Community Benefit: Holding Non-Profit Hospitals Accountable

With all of the recent scrutiny of Mitt Romney’s tax returns, here’s something you might not know: non-profit hospitals are exempt from paying any federal income taxes. The rationale behind this is that these hospitals deserve a break because they provide significant benefits to their communities. This community benefit can be thought of as consisting of the sum total of a number of things like the amount of uncompensated care the hospital provides, the number of lives it saves, the number of jobs it provides, and the impact it has on residents’ quality of life. If a hospital is creating jobs, restoring people’s health, saving people’s lives, and providing a health care safety net for the community, then perhaps it shouldn’t have to pay federal taxes. Similar to the case for making employer-based health insurance tax-free, this is a way for the federal government to effectively subsidize something that it considers to be beneficial to the public.

Hospitals certainly enjoy their tax exemption, but the bigger question is: Do they deserve it? For more than 40 years, the rhetoric of community benefit has been bandied about without actually defining what it includes, establishing criteria for the amount of community benefit that must be provided to merit non-profit status, or evaluating the extent to which non-profit hospitals are doing so. What has been done is research showing that more often than not, non-profit hospitals behave a lot like for-profit hospitals. And who can blame them? After all, why not take the tax break with one hand and attempt to maximize profits with the other hand? In fact, the former bolsters efforts at the latter.

Since 2009, however, the IRS has required non-profit hospitals to document the dollar amount of the community benefits they provide. In the February issue of the American Journal of Public Health, Karen Principe and colleagues consider what effect health reform may have on the provision of community benefit. For example, as more Americans are covered by insurance, the amount of uncompensated care a hospital provides can be expected to decrease. The authors report that some have called for an end to non-profit status for hospitals. One way to think about this is that the federal government would be shifting its subsidy from the hospitals to the individuals as it helped them to purchase insurance. The authors disagree, however. They argue that hospitals will still need to provide uncompensated care for individuals who move in and out of coverage, and that coverage expansions under the Affordable Care Act will strengthen the financial position of hospitals, leading hospitals to allocate community benefits differently. That is, they will provide less uncompensated care, but more of the “other” stuff that constitutes community benefit.

I like their optimism, but without strong enforcement to hold non-profit hospitals accountable, I think hospitals are about to win big: They’ll keep their tax-exempt status, provide even less uncompensated care, see their revenues increase, and laugh all the way to the bank. And who can blame them? After all, they’ve no incentive to do otherwise.

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IPAB

Contrary to the title, the IPAB is not a new Apple product. Rather, it is the “Independent Payment Advisory Board” created by the Affordable Care Act to solve the problem of ever-increasing Medicare spending. In people’s worst nightmares, the IPAB is a death panel that will make decisions about how to ration health care for the elderly and disabled. Images of 15 people sitting in a room handing out death sentences flash through the minds of the anti-government crowd. Of course, nothing could be further from the truth, as the IPAB has no authority to limit benefits, increase beneficiaries’ out-of-pocket costs, or otherwise alter the Medicare program in any way that would “ration” care.

So, what can the IPAB actually do to promote slower spending growth in Medicare? They can suggest legislation, that’s what. Legislation that, for example, would reduce or alter the way in which payments are made to providers. It’s debatable if the recommendations from IPAB will work to actually control spending. What’s not up for debate is whether action will be taken, and that’s what I’m most pleased about.

You see, I hear often from family and friends about how Congress “never does anything” and how we should “vote the whole sorry bunch out and start from scratch.” It doesn’t seem to matter which party is in power, either. Congressional disapproval knows no party affiliations. And this isn’t just a trend among my social circle. Americans generally disapprove of the job Congress is doing. The IPAB puts an end to that, and here’s how:

Starting in 2013, the chief actuary of the Centers for Medicare and Medicaid Services (CMS) will report both a projected and a target Medicare growth rate for the next five years. If the projected growth rate exceeds the target growth rate, IPAB is tasked with making recommendations to bring things in line. These recommendations are formally submitted to Congress as proposed legislation. In the past, this is where progress ceased to occur, but no longer.

With the ball in Congress’ court, the options are straightforward. Congress may either enact the legislation recommended by IPAB, introduce and enact its own legislation that achieves the same cost savings as the recommendations from IPAB, or fail to act. If Congress fails to act, however, the secretary of the Department of Health and Human Services must implement IPAB’s recommendations, which cannot be overruled by either the executive or the judicial branches. In short, when Medicare spending increases too rapidly, something will be done to address it, even if Congress fails to act.

 

Health Reform Calendar 2012

Thanks to Sarah Kliff, who writes for Ezra Klein’s Wonkblog over at the Washington Post for her summary of key health reform dates to watch in 2012. Most Americans don’t keep a close on eye on the implementation process after a law has passed, and with something as big as the Affordable Care Act, it can be especially challenging to know what’s happening when. Most folks know that the law was enacted in 2010, and many of them know that the law doesn’t take full effect until 2014, but aside from those mile-markers, things can seem like a mess.

This year, however, stands to be a big one for health reform, and one of the key dates is already behind us. On January 1, the accountable care organizations, or ACOs, came online, with the goal of controlling costs by paying for comprehensive delivery of high quality care. It’s a demonstration project that could move the country away from fee-for-service and towards patient-centered models of health care. That is, if it works, which we won’t know for a while.

Next up, at the end of March, the Supreme Court will hear oral arguments about the constitutionality of the Affordable Care Act, which I’ve written about several times already. The expectation is that a decision will be handed down in early summer.

The final big events of the year take place in the fall and early winter. On October 1, additional Medicare payment reforms will be implemented which will further change how hospitals get paid. This includes things like “pay for performance” and penalties for avoidable rehospitalizations. Then things get interesting. November 3 is election day, and the outcome will go a long way in determining the future of health reform implementation. If the GOP nominee takes the White House and the Republicans retain control of the House and/or gain control of the Senate, the ACA will likely be derailed. I don’t think that the law will be repealed under such conditions, but it may effectively be killed by cutting funding, tying the executive branch in knots, and other such strategies that choke out implementation. On the other hand, if Obama is re-elected, things are likely to move forward, regardless of the outcome of the Supreme Court decision.

In the latter case, December 31, the last day of the year, will retain its current importance as the deadline by which states must have received approval from the Obama administration for their health insurance exchange. Remember: States were permitted to design their own exchanges that met federal minimums. If they failed to do so, Uncle Sam promises to step in and do it for them. When the ball drops in Times Square to usher in 2013, we’ll know which states stepped up, and which stepped out.