Lawmakers to examine tax-exempt facilities, which must offer free or reduced-price services

Nonprofit hospitals in California are facing new scrutiny over whether they are doing enough for the public to justify their tax-exempt status.

The Legislature expects these hospitals to provide community benefits such as free or reduced-priced health care for the poor, known as charity care. The hospitals are required by law to report to the state annually on their community benefit plans.

But they are not mandated to deliver a specific amount of these community benefits to qualify for federal and state tax exemptions, according to a recently released audit [PDF] from the California State Auditor. And the Office of Statewide Health Planning and Development has no authority to fine hospitals that fail to submit community benefits plans. In 2010, 15 hospitals failed to provide those plans, the audit found.

“Communities across California are served by nonprofit hospitals, and we need to make sure they are honoring their commitment to serve the public that comes with their special tax-exempt status," state Sen. Ellen Corbett, D-San Leandro, who requested the audit, said in a statement. Corbett leads the newly formed Senate Select Committee on Charity Care and Non-Profit Hospitals, which will hold its first hearing today.

The California Nurses Association plans to hold a rally at the state Capitol following the hearing to draw attention to the "huge subsidies" the hospitals receive "through a broad array of public services," according to Zenei Cortez, a registered nurse who is co-president of the union. The public has "a right to expect the hospitals (to) fulfill their social obligation to provide appropriate levels of charity care and other community benefits in return," Cortez said in a statement.

Another hospital workers union, the Service Employees International Union – United Healthcare Workers West, had sponsored an initiative that would have required nonprofit hospitals to provide charity care equal to at least 5 percent of patient revenue. But the union struck a deal with the California Hospital Association, which had opposed the initiative, to keep the measure off the ballot.

The association argues that an across-the-board requirement, whether imposed by voters or by legislators, could limit how nonprofit hospitals serve their communities.

“I think that it’s very important for hospitals to have the flexibility to meet the unique needs of the communities that they serve,” said Anne McLeod, senior vice president of health policy for the California Hospital Association. The majority of the state's roughly 430 hospitals are nonprofit, according to the association.

The state audit found that the amount of charity care such hospitals offer varies widely, depending upon the populations they serve and their policies for determining who is eligible for such care. Under state law, patients whose incomes are at or below 350 percent of the federal poverty level are eligible to apply for some charity care, but hospitals also can offer free or reduced-price services to people earning more.

The audit looked at four hospitals that offer different amounts of care. For instance, St. Luke’s hospital in San Francisco, which treats many low-income patients, provided $19,445,489 in charity care in the fiscal year ending in 2010, more than 17 percent of its net revenue. El Camino Hospital Los Gatos, which has a less generous policy and serves a wealthier community, provided $273,865 in charity care, less than half of 1 percent of net revenue, during that fiscal year.

Auditors found that "a nonprofit hospital that serves a low-income community might provide more charity care than other hospitals serving more affluent areas, even though both hospitals share the same charity care policies."

You can compare the charity care policies offered by hospitals in California here.

Community benefits have been at the center of a battle over the future St. Luke’s, which provides the most charity care of all the California Pacific Medical Center campuses in San Francisco. The center, which is affiliated with Sutter Health, wants to close the 229-bed money-losing facility and replace it with a new, seismically retrofitted 80-bed complex. Patients and union leaders want guarantees that the hospital will remain open for another 20 years.

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