North Carolina Hospitals' Charity Care Failures Spotlighted

A new report found that most nonprofit hospitals didn't provide enough charity care to equal the amount of tax breaks they received for doing so.

North Carolina hospitals are routinely billing low-income patients who should qualify for charity care, highlighting a "widespread failure in accountability," according to a report from the state treasurer's office.

The report found that although nonprofit hospitals received tax exemptions to provide charity care that were valued at more than $1.8 billion in 2020, most didn't provide enough charity care to equal the amount of those tax breaks.

Instead, "North Carolina's nonprofit hospitals billed the poor at an average rate up to almost three times the national average," the report said.

"Nonprofit hospitals are often more profitable than for-profits in North Carolina," the report said. "All the top 10 most profitable hospitals were nonprofits in fiscal year 2019."

It stems from a lack of benchmarks and oversight, the report says, since the "[IRS] has no explicit thresholds for charity care spending or eligibility" and North Carolina has "no public agency or official who actively enforces how nonprofit hospitals honor their charitable mission."

Using the National Academy for State Health Policy's data on Medicare Cost Reports, North Carolina State Health Plan for Teachers and State Employees analyzed bad debt using hospitals' IRS 990 federal tax filings.

The analysis also found that:

• An estimated average of 11.9% to 28.7% of bad debt for North Carolina nonprofit hospitals should have been charity care, compared to the national average of 10%.
• Only 18 hospitals reported actual dollar values for eligible bad debt in their 2019 federal tax filings. Among these hospitals, an average of 28.7% of bad debt should have been charity care in fiscal year 2019.
• Although another 42 hospitals said they billed zero dollars to any poor patients eligible for charity care, those numbers aren't always supported by hospitals' disclosures on federal tax filings.
• The most "diligent" hospitals said they used financial profiling technology to avoid billing eligible patients.
• Fewer than 20 of 105 hospitals spent more on charity care than the value of their tax exemptions in fiscal year 2019.
• Just five of the 15 most profitable hospitals provided enough charity care to exceed the value of their tax exemptions.
• WakeMed was the only large system that publicly reported exceeding its tax exemption with charity care spending in 2020.

"The state is in desperate need of better oversight and stronger accountability," the report concludes. "The disparities between hospitals' charity care and bad debt prove the need for a benchmark level of charity care spending."

The report also points to other states that have taken action to protect patients and taxpayers, including:

• Utah and Illinois, which require hospitals to spend more on their community benefits than they receive in property tax exemptions.
• Oregon and Nevada, which have set a minimum benchmark for community benefit spending.
• California, which mandated a charity care eligibility threshold of 400% of the federal poverty level.