Think Tank

Pros, Cons of Two State Bills Dealing With Not-for-Profit Hospitals

Lawmakers are debating two bills in the California Legislature dealing with community benefits provided by not-for-profit hospitals.

  • SB 346, by state Sen. Bob Wieckowski (D-Fremont), would establish accountability standards to measure the amount of community benefits provided by tax-exempt private, not-for-profit hospitals. The bill is co-sponsored by the California Nurses Association, the Greenlining Institute and the California Rural Legal Assistance Foundation.
  • AB 1046, by Assembly member Matt Dababneh (D-Encino), is designed to align federal and state community benefit laws and provide greater transparency and consistency in the reporting and disclosure of investments made by not-for-profit hospitals. This bill is sponsored by the California Hospital Association.

We asked legislators, hospital officials and consumer advocates to discuss pros and cons of these two proposals and asked whether the state would benefit if either bill became law.

We received responses from:

Taxpayers Deserve Improved Accountability

California taxpayers frequently demonstrate their willingness to support worthy services, especially when they have a clear understanding of how those subsidies are spent. But one issue that flies under the radar — with no standards and little accountability — is the amount of charity care provided by private, not-for-profit hospitals that are awarded tax exempt status.

In one year, the hospitals ran up $1.8 billion from their tax exempt status beyond what they invested back into charity care for at-risk, local communities, according to the California Nurses Association. Not only are counties missing out on billions of dollars, due to the tax exemptions, but charity care for the indigent is being short-changed.

Fortunately, there’s a simple solution that would bring about transparency and accountability to charity care. SB 346 would provide a specific definition of charity care, create a uniform standard for reporting charity care and community benefits, and provide a meaningful opportunity for stakeholders by allowing community voices to be heard in the process. Any private, not-for-profit hospital that fails to report its activities could face fines.

Clear definitions, measurable, transparent standards and penalties for non-compliance — these are components that no one in favor of good government should fear.

As studies by the CNA and Greenlining Institute, as well as the California state auditor, have pointed out, no standard methodology for calculating community benefits currently exists. This lack of clarity helps create a free-wheeling accounting system that one auditor likened to the “Wild West.” 

SB 346 would create uniform standards to allow communities to better judge how private, not-for-profit hospitals and multi-specialty clinics compare to one another in meeting their social obligations. After April 1, 2018, the Office of Statewide Health Planning and Development would calculate and make public the total value of community benefits provided by each reporting hospital and clinic. 

It creates a measurable definition of charity care as the unreimbursed cost for providing services to the uninsured or underinsured. 

Don’t be surprised if critics of the bill try to apply smoke and mirrors to distract attention away from the core issues at heart — the lack of accountability and clear definitions that adversely affect at-risk, low-income communities.

But these low-income residents deserve to know if modest reforms to help taxpayers understand where charity care dollars are going is too much to ask of these not-for-profit corporate giants.  

Will California Move Forward or Backward?

California’s not-for-profit hospitals are leaders, ensuring that vulnerable populations have access to health care services and programs. They reinvest every penny of unspent revenue back into the community, more than $5 billion annually, according to IRS filings.

This includes in-house investments in neonatal intensive care and life-saving emergency services, and hospital partnerships with local not-for-profits and clinics that provide care to underserved populations, like dental care for low-income children, medical services to the homeless and mobile clinics serving disadvantaged families. They also supplement the cost to care for people enrolled in Medi-Cal.

Two bills have been introduced that would impact not-for-profit hospitals. AB 1046 improves the system, SB 346 harms it.

AB 1046 increases transparency, ensures accountability and improves efficiency to help maximize a not-for-profit hospital’s ability to create and implement local community benefit programs.

AB 1046 would:

  • Improve California’s community benefit law, aligning it more closely with ACA requirements so that hospitals can maintain their focus on local health needs;
  • Ensure that not-for-profit hospitals’ community benefit reports are more understandable, providing greater transparency and consistency in the disclosure of local investments; and
  • Ensure that the annual reports hospitals file with the California Office of Statewide Health Planning and Development are promptly made public.

By contrast, SB 346 imposes vague, unrealistic and costly mandates on not-for-profit hospitals and clinics. It reintroduces previously rejected policies — AB 975 in 2013 and AB 503 in 2014.

Problems with SB 346 include:

  • SB 346 conflicts with the ACA, forcing hospital costs to increase just to comply with conflicting federal and state reporting requirements. Community benefit programs would face cutbacks, affecting seniors and children;
  • The state Department of Finance concluded that SB 346’s predecessor (AB 503), “is unnecessary and will likely increase costs to the state.” The analysis notes there is insufficient evidence that hospitals are not reporting adequately and finds the bill “misaligns state and federal law”; and
  • The Senate Appropriations Committee analysis of AB 503 identified costs to OSHPD of approximately $1.1 million in the first year of implementation and ongoing costs of almost $1 million annually.

California leads the nation in implementing the ACA. With this comes a responsibility to ensure alignment that achieves the goal of access to care for all. AB 1046 has widespread support, reflecting the positive collaboration between the state, hospitals, the communities they serve and other health care providers.

Transparency, Consistency Needed in Not-For-Profit Rules

Signs of spring in California: Daylight saving time begins. Hills turn brown. The California Hospital Association goes into war mobilization mode to avoid being held to account on charity care.

Once again, California legislators are considering legislation to establish uniformity and transparency for charity care and community benefit programs — SB 346, authored by Sen. Bob Wieckowski. Once again, the hospital giants are scrambling to prevent it.

SB 346, like its modest predecessors, is hardly the grave threat posited by the CHA.

It clarifies what counts as charity care — the direct provision of medical care to the uninsured or underinsured. Writing off uncollected fees based on the absurdly inflated charges set by the big hospitals would not count.

