When the Harvard Business Review published a story in 1987 claiming there was little difference in the uncompensated care provided by for-profit and nonprofit hospitals, The New England Journal of Medicine (NEJM) shot back with a rebuttal, saying the Harvard researchers had gotten it wrong.1 , 2 Not only did the paper fail to separate out charity care and bad debt from the uncompensated care figures but it also ignored significant ways that nonprofit hospitals benefit their communities such as providing medical education and research, subsidizing needed community services such as burn units, and responding to community health needs with activities to improve community health, according to NEJM.
This issue was of great interest to the country's nonprofit tax-exempt hospitals and none more than to Catholic-sponsored hospitals. At the same time, for-profit hospitals were saying that they delivered the same product as nonprofits, only more efficiently because they were business oriented.
The powerful US House Committee on Ways and Means, the tax-writing committee of the US House of Representatives, held hearings asking: If there is no difference in the charitable activity of for-profit and nonprofit hospitals, why should nonprofits have special tax status?
Catholic hospitals had added concerns. Nuns who “owned” the hospitals were approached by for-profit chains to sell their facilities and use funds for good works. The nuns asked the same question the Ways and Means Committee asked but in another way. The committee asked: Is health care no longer a charitable activity? The nuns asked: Is health care no longer a ministry of the church?
Another issue of concern to leaders of Catholic health care emerged through a change in the Medicare payment system. No longer were hospitals paid retrospectively based on their costs but prospectively with a new diagnosis-related groups or DRG system. Hospitals would be forced to watch their costs. Some leaders in Catholic health care worried: Would community services be cut? Would our history and tradition of responding to community health needs be a casualty of the new payment system?
To provide the reader with more context to understand these questions, it is necessary to provide a short history of the community benefit mission and tradition of Catholic and other nonprofit hospitals. As our nation was settled and developed, hospitals were established by religious and civic groups to address the health needs of America's new and growing communities.
Stories of early Catholic hospitals exemplify this history. Nuns left Europe to serve in this country, starting in 1726 when 3 Ursuline Sisters came to New Orleans to care for the poor, visit the sick, and open a hospital. Catherine McAuley taught nursing to Irish girls who came to America and founded what are now Mercy hospitals. French sisters came to Port Arthur, Texas, to care for victims of small pox and yellow fever and began what is now CHRISTUS Health. Mother Joseph, whose statue is in the US Capitol, started schools, hospitals, and orphanages in the Northwest. There are many more examples. This was not a history and tradition that leaders of Catholic health care were willing to risk.
In addition to congressional hearings, the topic of whether there was a difference in the charitable behavior of for-profit and nonprofit hospitals dominated legal and hospital conferences in the 1980s. At one of these, a speaker said, “Hospitals must do a financial accounting every year. Maybe they should do a social accounting as well.”
The board of the Catholic Health Association of the United States (CHA) decided that social accounting was exactly what was needed. It invited Larry Lewin, the primary author of the NEJM article, to develop his ideas of how nonprofit hospitals benefit their communities and address community health needs. Lewin worked with CHA to discover what and how hospitals were serving their communities. This work resulted in publication of CHA's Social Accountability Budget in 1989.3 It itemized and categorized community benefits provided by hospitals, including:
- Charity Care—free and discounted care to low-income persons;
- Unpaid costs of public programs, such as Medicaid;
- Education and research;
- Cash and in-kind contributions;
- Low- or negative-margin services (now known as “subsidized services”); and
- Nonbilled services such as free clinics and health screening (now known as community health improvement services and community-building activities).
The Social Accountability Budget recommended that hospitals set an annual budget for these services, not relying on excess or “leftover” moneys to fund programs. It called for hospitals to develop an infrastructure for community service, including policies, reporting mechanisms, and assigned staff. It also suggested that hospitals do assessments of community need based on available public health data and discussions with community leaders and develop a plan for addressing needs. The book immediately became a best seller not only among Catholic hospitals but also with other not-for-profit hospitals, some of which were facing tax challenges in their states.
