Threatening Nonprofit Hospital Tax Exemption: A Better Path Forward.

This Viewpoint discusses regulation of nonprofit hospitals in a way that will advance their charitable purposes without eliminating their tax exemption status.

Charity Care Characteristics and Expenditures Among US Tax-Exempt Hospitals in 2016.

Objectives. To examine content of financial assistance polices (FAPs) among US tax-exempt hospitals and determine whether restrictive policies were associated with reduced charity care spending.Methods. Using hospital tax filings with the Internal Revenue Service in 2016 and FAPs obtained from hospital Web sites, we examined characteristics of FAPs and associated expenditures for charity care in a representative sample of 170 tax-exempt hospitals. We identified common eligibility requirements and used them to define restrictiveness of FAPs.Results. FAPs were characterized by various ways to exclude patients, a patchwork of coverage for typical health care services, and wide-ranging discounts. FAP expenditures were lowest among restrictive hospitals in states that expanded Medicaid as part of the Affordable Care Act and highest among nonrestrictive hospitals in nonexpansion states. FAP expenses did not differ by hospital restrictiveness alone.Conclusions. Standardizing common eligibility requirements among FAPs carries potential benefits with regard to optimizing charity care for community benefit and achieving at least some level of equity; however, further policy efforts must account for additional restrictions, charges, and exclusions to be effective.

The Growing Executive-Physician Wage Gap in Major US Nonprofit Hospitals and Burden of Nonclinical Workers on the US Healthcare System.

BACKGROUND: In an era of increasing healthcare costs, the number and value of nonclinical workers, especially hospital management, has come under increased study. Compensation of hospital executives, especially at major nonprofit medical centers, and the "wage gap" with physicians and clinical staff has been highlighted in the national news. To our knowledge, a systematic analysis of this wage gap and its importance has not been investigated. QUESTIONS/PURPOSES: (1) How do wage trends compare between physicians and executives at major nonprofit medical centers? (2) What are the national trends in the wages and the number of nonclinical workers in the healthcare industry? (3) What do nonclinical workers contribute to the growth in national cost of healthcare wages? (4) How much do wages contribute to the growth of national healthcare costs? (5) What are the trends in healthcare utilization? METHODS: We identified chief executive officer (CEO) compensation and chief financial officer (CFO) compensation at 22 major US nonprofit medical centers, which were selected from the US News & World Report 2016-2017 Hospital Honor Roll list and four health systems with notable orthopaedic departments, using publicly available Internal Revenue Service 990 forms for the years 2005, 2010, and 2015. Trends in executive compensation over time were assessed using Pearson product-moment correlation tests. As institution-specific compensation data is not available, national mean compensation of orthopaedic surgeons, pediatricians, and registered nurses was used as a surrogate. We chose orthopaedic surgeons and pediatricians for analysis because they represent the two ends of the physician-compensation spectrum. US healthcare industry worker numbers and wages from 2005 to 2015 were obtained from the Bureau of Labor Statistics and used to calculate the national cost of healthcare wages. Healthcare utilization trends were assessed using data from the Agency for Healthcare Quality and Research, the National Ambulatory Medical Care Survey, and the National Hospital Ambulatory Medical Care Survey. All data were adjusted for inflation based on 2015 Consumer Price Index. RESULTS: From 2005 to 2015, the mean major nonprofit medical center CEO compensation increased from USD 1.6 ± 0.9 million to USD 3.1 ± 1.7 million, or a 93% increase (R = 0.112; p = 0.009). The wage gap increased from 3:1 to 5:1 with orthopaedic surgeons, from 7:1 to 12:1 with pediatricians, and from 23:1 to 44:1 with registered nurses. We saw a similar wage-gap trend in CFO compensation. From 2005 to 2015, mean healthcare worker wages increased 8%. Management worker wages increased 14%, nonclinical worker wages increased 7%, and physician salaries increased 10%. The number of healthcare workers rose 20%, from 13 million to 15 million. Management workers accounted for 3% of this growth, nonclinical workers accounted for 27%, and physicians accounted for 5% of the growth. From 2005 to 2015, the national cost-burden of healthcare worker wages grew from USD 663 billion to USD 865 billion (a 30% increase). Nonclinical workers accounted for 27% of this growth, management workers accounted for 7%, and physicians accounted for 18%. In 2015, there were 10 nonclinical workers for every one physician. The cost of healthcare worker wages accounted for 27% of the growth in national healthcare expenditures. From 2005 to 2015, the number of inpatient stays decreased from 38 million to 36 million (a 5% decrease), the number of physician office visits increased from 964 million to 991 million (a 3% increase), and the number of emergency department visits increased from 115 million to 137 million (a 19% increase). CONCLUSIONS: There is a fast-rising wage gap between the top executives of major nonprofit centers and physicians that reflects the substantial, and growing, cost of nonclinical worker wages to the US healthcare system. However, there does not appear to be a proportionate increase in healthcare utilization. These findings suggest a growing, substantial burden of nonclinical tasks in healthcare. Methods to reduce nonclinical work in healthcare may result in important cost-savings. LEVEL OF EVIDENCE LEVEL: IV, economic and decision analysis.

