The Provision of Charity Care by Nonprofit Hospitals

As part of an unwritten ‘social contract,’ nonprofit hospitals receive exemptions from federal income and state property taxes in return for providing uncompensated care to members of their community, who are otherwise unable to afford care.  Broadly, this quid-pro-quo was aimed at elevating the health status of the indigent uninsured.  The inherent assumption is that this arrangement promotes social equality and improves welfare, as nonprofit hospitals can effectively turn financial gains from tax exemptions into charity care.  However, the literature suggests that uncompensated care provided by nonprofit hospitals is only slightly greater than that provided by for-profit hospitals, if at all.  The motives for and the provision of uncompensated care are not well understood either, primarily due to a lack of accountability and transparency.  In response, the federal government passed legislation in 2009 mandating the reporting of all uncompensated care provided by nonprofit hospitals.  The scope of regulation and intensity of enforcement were left to individual states, however.  This project’s main objective is to evaluate the impact of the 2009 legislation on the behavior of nonprofit hospitals by exploiting state-level variation in the degree and scope of regulation across 18 states.  States were selected for their geographic diversity, variation in charity care regulation, and population size.  We use a novel combination of regulatory and commercial data to address this question.  The evaluation of nonprofit behavior under varying levels of regulatory scrutiny has significant implications for policymakers and legislators interested in evaluating the success of state transparency legislation on the provision of uncompensated care.