Researchers at The Johns Hopkins University found that nonprofit hospitals spend significantly less on charity care than government or for-profit hospitals.

Study in Health Affairs Could Reignite Debate Over Some 340B Hospitals Charity Care

A study published online by Health Affairs yesterday on nonprofit hospitals’ provision of charity care could renew drug manufacturers’ calls for more control over those hospitals’ participation in the 340B program.

Professors and scientists at The Johns Hopkins University used 2018 Medicare hospital cost report data to compare charity care provision across 1,024 government, 2,709 nonprofit, and 930 for-profit hospitals. The study found that nonprofit hospitals spent $2.3 of every $100 in total expenses incurred on charity care, which was less than government ($4.1) or for-profit ($3.8) hospitals.

“These results suggest that many government and nonprofit hospitals’ charity care provision was not aligned with their charity care obligations arising from their favorable tax treatment,” the researchers said. “Policy makers may consider initiatives to enhance hospitals’ charity care provision, particularly hospitals with government and nonprofit ownership.”

They said one policy option, borrowed from the environmental movement, is “a “floor-and-trade” system in which nonprofit and government hospitals could be required to meet a minimum charity care amount requirement (“floor”) by either providing charity care in their own facilities or purchasing credits from other hospitals (“trade”).”

The researchers said policy makers also should consider

  • requiring hospitals to disclose or report their charity care policies, implementation plans, or expenses
  • revisiting the tax exemption rules for nonprofit hospitals.

The study did not mention government and nonprofit hospitals’ participation in the 340B program. It looked only at hospital provision of charity care, usually defined as care for which hospitals never expect to be reimbursed. Groups representing 340B hospitals say the right yardstick for measuring hospitals’ care for underserved populations is uncompensated care, usually defined as charity care plus bad debt. Hospitals also say below-market-rate reimbursement by Medicare, Medicaid, and other public payers also should be taken into account.

Drug manufacturers, private practice oncologists, and other critics of private nonprofit hospitals in the 340B program often assail these hospitals for what the critics say is the hospitals below-average rates of charity care. Some of the research upon which the criticism is based was paid for by the critics. However, the Johns Hopkins study was supported by the Commonwealth Fund and Episcopal Health Foundation, and the authors all receive funding from the Arnold Foundation which is generally considered to a big critic of the pharmaceutical industry.

U.S. Senator Chuck Grassley (R-Iowa), who introduced legislation in 2018 to require 340B hospitals to report their total 340B drug acquisition costs and total revenues from payers for the same drugs, also has a history of concern about tax-exempt hospitals’ charity care policies.

In 2013, Grassley sent letters to three North Carolina 340B hospitals asking them how much revenue they earn from their participation in 340B, the breakdown by payer mix, and how they reinvested their 340B dollars back into the community. He told then U.S. Health Resources and Services Administration Administrator Mary Wakefield that the figures he received “paint a very stark picture of how hospitals are reaping sizeable 340B discounts on drugs and then turning around and upselling them to fully insured patients covered by Medicare, Medicaid, or private health insurance in order to maximize their spread.”

340B hospitals pushed back aggressively,  pointing out that their uncompensated care numbers and proportion of low-income and uninsured patients far exceed that of non-340B hospitals.

In 2017, U.S. Reps. Larry Bucshon (R-Ind.) and Scott Peters (D-Calif.) introduced legislation that would have imposed a two-year moratorium on disproportionate share (DSH) hospital registration in 340B. It also would have imposed reporting requirements on 340B DSH, children’s, and free-standing cancer hospitals, including their total costs for charity care, broken down by child sites enrolled in 340B. The bill also called for a U.S. Health and Human Services Department (HHS) inspector general national report on the level of charity care provided by such hospitals.

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