State-Level Community Benefit Regulation and Nonprofit Hospitals' Provision of Community Benefits.

Do nonprofit hospitals provide enough community benefits to justify their tax exemptions? States have sought to enhance nonprofit hospitals' accountability and oversight through regulation, including requirements to report community benefits, conduct community health needs assessments, provide minimum levels of community benefits, and adhere to minimum income eligibility standards for charity care. However, little research has assessed these regulations' impact on community benefits. Using 2009-11 Internal Revenue Service data on community benefit spending for more than eighteen hundred hospitals and the Hilltop Institute's data on community benefit regulation, we investigated the relationship between these four types of regulation and the level and types of hospital-provided community benefits. Our multivariate regression analyses showed that only community health needs assessments were consistently associated with greater community benefit spending. The results for reporting and minimum spending requirements were mixed, while minimum income eligibility standards for charity care were unrelated to community benefit spending. State adoption of multiple types of regulation was consistently associated with higher levels of hospital-provided community benefits, possibly because regulatory intensity conveys a strong signal to the hospital community that more spending is expected. This study can inform efforts to design regulations that will encourage hospitals to provide community benefits consistent with policy makers' goals.

Understanding Costs of Care in the Operating Room.

Importance: Increasing value requires improving quality or decreasing costs. In surgery, estimates for the cost of 1 minute of operating room (OR) time vary widely. No benchmark exists for the cost of OR time, nor has there been a comprehensive assessment of what contributes to OR cost. Objectives: To calculate the cost of 1 minute of OR time, assess cost by setting and facility characteristics, and ascertain the proportion of costs that are direct and indirect. Design, Setting, and Participants: This cross-sectional and longitudinal analysis examined annual financial disclosure documents from all comparable short-term general and specialty care hospitals in California from fiscal year (FY) 2005 to FY2014 (N = 3044; FY2014, n = 302). The analysis focused on 2 revenue centers: (1) surgery and recovery and (2) ambulatory surgery. Main Outcomes and Measures: Mean cost of 1 minute of OR time, stratified by setting (inpatient vs ambulatory), teaching status, and hospital ownership. The proportion of cost attributable to indirect and direct expenses was identified; direct expenses were further divided into salary, benefits, supplies, and other direct expenses. Results: In FY2014, a total of 175 of 302 facilities (57.9%) were not for profit, 78 (25.8%) were for profit, and 49 (16.2%) were government owned. Thirty facilities (9.9%) were teaching hospitals. The mean (SD) cost for 1 minute of OR time across California hospitals was $37.45 ($16.04) in the inpatient setting and $36.14 ($19.53) in the ambulatory setting (P = .65). There were no differences in mean expenditures when stratifying by ownership or teaching status except that teaching hospitals had lower mean (SD) expenditures than nonteaching hospitals in the inpatient setting ($29.88 [$9.06] vs $38.29 [$16.43]; P = .006). Direct expenses accounted for 54.6% of total expenses ($20.40 of $37.37) in the inpatient setting and 59.1% of total expenses ($20.90 of $35.39) in the ambulatory setting. Wages and benefits accounted for approximately two-thirds of direct expenses (inpatient, $14.00 of $20.40; ambulatory, $14.35 of $20.90), with nonbillable supplies accounting for less than 10% of total expenses (inpatient, $2.55 of $37.37; ambulatory, $3.33 of $35.39). From FY2005 to FY2014, expenses in the OR have increased faster than the consumer price index and medical consumer price index. Teaching hospitals had slower growth in costs than nonteaching hospitals. Over time, the proportion of expenses dedicated to indirect costs has increased, while the proportion attributable to salary and supplies has decreased. Conclusions and Relevance: The mean cost of OR time is $36 to $37 per minute, using financial data from California's short-term general and specialty hospitals in FY2014. These statewide data provide a generalizable benchmark for the value of OR time. Furthermore, understanding the composition of costs will allow those interested in value improvement to identify high-yield targets.

Taxes, bankruptcy costs, and capital structure in for-profit and not-for-profit hospitals.

