Before 1969, IRS required hospitals to provide charity care to qualify for  tax-exempt status. Since then, however, IRS has not specifically required  such care, as long as the hospital provides benefits to the community in  other ways. Burden of Providing Uncompensated Care Varied among Hospital Groups, but Burden Was Generally Concentrated in a Small Number of Hospitals

In our review of hospitals’ provision of uncompensated care in five states,  we analyzed cost data from two perspectives—namely, each hospital  group’s percentage of (1) total uncompensated care costs in a state and (2)  patient operating expenses devoted to uncompensated care. This difference was due, in part, to the larger  number of nonprofit hospitals and their larger size relative to the for-profit  hospitals. Government Hospital Groups Generally Devoted Largest Share of Patient Operating Expenses to Uncompensated Care, but Shares Varied across States

In four of the five states reviewed, government hospitals devoted  substantially larger shares, on average, of their patient operating expenses  to uncompensated care than did nonprofit and for-profit hospitals. Differences between the nonprofit and for-profit groups were often small  when compared with the substantial differences between the government  group and the other two groups. Moreover, the burden of uncompensated  care costs was not evenly distributed among hospitals, which meant that a  small number of nonprofit hospitals accounted for substantially more of  the uncompensated care burden than did others receiving the same tax  preference. As for the other community benefits hospitals reported providing, we were  not able to discern a clear distinction among the government, nonprofit,  and for-profit hospital groups. Hospitals in the five states reported  conducting a variety of activities, which the hospitals themselves  considered community benefits. We were unable to assess the value of  these benefits or make systematic comparisons between hospitals or  across states. These observations illustrate a larger point that I and others raised at the  hearing last month—namely, that current tax policy lacks specific criteria  with respect to tax exemptions for charitable entities and detail on how  that tax exemption is conferred. If these criteria are articulated in  accordance with desired goals, standards could be established that would  allow nonprofit hospitals to be held accountable for providing services of  benefit to the public commensurate with their favored tax status. Appendix I: Scope and Methodology

To examine the provision of uncompensated care by the three hospital  ownership groups, we obtained 2003 uncompensated care data from five  states—California, Florida, Georgia, Indiana, and Texas.
Why GAO Did This Study

Before 1969, IRS required hospitals to provide charity care to qualify for tax-exempt status. Since then, however, IRS has not specifically required such care, as long as the hospital provides benefits to the community in other ways. Seeking a better understanding of the benefits provided by nonprofit hospitals, Congress requested that GAO examine whether nonprofit hospitals provide levels of uncompensated care and other community benefits that are different from other hospitals. This statement focuses on, by ownership group, hospitals' (1) provision of uncompensated care, which consists of charity care and bad debt, and (2) reporting of other community benefits. The hospital ownership groups were (nonfederal) government, nonprofit, and for-profit. To compare the three hospital ownership groups, GAO obtained 2003 data from five geographically diverse states with substantial representation of the three ownership groups in each state. GAO analyzed cost data from two perspectives--each hospital group's percentage of (1) total uncompensated care costs in a state and (2) patient operating expenses devoted to uncompensated care.

What GAO Found

Government hospitals generally devoted substantially larger shares of their patient operating expenses to uncompensated care than did nonprofit and for-profit hospitals. The nonprofit groups' share was higher than that of the for-profit groups in four of the five states, but the difference was small relative to the difference found when making comparisons with the government hospital group. Further, within each group, the burden of uncompensated care costs was not evenly distributed among hospitals but instead was concentrated in a small number of hospitals. This meant that a small number of nonprofit hospitals accounted for substantially more of the uncompensated care burden than did others receiving the same tax preference. Hospitals in the five states--nonprofit, for-profit, and government hospitals--reported providing a variety of services and activities, which the hospitals themselves defined as community benefits. Community benefits include such services as the provision of health education and screening services to specific vulnerable populations within a community, as well as activities that benefit the greater public good, such as education for medical professionals and medical research. GAO was unable to assess the value of these benefits or make systematic comparisons between hospitals or across states. These observations illustrate a larger point--namely, that current tax policy lacks specific criteria with respect to tax exemptions for charitable entities and detail on how that tax exemption is conferred. If these criteria are articulated in accordance with desired goals, 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.