Nonprofit Hospitals, Market Power and Charity Care

Medical campus of VCU hospital, one of the largest providers of charity care in Virginia.

Medical campus of VCU hospital, one of the largest providers of charity care in Virginia.

A new study of California hospitals between 2001 and 2011 has found no evidence that nonprofit hospitals provide more charity care when they gain market power. Nationally, 58% of all non-federal, general hospitals are nonprofit. Nonprofits dominate the health care sector in Virginia as well.

“Economic theory indicates that a balancing of social benefits against harm from market power may be appropriate under the assumption that nonprofits will provider greater social benefits when they have greater market power,” write Cory Caps, Guy David, and Dennis W. Carlton in a study undertaken as part of the National Bureau of Economic Research’s health care initiative.

They conducted the study to see if the theory held up in practice. In the case of California, it didn’t.

The study, “Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care,” could have implications for the debate over the Certificate of Public Need (COPN) in Virginia. Under the COPN law, the state must give its approval for major capital outlays such as new buildings, expansions and purchases of expensive equipment. The law is widely acknowledged to reduce competition and bolster profits for hospitals, but is justified on the grounds that helping hospitals maintain market share enables them to spend money on uncompensated care.

California is not Virginia, and the authors were exploring the relationship between a hospital’s market power and uncompensated care in the context of antitrust laws, not COPN. So, the findings may not be replicated in the Old Dominion. But insofar as the authors developed a methodology for examining the relationship between market power and uncompensated care, it would be worth conducting the same exercise in Virginia.

Virginia nonprofits receive exemptions from state, local and federal taxes. If it turns out that they aren’t using their revenue “surplus” to provide charity care and cover bad debts any more than their for-profit peers are, Virginians might legitimately ask what public benefits they are using their “surplus” for.

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15 responses to “Nonprofit Hospitals, Market Power and Charity Care

  1. I’ve said that for ages. I’ve asked the questions this year to legislators. Not one of them has responded.

    Then again, when it comes to answering questions why they don’t do something about situations like this: http://www.dallasnews.com/news/investigations/2014/03/01/planos-baylor-hospital-faces-hard-questions-after-claims-against-former-neurosurgeon, they are just as silent.

    That includes the MD’s on the legislative committees.

  2. I agree, more data , but pretty sure we already have it in Virginia and I certainly believe that BEFORE we do ANYTHING – we KNOW the facts and the likely consequences of any contemplated actions – that we WANT to KNOW….

    Note in the narrative below that right now 43% of rural hospitals in Va suffer a loss and COPN advocates we’ve already heard from have suggested that perhaps we should close the rural hospitals because we cannot “afford” them. Apparently they screw up “competition”…

    Sometimes it seems that the advocates are way more ideologically interested in “competition” than possible financial damage to hospitals that provide charity care almost as if it’s not a real cost or even if it is – we should not have to pay it, stop paying it, i.e. just close the hospitals losing money that provide charity care – as if that is a solution.

    ” From 2008-2015, for example, Virginia hospitals provided more than $4.2 billion in charity care. In 2015 alone, Virginia’s hospitals provided $1.4 billion in community benefit as defined by the Internal Revenue Service, including nearly $585 million in financial assistance to patients, and another $1.48 billion in community support. Virginia hospitals face financial challenges due to government mandates and the charity care inherent in our health care system. Annual data from Virginia Health Information (VHI) show many local hospitals across the state continue to struggle financially. VHI figures show 27 percent of Virginia’s acute care, critical access, and children’s hospitals – and more than 43 percent of rural hospitals – operated at a loss in 2015.”

  3. Hospital charity care (from 2013)

    Here are charity care amounts for Richmond area hospitals and U.Va.

    VCU Health System: $271,116,237
    University of Virginia Medical Center: $179,028,510
    Bon Secours Memorial Regional Medical Center: $40,142,673
    Bon Secours Richmond Community Hospital: $24,663,795
    Bon Secours St. Francis Medical Center: $35,072,011
    Bon Secours St. Mary’s Hospital: $55,272,168
    HCA CJW Medical Center: $61,334,680
    HCA Henrico Doctors’ Hospital: $30,569,369
    HCA John Randolph Medical Center: $11,340,035

    from: Virginia Health Information 2013 Industry Report

    http://www.richmond.com/life/health/article_36aceade-dd98-5a5c-85f7-f038bdcb6c37.html

    this looks to be about 300 million dollars for Richmond and 200 million from Charlottesville.

    An obvious question is – who are paying these costs?

  4. I will never forget a presentation that I attended, given by an Inova executive. Inova is a non-profit hospital system (e.g., Fairfax Hospital). I forget the executive’s position — something like vice-president or CFO. He said that Obamacare would greatly increase Inova’s profits. He was speaking of the profits that the non-profit would realize.

    • “I will never forget a presentation … given by an … executive (of) Inova, a non-profit hospital system (e.g., Fairfax Hospital) … (who) said that Obamacare would greatly increase Inova’s profits. He was speaking of the profits that the non-profit would realize.”

