Patient Finance Benchmarks: Tax Returns Shed Light on Hospital Charity Care Thresholds

What are the income guidelines under which hospital patients qualify for charity care? How are these different for small hospitals versus large ones? Urban hospitals versus rural?

Hospitals across the country are searching for these benchmarks, and a report released this year by the American Hospital Association sheds lights on these metrics based on data supplied on Schedule H Form 990 tax returns.

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Earlier this year the American Hospital Association released the Ernst & Young Schedule H Report, an analysis of data from Schedule H tax returns from not-for-profit hospitals across the country. The report compared how hospitals report community benefits as required under the Patient Protection and Affordable Care Act of 2010.

While the purpose of the report is to identify the range of community benefits that hospitals provide nationwide, it is also a wealth of benchmarking data regarding charity care, bad debt and other patient finance metrics that hospitals can use to compare their performance to their peers.

The Ernst & Young survey was drawn from the 2009 returns, the first year of the new Schedule H. It examined the returns of 571 hospitals and health care systems, approximately 30 percent of all hospitals in the country.

The report splits hospitals by size and area population density, so small hospitals are compared with other small hospitals and urban hospitals are measured with other urban hospitals.

Benchmarks in the report

“Nationwide, hospitals spend an average of 11.3 percent of their total expenses on benefits to their communities,” writes Richard (Rich) Umbdenstock, president and CEO of the association in his letter introducing the report. “Direct benefits to patients in financial need, which include free care, financial assistance and spending to fill gaps in Medicaid underpayments, averaged 5.7 percent of total hospital expenses.”

There are several revelations and benchmarks to be found within that 11.3 percent. Total charity care averages 8.4 percent for all hospitals, but ranges between as little as 7.3 percent for small hospitals to 9.8 for large hospitals. The charity care average for children’s hospitals is far out of the norm at 14 percent of expenses.

The data also reveals a small, but nagging problem for hospitals related to bad debt. Qualified charity care patients who fail to complete the necessary paperwork cost hospitals on average 0.4 percent of expenses in 2009. The failure to capture that information costs hospitals on average $1.6 million in 2009, according to the report.

Federal Poverty Levels

A recent online discussion in the HFMA Revenue Cycle LinkedIn group about the application of federal poverty levels to charity care guidelines generated responses from readers who reported that their hospital or hospitals known to them offer financial assistance to those whose incomes were anywhere from 100 percent to 450 percent of FPLs. The Ernst & Young study, however, found that levels applied charity care are fairly consistent among all types of hospitals as most consider financial assistance to patients whose income falls between 100 percent and 200 percent of FPL guidelines.

The range for discounted care was broader and inconsistent. Small hospitals skewed widely: almost one-quarter applied FPL levels under 200 percent while slightly more than 44 percent offered discounted care to patients who were more than 300 percent of FPL. By comparison only 6 percent of large hospitals limited discount care to those 200 percent or lower, while 70 percent discounted care for patients whose income level fell above 300 percent of FPLs, with 28 percent extending discount care to those over 400 percent.

The report, at 11 pages, is packed with data that hospitals and other health care organizations should find valuable. In addition to the charity care and bad debt, there are tables with average Medicare reimbursements and overall community benefit. The AHA distributes the report free on its web site at http://www.aha.org/content/12/09-sche-h-benchmark.pdf