KFF: Varying Hospital Charity Care Policies Influence Spending

Half of all hospitals reported spending 1.4 percent or less of their operating expenses on charity care in 2020, but spending varied due to different state-level charity care policies, according to data from the Kaiser Family Foundation (KFF).

Hospital charity care programs provide free or discounted services to low-income patients who cannot afford care. Nonprofit hospitals are required to offer charity care in order to retain their tax-exempt status.

The amount of charity care offered by hospitals varies, as facilities have flexibility within government regulations to establish their own charity care policies, such as eligibility criteria.

KFF researchers analyzed RAND Hospital Data from 2019 to 2020 to determine what percentage of operating expenses is dedicated to charity care costs.

They found that 50 percent of hospitals reported that charity care costs represented 1.4 percent or less of their operating expenses. Most hospitals (32 percent) said their charity care costs accounted for 0.1 to 1 percent of operating expenses. One in five hospitals reported spending between 1 and 2 percent of operating expenses on charity care.

Charity care costs as a percentage of operating expenses varied, though, as the other 50 percent of hospitals reported spending more than 1.4 percent of operating expenses on charity care.

On the lower end, 8 percent of hospitals reported that charity care costs represented 0.1 percent of operating expenses or less. Similarly, 9 percent of hospitals said charity care accounted for 7 percent or more of operating expenses.

Charity costs represented 2.6 percent of operating expenses on average, the analysis found.

“The variation in charity care costs as a percent of operating expenses likely reflects differences in hospitals’ missions and business practices; the need for charity care among patients; and federal, state, and local policy and regulation,” the KFF brief stated.

Many hospitals use income levels to establish patient eligibility for free or discounted care. Hospitals may also determine eligibility based on assets or location, while others use standard eligibility pathways to help those who exceed income or asset thresholds but cannot afford high medical bills.

Eligible patients may miss out on charity care because they are unaware of their eligibility, struggle with the application process, or the hospital wrongfully denies them. The brief cited data revealing that $2.7 billion of bad debt from nonprofit hospitals in 2019 came from patients who were eligible for charity care but did not receive it.

To maintain their tax-exempt status, nonprofit hospitals must make reasonable efforts to determine if a patient is eligible for charity care before initiating debt collection practices. These facilities are also required to establish a financial assistance policy that describes who is eligible for charity care, the level of assistance provided, and how patients can apply.

However, limited oversight and gaps in federal regulation may lead to hospitals providing low levels of charity care, the brief noted.

In addition to federal regulations, states can impose charity care requirements on hospitals. Just over half of all states require most hospitals to extend charity care eligibility to certain groups of patients. Among those states, 11 extend standards to for-profit, nonprofit, and government hospitals.

Nevada requires some hospitals to provide free care to uninsured patients with low incomes. Maryland requires acute and chronic care hospitals to offer free care to insured and uninsured patients whose incomes are at or below 200 percent of the federal poverty level.

Nonprofit hospitals amended their charity care policies during the COVID-19 pandemic, a separate study found. Among 127 hospitals that updated their policies, 47 made their policies more generous, while 12 implemented more restrictive policies.

Federal and state leaders have proposed policy changes that would help strengthen hospital charity care programs. Some proposals include expanding requirements that hospitals provide charity care to patients below a specified income threshold, mandating that nonprofit hospitals provide a minimum amount of community benefits, and expanding enforcement of community benefit requirements.