Colorado bill would make hospitals spend more on “community benefit”

Nonprofit hospitals are required to show they spend money on “community benefit,” but a bill in the Colorado legislature would require them to invest more and focus on different priorities.

The Internal Revenue Service doesn’t require hospitals to spend a specific amount on community benefit, though it does verify whether they met related requirements, like conducting a community needs assessment every three years.

Community benefit is loosely defined, and can include free and discounted care; the difference between the cost of care and what Medicare or Medicaid pays; medical research; classes to help patients manage their chronic conditions; staff training; and spending to help meet patients’ social needs, like food and housing.

Colorado House Bill 23-1243 would set that each nonprofit hospital spend at least 3% of its revenue from treating patients on community benefit, unless its federal and state tax exemptions are worth less than that. The target would rise gradually to 5% of patient revenue.

The bill would redefine community benefit spending, adding behavioral health and community-based health care as categories. It would also remove the ability to claim free and discounted care, and programs targeting health behaviors.

Rep. Judy Amabile, a Boulder Democrat who sponsored the bill, said the exact thresholds and definitions are open to discussion, but that she thinks hospitals need to better align what they’re offering with their communities’ priorities.

“What we’re trying to do is put some guardrails around what is a community benefit, and who decides,” she said. “Of course we want the hospitals to do some charity care, but… we don’t want that to all be in place of what the community wants.”

Of 43 nonprofit hospitals with state data on patient revenues and community benefits in 2021, 23 would exceed the 3% threshold, and 17 would clear the 5% bar under the current definitions.

The bill would change what counts as community benefit, however, and the Colorado Hospital Association believes only two hospitals would make the cut with the new definitions. It likely would require an additional $491 million in spending, said Josh Ewing, vice president of government affairs at the Colorado Hospital Association.

“It would be the most aggressive (community benefit) threshold in the nation, by far,” he said. “I don’t know why we would differ that much from the federal definition.”

In his State of the State address in January, Gov. Jared Polis pledged to hold hospitals “accountable,” particularly for what they claim as community benefits.

“Nonprofit hospitals, who have the benefit of not having to pay taxes, must work with their communities to live up to the promise that providing benefits, like mental health, maternity care, health care workforce growth, support for social determinants of health like housing and food, occur,” he said.

A report by the Colorado Department of Health Care Policy and Financing, released in mid-January, found hospitals invested $965 million, or about 7% of their revenues from treating patients, in community benefits in 2020. Programs to address health behaviors and risks accounted for more than half of their spending, and charity care accounted for about one-quarter, though the mix varied among hospitals.

The hospital association, which included the gap between costs and what Medicaid pays in its calculations, put community benefit spending closer to $1.9 billion in 2021. It estimated Colorado hospitals spent about 12% of their revenues on community benefit, compared to about 10% nationwide, with most of the difference coming from a larger “Medicaid shortfall.”

While the IRS allows the difference between costs and what Medicaid pays to be counted, the state doesn’t include that in its numbers. Kim Bimestefer, executive director of the Colorado Department of Health Care Policy and Financing, noted for-profit hospitals also treat patients covered by Medicaid for the same prices.

Whether Medicare pays enough is controversial. A committee that advises Congress on Medicare has found “reasonably efficient” hospitals can break even on the program’s rates, though the hospital industry has pushed back on that conclusion. It’s more widely agreed that Medicaid’s rates are low, though still better than attempting to collect from uninsured patients.

According to the state’s data, spending in 2021 ranged from just under $200,000 at Parkview Medical Center — all of it for “other identified community needs” — to more than $211 million at University of Colorado Hospital. The bulk of that related to “health behaviors,” with about $13 million attributed to free or discounted care.

In a report for the fiscal year ending in June, Parkview Medical Center reported it spent $46 million on free or discounted care, and about $700,000 on other categories. Julie Lonborg, senior vice president of communications and media relations at the Colorado Hospital Association, said she couldn’t speak to any specific numbers, but the Medicaid shortfall is significant.

“Said differently, hospitals lose money on every Medicaid/Medicare patient,” she said.

The department’s report noted hospitals weren’t reporting their spending in enough detail to tell if it’s truly meeting needs in their areas and raised questions about some of the items counted as community benefits. Nearly half of the spending at Childen’s Hospital Colorado and the combined UCHealth system was on research or training for health care providers, it said.

“There needs to be a better line between what the community wants and where these dollars go,” Bimestefer said.

Dan Weaver, spokesman for UCHealth, said counting research and training is appropriate, but it’s only part of what they contribute. The system’s $1.1 billion in community benefit includes $388 million in uncompensated care, as well as behavioral health services like sending clinicians along with police and programs to address suicide and obesity, he said.

“The future of Colorado’s health care workforce and research absolutely are priorities and should be priorities,” he said. “I would challenge anyone that says research into health care and diseases and the patients who are impacted by those diseases is not important.”

Dr. Lalit Bajaj, chief quality, equity and outcomes officer at Children’s Hospital Colorado, said the hospital is “proud” of its work to understand and meet communities’ needs.

“Access to care is consistently among the top needs identified by our community health needs assessment process, especially access to pediatric primary care and mental health services. Serving Colorado and our region as a pediatric teaching hospital is an integral part of our identity and a long-lasting benefit to the community we serve,” she said in a statement.

At 14 hospitals, free and discounted care made up more than 90% of their community benefits. The highest percentage was at Montrose Memorial Hospital, it accounted for all but $4,200, or .05%, of its reported $8.6 million in community benefits.

On the other end, 10 hospitals reported less than 10% of their community benefit was for free and discounted care. National Jewish Health reportedly only spent 1.7% of our community benefit dollars on care to those who couldn’t pay.

Jessica Berry, spokeswoman for National Jewish Health, said their spending on uncompensated care is lower than many hospitals’ because they don’t have an emergency department. Most people come in for scheduled outpatient care, which gives the hospital time to help them sign up for Medicaid or other programs that will cover their treatment, she said.

National Jewish does make significant investments in patients’ needs in other ways, including operating a school for elementary and middle school students who are too sick to attend regular classes; training schools on managing students’ asthma; offering lung disease clinics for miners; and working with low-income communities in Denver to study air quality, Berry said.

The IRS’s definition doesn’t include some investments hospitals make in communities, like integrating mental health services into primary care practices and opening additional beds for inpatient behavioral health care, Weaver said. While hospitals are paid for offering mental health and addiction treatment, it’s not as lucrative as other types of care.

“I think it is highly misleading for the state to suggest that we are not investing in behavioral health,” he said.

At a press conference earlier this month, Polis said the state needs increased transparency to determine if nonprofit hospitals are holding up their end of the “quid pro quo” of tax exemption.

“Obviously we’d love if they stopped overcharging patients in the first place, but that being said, they are, and accumulating billions of dollars in profits,” he said. “We want to make sure that those are being used for a community benefit.”

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