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Health  2013 

Hospital community benefits and the effect of Schedule H: A difference-in-difference approach

DOI: 10.4236/health.2013.510226, PP. 1681-1688

Keywords: Hospitals, Community Benefits, Uncompensated Care

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Abstract:

Since 1969 private, nonprofit hospitals have qualified for tax exemption as charitable institutions and in exchange for the preferential tax treatment were required to provide community benefits. However, in the absence of mandatory reporting of community benefits at the federal level and in the absence of a clear definition of community benefits, the previous literature provides but ambiguous evidence regarding hospitals’ supply of community benefits. Responding to policymakers’ concerns, the Internal Revenue Service (IRS) mandates all private, non-profit hospitals to report charity care at cost as well as unreimbursed Medicaid costs starting with the tax year 2008. Using data from hospitals in California before and after tax year 2008 (2009 filing), this study examines whether changes in the IRS 990 Schedule H had a significant effect on the supply of community benefits by non-profit hospitals relative to for-profit hospitals. Empirical results suggest that nonprofit hospitals do not supply more community benefits relative to for-profit hospitals for both definitions of community benefits reported in Schedule H. Although the supply of community benefits increased for all hospitals after 2008, the increase was not higher for nonprofits. Moreover, nonprofits supplied significantly less community benefits according to some definitions. Thus, minimum charity care standard is justified.

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