In many ways, the document was a compilation of accounting forms. Both CHA and Lewin concluded that for hospitals to be able to make a credible case that they were serving their communities, they needed to account for these services with the same rigor they accounted for other hospital finances. (In an ironic twist, an early reviewer of Social Accountability Budget complained that it was a bit dry and read like an IRS manual. And now, as you will see, it is!) But the book also recognized that dollars spent presented only part of the community benefit picture and recommended that hospitals offer a narrative as well as financial account of their community contributions, including whether their services were making a difference. The Social Accountability Budget was revised several times based on hospitals' experience and emerging public health information. It was eventually renamed, A Guide for Planning and Reporting Community Benefit. 4
In the early 1990s, at the request of the CHA, a software company, Lyon Software, prepared a computerized program for maintaining the accounting forms. This became the Community Benefit Inventory for Social Accountability, sponsored by CHA, VHA, Inc (now Vizient), and Lyon Software. Today, this software program is used by more than 2000 nonprofit hospitals.
“What counts” as community benefit evolved over the years from a long checklist to ensure that nothing was missed during an inventory of services to discrete standardized categories. In 1997, the Public Health Institute, under the leadership of Kevin Barnett, developed a nomenclature that called out “Community Building Activities,” which address the root causes of health problems and have a focus on low-income communities with unmet health needs.5 Subsequently, community building became a separate category of community benefits in CHA's reporting system.
In the mid-2000s, the charitable nature of hospitals and whether they deserved tax exemption resurfaced as a policy issue, this time from the Senate Finance Committee. Its chair, Senator Grassley (R-IA), complained that the community benefit standard, spelled out in a 1969 IRS revenue ruling, was weak and that hospitals could probably call anything a community benefit. The June 5, 2006, issue of Modern Healthcare featured an editorial cartoon showing hospital executives listing their hospital's community benefits, including “public restrooms” and “free water fountains.”
CHA leaders met with Senator Grassley and his staff and demonstrated that not only were there standardized definitions of what is a community benefit but there was also an accounting system for measuring and reporting these services. Senator Grassley suggested that IRS review this material, and in 2008 when it revised its Form 990 reporting instrument for tax-exempt organizations, it added a Schedule H for reporting community benefit and literally took a page (or pages) from CHA's work.
The issue arose again during the drafting of the Affordable Care Act (ACA). If all persons became insured for health care and there was little need for charity care, congressional committees writing the ACA asked, would nonprofit hospitals still deserve tax exemption? Should there be a bright line test of how much charity care a hospital should be required to provide? Hospitals not only responded, going back to Lewin's original arguments, that the community benefit role of hospitals went well beyond providing charity care but also included a range of community services, based on identification of community need and often provided in collaboration with their communities. The final ACA called for hospitals to work with public health and community members to conduct community health needs assessments and develop implementation strategies based on the assessed needs.
Today, many hospital community benefit programs are part of the fabric of their communities' health. They are advised by public health experts and based on comprehensive assessment of community health status. Most fully engage community members, reaching out to poor and vulnerable people and working to reduce the health disparities. Many programs are looking upstream at the social, economic, and environmental determinants of health and are measuring the impact of their activities. Today's community benefit programs are going beyond what an early community benefit leader called “random acts of kindness” to strategically thinking how to improve community health.
A recent report from the American Hospital Association gave several examples of community benefits and their impact, shown in the Table.6
Why do they do this? They do it because it is part of the history and tradition of nonprofit health care. They do this because the IRS requires them to report their community benefit every year. They do it because the ACA told them they must conduct community health needs assessments every 3 years. But they also do it because almost 30 years ago, 2 Boston journals started a very important debate.
Did it matter? I think indeed it did! These articles served as a wake-up call to policy makers and hospital leaders to ask and answer the important question of whether there is a difference between for-profit and nonprofit health care. They reminded hospitals that they were borne out of community health need and that their tradition of community service needed to be reinforced and the story told. As a result of these articles, hospitals faced—and are facing today—the double mandate of both a legal and mission imperative to provide community benefit.