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June 3, 2020
Patients Shouldn’t Expect Their Local Merging Not-For-Profit Hospitals to be More Charitable
David Burda
Economics Policy System Dynamics

Patients Shouldn’t Expect Their Local Merging Not-For-Profit Hospitals to be More Charitable

For an old healthcare legal reporter, writing about antitrust and community benefits in the same blog post is about as good as it gets. The only thing missing is a little fraud and abuse.

For patients, though, this post will be a bit disappointing, especially if they’re counting on private not-for-profit hospitals to provide more charity care after they merge because they’re not-for-profits and it would seem like the right thing to do after a tax-exempt public charity comes into some extra money. 

Researchers from the University of Chicago, University of Pennsylvania and Bates White, an economics consulting firm in Washington, wanted to test the idea that federal regulators should give private not-for-profit hospitals special antitrust treatment when they merge with or buy other hospitals. Currently, antitrust regulators treat all hospitals the same regardless of ownership status. 

Proponents of special antitrust treatment or exemptions for not-for-profits say hospitals would use the financial gains from their greater post-consolidation market power for good, e.g., providing more charity care to the poor or opening unprofitable but needed service lines, rather than not evil, e.g., increasing margins,  building new buildings, buying up physician practices and raising executive compensation.

So the researchers compared the charitable behaviors of not-for-profit hospitals after they merged with the charitable behaviors of for-profit hospitals after they merged. Using 11 years of data from California hospitals from the California Office of Statewide Health Planning and Development, they compared three behaviors demonstrated by hospitals in the two ownership categories from 2001 through 2011:

  • Expenditures on charity care, which is care given with no expectation of payment
  • Uncompensated care, which is the combination of charity care and bad debt, or care for which payment was expected but not made
  • Volume of inpatient services provided to patients who didn’t have health insurance

Charity care expenses, uncompensated care expenses and the volume of inpatient services provided to the uninsured increased at hospitals in both ownership groups. And, more importantly, the researchers found no difference between the two ownership groups in how much those three outcomes increased as the hospitals in each group faced less competition after they merged with or bought other hospitals.

“There is no statistically significant positive difference between nonprofit and for-profit hospitals in the relationship between competition and charity care, uncompensated care, or charity volume,” they said.

Not-for-profits and for-profits behaved exactly the same way, which shouldn’t come as a surprise to anyone who believes that hospitals are businesses in an industry that’s just like any other industry.  

As a result, federal antitrust law should continue to treat not-for-profit and for-profit hospitals equally under the law because they operate in essentially the same way.

“This analysis also provides no statistical basis for special antitrust treatment for nonprofit hospitals,” the researchers concluded.

The researchers published their findings in the journal Economic Inquiry, which you can download here.  

There are a lot of other gems in the study that I and people like me will find interesting. For example:

  • The study found no difference between not-for-profits and for-profits in their willingness to open or expand unprofitable services lines as their market share increased
  • The study found that price increases drove the rise in charity-care and uncompensated-care expenses at both sets of hospitals more than increases in actual patient volume 

The most important thing that the study does is reinforce how important it is for lawmakers, regulators and policymakers to base policy decisions on objective data, not charged rhetoric from special interest groups. That’s what patients—and in this case, poor and uninsured patients—need and should expect.

Thanks for reading.

Stay home, stay safe, stay alive.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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