About 60% of the US hospitals are not-for-profit and it is not clear how traditional theories of capital structure should be adapted to understand the borrowing behavior of not-for-profit hospitals. This paper identifies important determinants of capital structure taken from theories describing for-profit firms as well as prior literature on not-for-profit hospitals. We examine the differential effects these factors have on the capital structure of for-profit and not-for-profit hospitals. Specifically, we use a difference-in-differences regression framework to study how differences in leverage between for-profit and not-for-profit hospitals change in response to key explanatory variables (i.e. tax rates and bankruptcy costs). The sample in this study includes most US short-term general acute hospitals from 2000 to 2012. We find that personal and corporate income taxes and bankruptcy costs have significant and distinct effects on the capital structure of for-profit and not-for-profit hospitals. Specifically, relative to not-for-profit hospitals: (1) higher corporate income tax encourages for-profit hospitals to increase their debt usage; (2) higher personal income tax discourages for-profit hospitals to use debt; and (3) higher expected bankruptcy costs lead for-profit hospitals to use less debt. Over the past decade, the capital structure of for-profit hospitals has been more flexible as compared to that of not-for-profit hospitals. This may suggest that not-for-profit hospitals are more constrained by external financing resources. Particularly, our analysis suggests that not-for-profit hospitals operating in states with high corporate taxes but low personal income taxes may face particular challenges of borrowing funds relative to their for-profit competitors.

Not-for-profit hospitals and Affordable Care Act: Navigating the new health care landscape.

On a sunny Thursday morning, June 25, 2015, President Obama strode into the Rose Garden and declared a victory for the Affordable Care Act (ACA) by stating that the act was working exactly the way it was supposed to work. He further reinforced that ACA has enabled young Americans up to the age of 26 to remain on their parents' health plans. It disallows the insurance companies from denying coverage based on preexisting conditions. Above all, an expansion of Medicaid has also brought an additional 16 million Americans under health coverage in a span of less than 2 years. The ACA went into full effect on January 1, 2014, ushering in health insurance reforms and new health coverage options across the country. As the states expand Medicaid and provide new coverage options through the federal health insurance marketplace, they are busy streamlining application and enrollment processes for coverage programs. This article highlights the positive impact of the ACA on uninsured and the challenges that not-for-profit and public hospitals are facing as they navigate the new health care landscape.

Proposed reporting model update creates dialogue between FASB and not-for-profits.

Seeing a need to refresh the current guidelines, the Financial Accounting Standards Board (FASB) proposed an update to the financial accounting and reporting model for not-for-profit entities. In a response to solicited feedback, the board is now revisiting its proposed update and has set forth a plan to finalize its new guidelines. The FASB continues to solicit and respond to feedback as the process progresses.

Analysis of the Community Benefit Standard in Texas Hospitals.

The federal government provides special tax-exemption status, known as the community benefit standard, to some nonprofit hospitals. It is not known if hospitals that claim the community benefit standard provide more or different services from those provided by hospitals that do not claim the community benefit status. Guided by the socioecological model, this quantitative study investigated 95 hospitals serving 52 counties in South Texas--43 that claimed a community benefit and 52 that did not. The independent variables were hospitals that claimed the community benefit standard versus hospitals that did not. The dependent variables were the three essential criteria and the 13 reported services used to meet the community benefit standard. The study results show that all hospitals that claimed the community benefit standard met two of the three required criteria. However, only 22 of 43 hospitals had a full-time emergency department (ED), the third criterion. Χ² analysis showed statistically significant differences for only two of the five common services: having an ED and community education for community benefit hospitals versus noncommunity benefit hospitals. On average, hospitals that claimed the community benefit spent 100 times more money on community services than hospitals that did not claim the community benefit. Further investigation is needed to determine the reasons for the gap in services pertaining to EDs, trauma care, neonatal intensive care, free-standing clinics, collaborative efforts, other medical services, education of patients, community health education, and other education services.

The Relationship Between Hospital Value-Based Purchasing Program Scores and Hospital Bond Ratings.

Tax-exempt hospitals and health systems often borrow long-term debt to fund capital investments. Lenders use bond ratings as a standard metric to assess whether to lend funds to a hospital. Credit rating agencies have historically relied on financial performance measures and a hospital's ability to service debt obligations to determine bond ratings. With the growth in pay-for-performance-based reimbursement models, rating agencies are expanding their hospital bond rating criteria to include hospital utilization and value-based purchasing (VBP) measures. In this study, we evaluated the relationship between the Hospital VBP domains--Clinical Process of Care, Patient Experience of Care, Outcome, and Medicare Spending per Beneficiary (MSPB)--and hospital bond ratings. Given the historical focus on financial performance, we hypothesized that hospital bond ratings are not associated with any of the Hospital VBP domains. This was a retrospective, cross-sectional study of all hospitals that were rated by Moody's for fiscal year 2012 and participated in the Centers for Medicare & Medicaid Services' VBP program as of January 2014 (N = 285). Of the 285 hospitals in the study, 15% had been assigned a bond rating of Aa, and 46% had been assigned an A rating. Using a binary logistic regression model, we found an association between MSPB only and bond ratings, after controlling for other VBP and financial performance scores; however, MSPB did not improve the overall predictive accuracy of the model. Inclusion of VBP scores in the methodology used to determine hospital bond ratings is likely to affect hospital bond ratings in the near term.