This week, Modern Healthcare published a new report analyzing non-profit hospitals’ operating expenses and charity care spending. The report found that between 2020 and 2022, hospitals provided less charity care as expenses increased. According to Modern Healthcare, operating expenses for hospitals rose 20% whilst charity care decreased by 0.22%. However, rising expenses are not the only factor affecting charity care expenditures. According to a report from KFF, during that same period, enrollment under Medicaid and Children’s Health Insurance Program (CHIP) grew by more than 21 million, or roughly 30% under the continuous enrollment provision which ended in March. This increase in enrollment means there are fewer patients in need of free or discounted health care services, or charity care, decreasing the amount hospitals have to spend.

In October, the Senate committee on Health, Education, Labor and Pensions (HELP) issued a report of 16 major health systems’ 2020 financial statements. The report found that six of the 16 systems spent less than 2% of charity care compared to their total revenue, and six others spent less than 1%. The committee made recommendations to address this, some of which include: that the Internal Revenue Service (IRS) consider establishing a minimum level of community benefit, and that Congress should pass legislation limiting hospitals’ tax breaks to the value of the community benefits. Some states are already pursuing similar actions. Earlier this year, the Colorado legislature introduced a bill that would have required non-profit hospitals to spend at least 3% of their net patient revenue on community benefit. The threshold would rise gradually to 5% of patient revenue. The bill was amended to exclude the minimum community benefit threshold, but it added additional hospital reporting requirements.

This year, non-profit hospitals have also faced scrutiny through a number of media articles, publications, advocacy campaigns, and legislative activity, often focusing on just a single portion of hospitals’ community benefit (e.g. charity care). Following the publication of the Senate HELP Committee’s report, the American Hospital Association (AHA) worked with Ernst and Young (EY) to issue a report covering the full scope of hospital community benefit as reported via the IRS tax form 990, Schedule H. Following the enactment of the Affordable Care Act, hospital community benefit was expanded to include more than just charity care; now it also includes Medicaid shortfalls and shortfalls from other government programs, health professions education, medical research, and cash and in-kind contributions to community organizations. The AHA/EY report found that in 2020, hospitals contributed 11.3% of their total expenses in total community benefits. Nearly 7% of expenses accounted for charity care, Medicaid shortfalls, and shortfalls from other means-tested government programs.

Medicaid expansion and states’ redeterminations have a strong impact on whether patients need charity care. Research by Modern Healthcare has found that Medicaid expansion states saw lower charity care but significantly increased Medicaid shortfalls. During the study year, Medicaid expansion states saw a 4% increase in Medicaid shortfalls whilst non-Medicaid expansion states saw a mere 0.5% increase. To date, 40 states and the District of Columbia have passed legislation to expand Medicaid eligibility.

Despite Medicaid expansions, the end of the continuous enrollment provision enacted during the COVID-19 public health emergency, has led to many people losing coverage as states go through the redetermination process. According to the KFF Medicaid Enrollment and Unwinding Tracker, since redeterminations began, over 11 million, or roughly one-third of enrollees who have gone through redetermination have lost their Medicaid coverage. KFF also notes that of those 11+ million disenrolled, 71% were disenrolled due to procedural reasons and only 29% were actually determined to be ineligible. Children account for roughly 38% of those disenrolled. As hospital expenses begin to plateau and as redeterminations continue, it is expected that hospital charity care will increase in the coming years even with Medicaid expansions.