On July 11, the Lown Institute released a new ranking of hospitals based on metrics that have not been used in prior rankings. The new report examines hospitals by looking at the use of tests and procedures that offer little to no clinical benefit, services offered to underserved communities of color, and their contributions to community benefit. Their community benefit rankings, in particular, have drawn a number of comments from hospitals and this data is particularly interesting to Community Catalyst given our ongoing Community Benefit and Economic Stability project.
In 2009, the IRS introduced the Schedule H worksheet to report on community benefit activities provided by non-profit hospitals in exchange for their tax exemptions. Some of the reportable community benefit spending categories on the Schedule H worksheet include, but are not limited to, charity care, Medicaid shortfall, health profession education, research, and contributions to community groups. However, community advocates have criticized that community benefit spending categories are vague and feel that IRS enforcement efforts are minimal, which may allow hospitals to claim spending on items that don’t actually have a direct benefit to the community.
To assess a hospital’s community benefit spending, the Lown Institute calculates a “fair share spending” amount which is done in comparison to the value of their property tax. In this calculation, The Lown Institute chose not to include community benefit spending categories such as research, Medicaid shortfall, and health profession education. The reasoning for excluding these community benefit expense categories was that they tend to not be based directly on local community needs. Research expenses are excluded since this category often includes research studies which may be funded from external grants. Instead, the “fair share” methodology focused on charity care, Medicaid revenue (not shortfall), and community investments such as subsidized health services and contributions to community groups. The study determined hospitals that committed 5.9 percent of their overall expenditures to community benefit were considered to have contributed their fair share based on research on tax exemption averages. They found that 72 percent of 2,391 private non-profit hospitals had a total fair share deficit of $17 billion, which means they spent far less on community benefit than the value of the property tax exemptions they received.
Community benefit spending at hospitals across the country varies significantly. While there is no federal minimum level of spending, some states, such as Illinois, Utah, Oregon, and Texas have required a minimum level of community benefit spending or a comparable amount of spending based on their property tax value. However, even the hospitals within these states have shown deficits in their fair share spending, and only 10 hospitals from these states were among the ranks of the top 50 hospitals with the greatest community benefit spending. While Illinois has policies to hold hospitals accountable to charity care spending equivalent to their property tax value, 8 out of the 10 largest non-profit hospitals in the Chicago area still had fair share deficits. If the Lown Institute had elected to only use charity care as their fair share standard, Texas hospitals would rank among the highest in the country due to existing legislative obligations. In Texas, non-profit hospitals are obligated to provide community benefit in accordance with standards such as, providing charity care and community benefit in a combined amount equal to at least five percent of the hospital’s net patient revenue, provided that charity care and government sponsored indigent care must be provided in an amount equal to at least four percent of the net patient revenue.
Academic medical centers (AMC) typically reflect greater spending on the education and research categories. But with the Lown ranking, many AMCs were ranked among those with the greatest fair share deficits. Cleveland Clinic, an AMC, had the biggest fair share spending deficit at $261 million, among the 2,391 private non-profit hospitals examined. Cleveland Clinic responded to this finding by stating that education and research are essential to the community, especially when the country was at the height of the global COVID-19 pandemic. While the Lown Institute acknowledges research as an essential service, it is also difficult to determine if hospital research projects are actually responding directly to local community needs.
The release of the Lown Institute hospital rankings allows the public to examine how their hospital is contributing to the community. While some hospitals have done exceptionally well, many have prompted a closer look into how certain hospitals are justifying significant tax breaks. Along with the community benefit reporting, the ACA requires hospitals to conduct a Community Health Needs Assessment and Implementation Strategy every three years. The assessment is intended to identify community needs and issues. It’s imperative that hospitals use this information to guide their community benefit activities to address the needs identified in the communities they serve in order to improve local health outcomes.