      This Inova executive knows very well what he is talking about. So do the cabals of executives at Universities like UVA and other institutions who learned how to game the corrupt public and private funding systems of the OBama administration. But their games and their gaming of that game suddenly and unexpectedly no longer work. Hence all the caucuses and meetings madly looking for ways to rejigger our corrupted system of governance over the past 8 years that now is in wild disarray.

      What is at stake?

      The explosive growth of vast fortunes that were generated over the past 8 years by the huge profits ripped off the backs the American worker and taxpayer by NON Profits that have been designed and run to feed off public monies so long as they promote and enable the OBAMA ADMINISTRATION’S Liberal Democratic AGENDA in ways that vastly increase the power, influence, and reach of those political interests to regulate and control the lives of all Americans, their health and wealth, their rights, obligations, and futures. Hence the few who operate these non-profits can keep getting all their goodies only if they are answerable to and serve their political masters but only if they and their masters remain in power.

      But what happens now with Trump in Charge?

      Now, seeing this, we understand the stakes and vicious “political fight” for control, power, and wealth that is going on today in our nation.

      Imagine what is now at stake:

      The rapid growth of power, profits, and spoils of America’s newly emergent non-profit and crony capitalists sectors whose leaders have over the past 8 years built their livelihoods in the areas deemed by our last president’s administration to be of vital public interest and to his own private political interests, and that of his cronies. These are areas that include the promotion, formulation, promulgation, imposition, and management of public policies and monies that regulate an ever expanding group of “public interest industries” that control the nation’s educational systems (public and private), its environmental laws, its health systems, its energy, banking, and finance centers, and also now institutions that mandate social behaviors and distribute the nation’s wealth among institutions, groups, and classes of people based on skin color, ethic origin, voting habits, sexual orientation, age and gender, and their positions of power within elite politically correct institutions, ethic groups or voting blocks.

      All of these ill gotten gains are now up for grabs. So its a mess we are in.

      • Of course these problems are compounded because many of the corrupt systems put in place over the past two decades to serve political and bureaucratic masters, such as “Affordable Public health care and higher education systems, are also collapsing of their own accord, whether by running out of money, failing to provide services, or gross incompetence.

  5. Well I dunno about California or Innova – but here’s the data for Virginia:

    2016 Report (FY 14 Data)

    Type ………………….. Not-for-Profit……For Profit……Total
    hospitals………………………..74…………………20…………….94
    Financial Assistance..$550,561,414….$33,589,865….$584,151,279
    Medicaid Shortfall….$280,651,368 …$49,254,517..$329,905,885

    http://www.vhha.com/research/wp-content/uploads/sites/18/2016/03/2016-Community-Benefit-Annual-Report2.pdf

  6. Well I dunno about California or Innova – but here’s the data for Virginia:

    2016 Report (FY 14 Data)

    Type ………………….. Not-for-Profit……For Profit……Total
    hospitals………………………..74…………………20…………….94
    Financial Assistance..$550,561,414….$33,589,865….$584,151,279
    Medicaid Shortfall….$280,651,368 …$49,254,517..$329,905,885

    http://www.vhha.com/research/wp-content/uploads/sites/18/2016/03/2016-Community-Benefit-Annual-Report2.pdf

    • The nonprofit industry in Virginia is far larger than the for-profit industry. To meaningful, these numbers need to be expressed as a percentage of total revenue or compared to the size of each sector’s profit/surplus.

      • is that the same standard being used by National Bureau of Economic Research’s health care initiative?

        I’m not in disagreement but clearly in Virginia the Non-profits are handling the bulk of charity and for some reason Medicare.

        And a salient point is – how do the non-profits mitigate the charity care?

        In the rural areas – it appears they don’t as most seem to operate at a loss… and what happens if that continues?

        for other non-profits that are not now currently operating at a loss – what effect would getting rid of COPN have on them? Would it result in them being pushed into losses also?

        Wouldn’t you WANT TO KNOW this BEFORE you did anything to COPN?

        ala – repeal and replace? you want informed reform not dumb reform that destabilizes and further damages … reform is supposed to IMPROVE the system not erode and damage it.

  7. What no one knows possibly is that these figures are inflated. Some places claim charity care as any care provided and not received the money for. That would include regular people with insurance who haven’t gotten the bill or paid all the bill. Many of those would help.
    I think if you reviewed the true charity figures, they would be garbage.

    Vic

  8. Well, here’s the bad debt numbers they provide:

    Type ………………….. Not-for-Profit……For Profit……Total
    hospitals………………………..74…………………20…………….94
    Bad Debt Expense $474,437,188 …$56,530,937 … $530,968,125

    of course, if you don’t believe this either…. and you basically think they’re all lying and the data is bogus………..

    I think I’m starting to understand the “disrupters”…

  9. LarrytheG you give numbers but there is no reference. What kind of “bad debt” are we referring to here? What happens to the hundreds of lawsuits the hospitals have after people for debt? Is it truly bad debt or do they coup some and refix the figures above? THat is just one area that’s not reported.

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