The idea was that hospitals can use the exemptions in exchange for public health goods, such as free care for poor people, community health assessments or public outreach for health. But while free-market advocates criticize the exemptions as an unjustified subsidization of business, other people, like nurses unions, support the tax breaks but argue that they contribute more to exorbitant executive salaries than community benefits.
Nationally, it's difficult to study how hospitals break down their expenditures due to a lack of reliable data. Tax breaks differ per state and information provided on tax forms is not uniformly reported and is usually not audited by the IRS.
The UCSF researchers tried to get around those obstacles by looking specifically at the spending of 264 hospitals in California, the only state where for-profit hospitals are required to report non-reimbursed payments.
The authors found that nonprofits dedicated an average of 1.9 percent of the total operating expenditures to care that it provides without charging for it, whereas for-profits dedicated an average of 1.4 percent. The averages were considerably buoyed by a handful of hospitals putting a bunch of money into charity care, with about a third of the nonprofits in the study spending less than 0.9 percent on charity care.
But that's not the whole picture. Hospitals also must shoulder the burden of patients who will not pay back their debts for care. This "bad debt" plus the charity care is generally referred to as uncompensated care, and there's no difference between nonprofits and for-profits in terms of that more broad expenditure, the study found. On average, both spent 4.4 percent of their operating expenditures on uncompensated care.
"The takeaway is not that we should not be giving tax breaks, but that there should be a little more accountability," said Renee Hsia, a lead author of the study and a UCSF professor. "These are exemptions that, if we didn't have them, could fund education, water or public utilities."
For Hsia, the study highlights an opportunity for policy change. There have been efforts in Texas to mandate that nonprofit hospitals spend 4 percent on charity care, but that resulted in hospitals spending more than the mandate to bring their expenditures down, and the total amount of charity care actually ended up decreasing statewide.
Who qualifies for charity care is up to the policies of each individual hospital, which Hsia argues mostly hurts the average blue-collar worker — the people who are not so poor that they rely on Medicaid but who would still benefit from financial assistance.
"There's very little information about charity care," she said. "From a patient's perspective, it's very hard to navigate the system ... Writing (into law) who does qualify for financial assistance — that's one step to take."
While representatives from the American Hospital Association were unable to respond to requests for comment, the California Hospital Association said hospitals throughout the state are providing more than just uncompensated care for communities.
"Charity care is important, but it is only a fraction of the total picture of how nonprofit hospitals reinvest back into their local communities," said Jan Emerson-Shea, a spokesperson for the CHA. "In addition to charity care, nonprofit hospitals fund research, education, wellness services and a myriad of other programs that are determined based on the needs of local communities."
Most hospitals — about 60 percent — operate as nonprofits, according to the American Hospital Association. About 18 percent are for-profit and the rest are owned by state and local governments.
There are a few advantages to having nonprofit status beyond just tax benefits. They also have greater capacity to ask for donations from the public and exist as incorporated legal entities. However, they do have to deal with more regulations and paperwork, and control is often required to be shared among several directors.