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April 15, 2022

Are hospitals paying their 'fair share'? New rankings prompt controversy.

Daily Briefing

    The Lown Institute this week released a list ranking nonprofit hospital systems based on their community benefits—however, the American Hospital Association (AHA) has sharply criticized the list, saying that it "rel[ies] on preconceived notions and faulty methodologies to draw inaccurate conclusions."

    Case study: How IU Health Foundation strengthens the system’s community impact grants

    Lown's Fair Share Spending list

    For the list, researchers at the Lown Institute calculated "fair share spending" surpluses and deficits for 275 nonprofit hospital systems with more than 1,800 hospitals by comparing each system's spending on charity care and community investment against the estimated value of its tax exemption.

    A hospital system had a fair share deficit if its spending on charity care and community was less than the value of its tax exemption. In comparison, a system had a fair share surplus if the cost of its charity care and community investment exceeded the value of its tax exemption.

    Data on charity care and community investment spending was taken from hospitals' tax filings from the most recent year available, either 2018 or 2019. For spending on community investment, researchers also looked at a subset of community benefit categories reported to the IRS, including:

    • Subsidized health services, such as free clinics, addiction treatment, and other services
    • Community health improvement activities, including health fairs, immunizations, interpreter services, and community health education classes
    • Contributions to community groups
    • Community building activities, including affordable housing, food assistance, and others that address social determinants of health

    Categories that were excluded included Medicaid shortfall, education for health professions, and research.

    Overall, 227 out of 275 hospital systems had fair share deficits, which equaled $18.4 billion in "stranded dollars that could have been used to advance health equity, housing, food insecurity, and other local needs," according to Lown.

    AHA criticizes Lown's community benefit rankings

    Soon after the rankings were published, AHA president and CEO Rick Pollack criticized the Lown Institute's report, stating it was "an obvious example of relying on preconceived notions and faulty methodology to draw inaccurate conclusions."

    Pollack called out the exclusion of certain categories of community investment, such as research into lifesaving treatments and training the health care workforce.

    "[The Lown Institute report] overlooks many of the essential contributions hospitals make to their communities that are critically important, especially during the pandemic," he said. "For example, a number of hospitals invested considerable funds and expertise into developing Covid-19 tests after setbacks from public health agencies. Hospitals also expanded treatment capacity especially as Covid-19 cases surged, established vaccine clinics, and launched outreach campaigns to ensure everyone has access to vaccines, to name just a few examples."

    Pollack added that financial assistance is only one part of a hospital's community benefit, and Lown did not consider all the services that hospitals provide to their communities, including programs that address housing needs, access to nutritious food, educational and wellness programs, transportation for patients, and more.

    In addition, Pollack said hospitals take on many uncompensated or unreimbursed costs, particularly through Medicaid and Medicare. In 2020, combined underpayments from both Medicaid and Medicare reached $100.4 billion, up from $75.8 billion in 2019.

    Hospitals also subsidize the cost of many essential services, such as burn and neonatal units, "even as the cost of providing care continues to increase significantly due to a range of factors outside of their control including rising inflation as well as massive growth in the costs of drugs, contract labor and supplies and equipment," according to Pollack.

    "America's hospitals and health systems do more than any other part of the health care field to support vulnerable patients and communities: Our doors are always open, regardless of a patient's ability to pay," Pollack said. "In total, hospitals of all types have provided nearly $745 billion in uncompensated care to patients since 2000." (Lown Institute 2022 Fair Share Spending list, 4/12; Toleos, Lown Institute, 4/12; Gooch, Becker's Hospital Review, 4/13; Gooch, Becker's Hospital Review, 4/12; Pollack, American Hospital Association, 4/12)

    How to advance equity for your workforce, patients, and community

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