- In states where both for-profit and nonprofit hospitals operate, for-profit hospitals had higher unreimbursed Medicaid cost-to-expense ratios than nonprofit hospitals, despite nonprofits receiving tax exemptions for yielding community benefits like providing uncompensated care, according to research published Monday in JAMA Network Open.
- Texas had the highest ratio of for-profit to nonprofit unreimbursed Medicaid costs to expenses, while New York and the District of Columbia had the lowest ratios, the study found.
- Researchers also looked at unreimbursed Medicaid costs among nonprofit and for-profit hospitals in states that did and did not expand Medicaid and found the 28 states that expanded Medicaid by Jan. 1, 2019, had a median for-profit to nonprofit relative ratio similar to the 17 states that did not expand it.
Nonprofit hospitals enjoy an array of financial benefits like exemption from federal and state taxes and the ability to issue tax-free bonds under the condition they provide a benefit to the community they operate in.
A 2015 estimate put the value of those subsidies and benefits at almost $25 billion, according to the study.
There's no federal law stipulating a minimum benefit requirement, and one of the largest components of community benefit supposedly provided by nonprofits — unreimbursed Medicaid costs, is poorly aligned with automatic tax subsidies they receive, the researchers wrote.
They used 2019 Medicare cost reports data on self-reported unreimbursed Medicaid costs, with a sample including 3,446 private hospitals — 2,617 of which are nonprofits and 829 are for-profit.
The hospitals examined for the study incurred $20.6 billion in unreimbursed Medicaid costs in 2019, representing 2.5% of their total expenses, the study found.
Unreimbursed Medicaid costs were calculated as an estimated cost for treating Medicaid patients, using a formula that takes the charges for the services, multiplied by the hospitals cost to charge ratio and minus all reimbursements and supplemental payments.
Researchers first calculated the weighted mean unreimbursed Medicaid cost-to-expense ratio for all hospitals across each state by taking the total unreimbursed Medicaid cost across hospitals divided by total expenses.
They then calculated the ratio of the weighted mean unreimbursed Medicaid cost-to-expense ratio of for-profit hospitals relative to nonprofit hospitals.
This weighted mean approach is consistent with prior research on hospital charity care, the study noted.
It found Nevada hospitals had the highest weighted mean unreimbursed Medicaid cost to expense ratio at 7.7%, while hospitals in Maryland, Utah and Alabama had the lowest ratios, at .02%, .07% and .14%, respectively.
To address the issue, policymakers can work to provide greater transparency about the magnitude of subsidies received by nonprofit hospitals, and better tie subsidies to facility performance in providing community benefits in the form of unreimbursed Medicaid costs, charity care or other measures, the researchers wrote.