NCPA - National Center for Policy Analysis


July 1, 2005

Government hospitals generally devote substantially larger shares of their patient operating expenses to uncompensated care than nonprofit and for-profit hospitals, according to a recent United States Government Accountability Office (GAO) study.

Uncompensated care is defined as a measure of the cost of charity care and bad debt while payments made by or on behalf of the individual are deducted.

Using data from 2003, the researchers examined 3,900 nonfederal, short-term, acute care general hospitals in five states -- California, Florida, Georgia, Indiana and Texas. The majority -- about 62 percent -- were nonprofit; the rest included government hospitals (20 percent) and for-profit hospitals (18 percent). They analyzed cost data from two perspectives: total uncompensated care costs in a state and patient operating expenses devoted to uncompensated care, says GAO.

  • In four of the five states, government hospitals were shown to contribute larger shares of operating expenses to uncompensated care; the differences in average percentages between government and nonprofit hospitals ranged from about 4.3 percent in Georgia to 11.3 percent in Texas.
  • For-profit hospitals provided 20 percent or less of total uncompensated care costs in each state.
  • Even though, nonprofit hospitals contribute a higher share than for-profit groups, the difference is small when compared to government hospitals.

Additionally, the burden of uncompensated care costs was not evenly distributed; instead, it was concentrated in a small number of hospitals.

The researchers found that the current tax policy lacks specific criteria with respect to tax exemptions for charitable entities and detail on how that tax exemption is conferred, says GAO. Moreover, standards could be established that would allow nonprofit hospitals to be held accountable for providing services and benefits to the public commensurate with their favored tax status.

Source: David M. Walker, "Nonprofit, For-Profit, and Government Hospitals: Uncompensated Care and Other Community Benefits," Government Accountability Office, GAO-05-743T, May 26, 2005.

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