It ensures that community benefit spending meets real needs by addressing the root causes of ill health, such as poor nutrition and unsafe housing, and requires hospital system’s health planning committees include representatives of underserved communities and public health departments.

And it requires more transparency through improved reporting so everyone can see whether hospitals meet their obligation for charity care and community benefit, not just using those columns to inflate revenues and profit margins through marketing or cost cutting scams.

Yet, every year the CHA, the fourth deepest pocket in lobbying in Sacramento (it spent more than $6.1 million in lobbying the past two years) runs local hospital executives up to Sacramento to complain that transparency and a level playing field would cause them to collapse. They ignore that according to American Hospital Association data, California hospitals recorded a record $8.7 billion in profits in 2013 and an aggregate of nearly $28 billion in profits from 2009 through 2013.

This year, the CHA has a new gambit, a spoiler bill, AB 1046, to create the appearance that the hospitals want to clean up their dismal record. Predictably, AB 1046 is a smokescreen to pre-empt meaningful reform. While pretending to align California rules with federal standards, AB 1046 cherry picks the federal regulations it likes while dropping the ones it dislikes, notably those that set forth the most accountability.

In their AB 1046, factsheet CHA claims not-for-profit hospitals “reinvest every penny of unspent revenue back into the community.” That community apparently includes investment portfolios in the billions of dollars and CEO salaries upwards of $6 million.

Twice in recent years the California state auditor’s office has issued reports noting the lack of consistency and uniformity in community benefit programs. Attorney General Kamala Harris (D) recently cited appropriate levels of charity care and community benefit as a condition for the sale of one not-for-profit hospital chain.

California’s nurses launched this push to crack down on the abuse because we see every day what happens when daunting medical bills prompt far too many to self-ration care, services are deemed not profitable enough and are ended, and restrictions reduce access to care for the most medically underserved communities. Ensuring that hospitals fulfill their charity care obligations is an important step in the right direction.

Encouraging Not-For-Profit Hospitals To Meet Social Obligations

Existing California law eloquently explains the public expectation for non-profit hospitals:

“Private not-for-profit hospitals meet certain needs of their communities through the provision of essential health care and other services. Public recognition of their unique status has led to favorable tax treatment by the government. In exchange, not-for-profit hospitals assume a social obligation to provide community benefits in the public interest (California Health and Safety Code, Article 2, Section 127340(a)).”

California was ahead of the curve in 1994 when the governor signed SB 697, which amended the Health and Safety Code to establish the process of identifying a not-for-profit hospital’s social obligation by conducting a community needs assessment every three years, and attempting to meet that social obligation by developing and submitting a community benefits plan annually to document progress and the level of resources and investment being made in community needs.

In 2010, the Affordable Care Act created similar, but slightly different responsibilities for not-for-profit hospitals nationwide in documenting community needs and meeting that same social obligation. The ACA requires all private, not-for-profit hospitals (including those exempt from California’s law, like small or rural hospitals) to conduct a community health needs assessment every three years, and report on community benefit activities at least once every three years. In addition, it requires each hospital to adopt and publicize a written financial assistance policy and comply with billing and collection guidelines for those that may qualify for financial assistance.

Two bills currently under consideration by California’s legislature would make changes to state requirements for not-for-profit hospitals. AB 1046 would align California’s existing law with the ACA’s community health needs assessment and community benefit reporting requirements. While the legislation would not impose additional requirements on currently reporting non-profit hospitals, it does require small and rural hospitals to begin reporting, and establishes consistency between state and federal law so that hospitals could more easily comply with both state and federal requirements. AB 1046 would not expand the social obligations of non-profit hospitals in the state, but it would not undermine current expectations either.

The second bill, SB 346, includes more stringent requirements for non-profit hospitals to demonstrate their community benefit and provide proof that they are meeting the social obligation in return for their tax status. In addition, the bill would expand the requirement to include not-for-profit multispecialty clinics.

SB 346, which would be phased in by 2018, requires a specific process for community health needs assessments for both types of providers. SB 346 explicitly calls for community benefit allocations in charity care for the uninsured and underinsured, as well as community building activities. Unlike AB 1046, SB 346 does not attempt to align state-based activities with the ACA’s community health needs assessment and community benefit requirements for not-for-profit hospitals. Instead, it goes above and beyond IRS expectations by extending responsibilities for community health needs assessments and community benefits to non-profit multispecialty clinics, redefining community benefits to include charity care and community building activities, requiring more explicit and transparent reporting of public community benefit allocation and planning activities, and authorizing the Office of Statewide Health Planning and Development to calculate the value of the community benefits provided.

Given recent concerns about executive compensation at not-for-profit hospitals and health plans and whether those not-for-profit organizations are fulfilling their social obligations, there is certainly a need for state and national monitoring of community health needs, charity care provision and community benefit planning.

While AB 1046 would not significantly undermine efforts to require effective community benefit planning, its main purpose is to align with federal law and establish consistent reporting requirements for non-profit hospitals.

SB 346 not only expands the reach of community benefit requirements in the state, but also makes the process more transparent, and establishes stringent requirements focused on providing charity care and engaging in community building for not-for-profit hospitals. While these new requirements may be considered onerous by those operating not-for-profit hospitals and multispecialty clinics, the deadline for compliance is delayed until 2018 and the reporting requirements can still be aligned with ACA deadlines and concepts to ensure consistency and administrative efficiency, either through legislative amendments or during the implementation process.

It seems that both laws could have positive outcomes, and I hope for a compromise to strengthen monitoring and ensure not-for-profit hospitals actually meet their social obligation, while also aligning certain reporting requirements with existing federal law so that they are not overly burdensome or duplicative.