The Push and Pull of Public and Private Spending on Charity Care

November 5, 2024

A Public-Private Hybrid Healthcare System

From Understanding Public and Private Health Care

When public spending on charity care increases, nonprofit hospital charity care decreases by a 9:1 ratio. But that’s because the demand for charity care decreases, not because nonprofit hospitals intentionally cut back on charity care, according Kelsey Moran, a research economist at MIT.

I don’t know what to do with that data point. At first I thought, “d’uh!” But maybe it means that nonprofit hospitals spend $9 for the same charity care that it costs the government only $1 to achieve. Maybe it means indirect subsidies — tax exemptions and charitable contributions — are terribly inefficient ways to pursue public goods. Maybe it means that 90% of subsidies are diverted to something other than charity care — like eyepopping salaries maybe. Or . . . it could be that I don’t quite understand what a “one standard deviation decrease” means. I can only surmise that increases in public spending disproportionately correlate with decreases in nonprofit hospital charity care. Here is the conclusion to Safety Net Crowd-Out: How Public Programs Affect Non-Profit Hospital Charity Care:

Little is known about the relationship between private and public provisions of charity healthcare. By examining changes in non-profit hospitals’ financial assistance spending levels and written policies following increases in public healthcare safety net provision, this paper provides important insights into the dynamics of public and private organizations in charity healthcare markets.

Overall, my analysis provides substantial evidence of public spending crowding out private spending on charity healthcare. I find that a one standard deviation increase in Federally Qualified Health Centers (FQHCs) per baseline uninsured results in a 9% decrease in nonprofit hospital charity care. Additionally, I show that state-level Medicaid expansions lead to a 35% decrease in both non-profit hospital charity care and uncompensated care expenditures, with effects persisting over multiple years. This Medicaid analysis extends previous short term studies on this topic by demonstrating the long-term impacts of public health insurance expansion on private charity care.

Despite significant changes in charity care levels, I find no evidence that increased public healthcare safety net provision affects non-profit hospitals’ financial assistance policies; hospitals appear to simply allow their charity spending to fall with demand. I also establish that there is virtually no correlation between changes in these policies and hospital charity expenditures. These results raise questions about the role and effectiveness of non-profit hospitals’ financial assistance policies, indicating a need for further research into policy-setting practices. In conclusion, this paper demonstrates clear evidence of public spending displacing private charity care in the healthcare sector. As policymakers in the U.S. continue to grapple with healthcare reform, understanding these complex interactions between public and private providers will be crucial for designing effective and efficient safety net programs.

I didn’t have time to read the paper closely so I wrote to the author, a Ph.D. candidate, and she provided me with this helpful explanation:

In this paper, I find that when the county-level number of publicly funded FQHCs (federally qualified health centers) per 10,000 uninsured people increases by one standard deviation (or 8.3 clinics per 10,000 uninsured), charity care spending among non-profit hospitals located in that county decreases by 9% (or 0.18 percentage points given a mean of 1.95% of total hospital expenditures spent on charity care). The change in the outcome is approximately a $330,000 decrease in annual hospital-level charity care spending (= $189 million annual expenses * 0.0195 * -0.09). This is not quite a dollars-to-dollars comparison, though, as I do not measure clinic-level spending but rather the number of clinics per baseline uninsured people in each county.

Similarly with the analysis of Medicaid expansions, I do not measure the spending involved with Medicaid expansions. The change in the outcome (a 35% decrease in charity care spending among non-profit hospitals located in Medicaid expansion states) is approximately a $1.3 million decrease in annual hospital-level charity care spending (= $189 million annual expenses * 0.0195 * -0.35).

Hospitals are not changing their financial assistant policies in any obvious way. This is suggestive that patient demand for hospital charity care falls after FQHCs and Medicaid coverage expand, and hospitals allow their spending to fall with this decrease in demand. Medicaid expansions lead to more people covered by Medicaid (as do FQHC expansions, as FQHCs often encourage people to sign up for Medicaid when they are eligible), which results in fewer people needing hospital charity to cover their medical bills. FQHCs also provide more accessible primary and preventative care. They thus may also act as substitutes for hospital care in general, perhaps by improving population health and/or reducing inefficient emergency department use. These explanations are all speculative, though.

I interpret that to mean that an increase (.00083%) in federally supported clinics results in a disproportionate (9%) decrease in charity care dispensed at nonprofit hospitals, but not necessarily because nonprofit hospitals intentionally decrease charity care.

darryll k. jones