section 501(c)(3) of the Internal Revenue Code.

2 IRS response to Senator Chuck Grassley’s questions. April 11, 2019, https://www.finance.senate.gov/imo/media/doc/2019.04.11%20-%20Rettig%20letter%20to%20CEG%20(non-profit%20hospitals).pdf

3 Newborn charges are aggregated with the mother, so including newborns in the number of inpatient days would artificially inflate discharges.

Additional information

Notes on contributors

James Earl Goodpasture

Dr. James Earl Goodpasture is an Assistant Professor at Tarleton State University. He holds a PhD in Accounting from Florida State University, a Masters of Public Accountancy from UT at San Antonio, a B.S. in Nursing from the University of Texas School of Nursing at San Antonio, and a B.S in Biology from Stanford University.

Nina Rogers

Dr. Nina Rogers has Ph.D. in Finance and MS in Real Estate from University of North Texas and a MBA in Corporate Finance from University of Dallas. She also holds a Texas Real Estate License, Texas Insurance License, Texas Property and Casualty and Texas Life, Accident and Health Insurance.