Nonprofit hospitals’ unreimbursed Medicaid costs don’t warrant tax subsidies, study suggests

MM Curator summary

[MM Curator Summary]: A new analysis shows that non-profit hospitals don’t necessarily serve more Medicaid patients or take more of a financial loss on uncompensated care.


The article below has been highlighted and summarized by our research team. It is provided here for member convenience as part of our Curator service.



Nonprofit hospitals shoulder a similar amount of unreimbursed Medicaid costs as their for-profit counterparts, suggesting that these hospitals may not provide enough community benefit to justify the various tax subsidies granted by their status, according to a new study.

By reviewing 2019 Medicare cost reports from nearly 3,500 private hospitals across 45 states, researchers identified $20.59 billion in total unreimbursed Medicaid costs, according to the study published in JAMA Network Open.

In just over half of these states, for-profit hospitals’ unreimbursed Medicaid costs comprised a larger portion of their total expenses than the nonprofit hospitals operating in the same state, according to the analysis.

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“Our results suggest that the largest component of community benefit supposedly provided by nonprofit hospitals (i.e., unreimbursed Medicaid costs, net of supplemental payments) is poorly aligned with the (effectively automatic) tax subsidy that these institutions receive,” researchers wrote in the journal. “Prior research suggested similar results for the provision of charity care by nonprofit vs for-profit hospitals.”

Unreimbursed Medicaid costs comprised 2.52% of private hospitals’ total expenses across the 45-state sample, with that proportion ranging from 7.74% in Nevada to as low as 0.02% in Maryland, according to the study.

To determine whether nonprofit hospitals were taking on a greater portion of this load, the researchers calculated and compared the weighted mean unreimbursed Medicaid cost to expense ratio—defined as total unreimbursed Medicaid cost across all of the state’s hospitals divided by their total expenses—of the for-profit and nonprofit hospitals in each state.

RELATED: Nonprofit hospitals spend less on charity care than for-profits, study finds

They found that for-profit hospitals outpaced the nonprofits across this measure in 23 of the 45 states in which for-profit and nonprofit hospitals operate.

The disparity peaked in Texas, where researchers found for-profit hospitals’ unreimbursed Medicaid cost to expense ratio was ten-and-a-half times that of the state’s nonprofit hospitals. In New York and the District of Columbia, meanwhile, the researchers found that nonprofit hospitals took on effectively all of the state’s unreimbursed Medicaid care.

Also of note, the researchers found similar median for-profit to nonprofit relative ratios within the 28 states that expanded Medicaid and the 17 states that did not.

Unreimbursed Medicaid costs are the largest of eight community benefit components nonprofit hospitals report to the Internal Revenue Service (IRS). Providing these community benefits are a requirement for nonprofit hospitals to receive tax-related subsidies, although the researchers noted that “federal law does not impose a minimum requirement.”

RELATED: The average nonprofit hospital CEO takes home 8 times more than their hourly workers, Lown Institute finds

The researchers also acknowledged that their analysis does not account for supplemental payments intended to offset unreimbursed Medicaid costs, which more than two-thirds of included hospitals reported receiving during 2019.

Amending reporting requirements to include the size of these subsidies hospitals receive would promote greater transparency, the researchers wrote, and provide a better understanding of the community benefit these organizations are truly providing “whether in the form of unreimbursed Medicaid costs, charity care, or some other measure.”

The new study comes about 10 months after a previous Health Affairs study, conducted by many of the same researchers, found that nonprofits spent less on charity care for the uninsured than both for-profit and government hospitals. That analysis reviewed 2018 data from over 5,000 hospitals.


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