““Hospital Hospital Uncompensated Care Uncompensated Care

Issues”Issues”Paul A. Hattis MD, J.D., Paul A. Hattis MD, J.D., M.P.H.M.P.H.

Acting Concentration Head in Acting Concentration Head in Health Policy and ManagementHealth Policy and Management

Tufts University Medical SchoolTufts University Medical School

Paul HattisPaul Hattis

Background on the term Background on the term ”Community Benefits””Community Benefits”

Origins are from the Internal Revenue service Origins are from the Internal Revenue service Code rulings interpreting eligibility for tax Code rulings interpreting eligibility for tax exemption under Section 501(c) (3)exemption under Section 501(c) (3)

In 1969, IRS promulgated Revenue Ruling 69-In 1969, IRS promulgated Revenue Ruling 69-545, replacing an earlier revenue ruling that 545, replacing an earlier revenue ruling that was more focused on provision of free carewas more focused on provision of free care

Though “community benefits” has a broader Though “community benefits” has a broader notion than just uncompensated care, a notion than just uncompensated care, a February, 2001 memorandum to IRS field February, 2001 memorandum to IRS field agents suggests that charity care is still tied to agents suggests that charity care is still tied to the community benefits concept. the community benefits concept.

Paul HattisPaul Hattis

State ContextState Context States determine requirements for legal States determine requirements for legal

non-profit corporationnon-profit corporation 14 states have passed laws,regulations, 14 states have passed laws,regulations,

or guidelines that relate to community or guidelines that relate to community benefitsbenefits

Laws usually directed to hospitals, but Laws usually directed to hospitals, but in some states include HMOs or other in some states include HMOs or other health organizationshealth organizations

Paul HattisPaul Hattis

State Activity Concerning State Activity Concerning Hospital Community Hospital Community

Benefits.Benefits. Usually state legal focus arises after some Usually state legal focus arises after some

egregious behavior by a non-profit hospital or egregious behavior by a non-profit hospital or need for tax dollars to support local governmentneed for tax dollars to support local government

Generally, community benefit laws, regulations Generally, community benefit laws, regulations or guidelines are primarily focused on or guidelines are primarily focused on community benefits reporting to state community benefits reporting to state government.government.

Texas and Pennsylvania, are the only two states Texas and Pennsylvania, are the only two states with community benefit benchmarks. In both with community benefit benchmarks. In both cases, uncompensated care is included as one cases, uncompensated care is included as one of the alternative benchmarks to meet the legal of the alternative benchmarks to meet the legal requirements for charitable status. requirements for charitable status.

Paul HattisPaul Hattis

Hospital Community Benefits in Hospital Community Benefits in

MassachusettsMassachusetts Attorney General issues guidelines for non-Attorney General issues guidelines for non-

profit hospitals (1994) and all HMOs (1998)profit hospitals (1994) and all HMOs (1998) Guidelines require community benefits Guidelines require community benefits

reporting board actions, community benefits reporting board actions, community benefits plans and community engagement processplans and community engagement process

Newest twist: all reports are now on the WebNewest twist: all reports are now on the Web In Massachusetts, the free care pool In Massachusetts, the free care pool

mechanism that has a greater impact on the mechanism that has a greater impact on the availability of charity care.availability of charity care.

Paul HattisPaul Hattis

What Most Hospitals are Doing What Most Hospitals are Doing Under the Aegis of Their Community Under the Aegis of Their Community

Benefit Obligations Benefit Obligations

Where most hospitals direct their Where most hospitals direct their efforts….efforts…. Uncompensated care or other Uncompensated care or other

services for the poor and services for the poor and uninsureduninsured

Public health programsPublic health programs Not a systematic, planned Not a systematic, planned

approachapproach

Paul HattisPaul Hattis

The Connection Between These The Connection Between These Community Benefit Obligations of Community Benefit Obligations of

Hospitals and the Provision of Hospitals and the Provision of Uncompensated CareUncompensated Care

Not entirely clear (IRS memo makes Not entirely clear (IRS memo makes federal expectations more murky; Texas federal expectations more murky; Texas and Penn. Clearer about what needs to be and Penn. Clearer about what needs to be included) included)

As long as substantial numbers of As long as substantial numbers of uninsured, there should be a connection uninsured, there should be a connection between the twobetween the two

Key element for improvement: Key element for improvement: uncompensated care should be part of a uncompensated care should be part of a more planned community approach by the more planned community approach by the hospitalhospital

Paul HattisPaul Hattis

Massachusetts Free Massachusetts Free Care PoolCare Pool

A state controlled pool to reimburse hospitals for a A state controlled pool to reimburse hospitals for a portion of costs tied to uncompensated care to portion of costs tied to uncompensated care to qualified patients. Currently, $315 million pool qualified patients. Currently, $315 million pool comes from near equal contributions of hospitals, comes from near equal contributions of hospitals, insurers and state respectively each yearinsurers and state respectively each year

Distributed to hospitals based on formula that is Distributed to hospitals based on formula that is tied to statewide and hospital specific tied to statewide and hospital specific uncompensated care levels—reducing some of the uncompensated care levels—reducing some of the unequal burdens around provision of unequal burdens around provision of uncompensated care.uncompensated care.

Currently, hospitals need to make-up pool Currently, hospitals need to make-up pool shortfall--likely to run-up to over $200 million in shortfall--likely to run-up to over $200 million in the next year the next year

Paul HattisPaul Hattis

CB Obligations for for-CB Obligations for for-profit or governmental profit or governmental

hospitalshospitals For for-profits, usually not except in cases For for-profits, usually not except in cases

where explicit agreement has been where explicit agreement has been reached after a conversion to maintain reached after a conversion to maintain prior levels of a non-profit provider.prior levels of a non-profit provider.

However, for marketing and other reasons However, for marketing and other reasons for-profits often do provide some levels of for-profits often do provide some levels of community benefit (as they do with UC).community benefit (as they do with UC).

Governmental—usually there is no formal Governmental—usually there is no formal requirement—yet tied to their missionrequirement—yet tied to their mission

Paul HattisPaul Hattis

ConversionsConversions

Deals with state overseers are often Deals with state overseers are often quite specific about continuing quite specific about continuing obligations for uncompensated care for obligations for uncompensated care for a number of years.a number of years.

In addition, conversion foundations set-In addition, conversion foundations set-up after the conversion use some of up after the conversion use some of their proceeds to pay for their proceeds to pay for uncompensated care or community uncompensated care or community benefit activities in future years benefit activities in future years

Paul HattisPaul Hattis

Other governmental Other governmental programs affecting programs affecting

levels of levels of Uncompensated CareUncompensated Care

Increasingly, some DON Increasingly, some DON obligations tied to capital projects obligations tied to capital projects or opening of new services can or opening of new services can include commitments around include commitments around access for the poor or community access for the poor or community benefit obligationsbenefit obligations

State-specific or county indigent State-specific or county indigent care programscare programs

Paul HattisPaul Hattis

Where is the Where is the Community Benefits Community Benefits Movement going?Movement going?

Ultimate aim is population health Ultimate aim is population health improvement—not just around improvement—not just around medical/hospital care accessmedical/hospital care access

Currently, there concerns are rising over Currently, there concerns are rising over reductions in hospital commitments reductions in hospital commitments towards community benefit across the towards community benefit across the countrycountry

CB relationship to UC, a function of CB relationship to UC, a function of whether we make headway on the number whether we make headway on the number of uninsured in the nation or notof uninsured in the nation or not