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Keywords

bad debt, charity care, hospital community contributions, hospital profit, indigent or uncompensated care, nonprofit and for-profit hospitals, taxes paid

 

Authors

  1. McDermott, Dennis R.

Abstract

Background: In return for receiving favorable treatment from the government, U.S. general hospitals are expected to provide contributions to their community consisting of charity care, bad debt, and taxes paid. Recently, the Government Accountability Office proposed that an analysis that compares what for-profit and nonprofit hospitals contribute be conducted.

 

Purpose: For 72 Virginia hospitals, it is determined whether (a) for-profit hospitals' community contributions exceed their profits and (b) nonprofit hospitals' community contributions exceed the for-profits' contributions in addition to the nonprofits' forgone taxes.

 

Methodology/Approach: Based on audited fiscal year 2004 financial statements, six null hypotheses were tested for significant differences between the two independent variables, namely, hospital charter and size, and the three dependent variables, including (a) operating income, (b) the ratio of community contributions to net patient revenues, and (c) the ratio of community contributions to operating income.

 

Findings: No significant differences were found to exist between (a) hospital charter and operating income, (b) hospital charter and the percentage of community contributions to net patient revenues, and (c) hospital charter and the percentage of community contributions to operating income. The community contributions of nonprofits exceeded their taxes forgone by a wide margin, but they fell short of exceeding the for-profits' community contributions plus the taxes forgone by a very slight margin.

 

Practice Implications: Hospital management, in conjunction with health care policy planners, needs to develop mutually acceptable standards regarding the required level of hospitals' community contributions. It is proposed that the most equitable standard is "quartile comparisons" for a given hospital's financial performance and its level of community contributions. Furthermore, to reduce charity care, it is imperative that high-cost hospital treatment of primary health care for indigent patients be shifted to lower cost delivery systems.