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Uncompensated Care and Other Community Benefits' which was released on 
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Testimony:

Before the Committee on Ways and Means, House of Representatives:

United States Government Accountability Office:

GAO:

For Release on Delivery Expected at 10:00 a.m. EDT:

Thursday, May 26, 2005:

Nonprofit, For-Profit, and Government Hospitals:

Uncompensated Care and Other Community Benefits:

Statement of David M. Walker:

Comptroller General of the United States:

GAO-05-743T:

GAO Highlights:

Highlights of GAO-05-743T, a testimony before the Committee on Ways and 
Means, House of Representatives

Why GAO Did This Study:

Before 1969, IRS required hospitals to provide charity care to qualify 
for tax-exempt status. Since then, however, IRS has not specifically 
required such care, as long as the hospital provides benefits to the 
community in other ways. Seeking a better understanding of the benefits 
provided by nonprofit hospitals, this Committee requested that GAO 
examine whether nonprofit hospitals provide levels of uncompensated 
care and other community benefits that are different from other 
hospitals. This statement focuses on, by ownership group, hospitals’ 
(1) provision of uncompensated care, which consists of charity care and 
bad debt, and (2) reporting of other community benefits. The hospital 
ownership groups were (nonfederal) government, nonprofit, and for-
profit. 

To compare the three hospital ownership groups, GAO obtained 2003 data 
from five geographically diverse states with substantial representation 
of the three ownership groups in each state. GAO analyzed cost data 
from two perspectives—each hospital group’s percentage of (1) total 
uncompensated care costs in a state and (2) patient operating expenses 
devoted to uncompensated care. 

What GAO Found:

Government hospitals generally devoted substantially larger shares of 
their patient operating expenses to uncompensated care than did 
nonprofit and for-profit hospitals. The nonprofit groups’ share was 
higher than that of the for-profit groups in four of the five states, 
but the difference was small relative to the difference found when 
making comparisons with the government hospital group. Further, within 
each group, the burden of uncompensated care costs was not evenly 
distributed among hospitals but instead was concentrated in a small 
number of hospitals. This meant that a small number of nonprofit 
hospitals accounted for substantially more of the uncompensated care 
burden than did others receiving the same tax preference. 

Figure: Average Percent of Patient Operating Expenses Devoted to 
Uncompensated Care, by Hospital Ownership Type, 2003: 

[See PDF for image]

[End of figure]

Hospitals in the five states—nonprofit, for-profit, and government 
hospitals—reported providing a variety of services and activities, 
which the hospitals themselves defined as community benefits. Community 
benefits include such services as the provision of health education and 
screening services to specific vulnerable populations within a 
community, as well as activities that benefit the greater public good, 
such as education for medical professionals and medical research. GAO 
was unable to assess the value of these benefits or make systematic 
comparisons between hospitals or across states. 

These observations illustrate a larger point—namely, that current tax 
policy lacks specific criteria with respect to tax exemptions for 
charitable entities and detail on how that tax exemption is conferred. 
If these criteria are articulated in accordance with desired goals, 
standards could be established that would allow nonprofit hospitals to 
be held accountable for providing services and benefits to the public 
commensurate with their favored tax status. 

www.gao.gov/cgi-bin/getrpt?GAO-05-743T.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact A. Bruce Steinwald at 
(202) 512-7101.

[End of section]

Mr. Chairman and Members of the Committee:

I am pleased to be here today as you discuss issues regarding tax 
exemptions for nonprofit hospitals. At this Committee's recent hearing 
on the tax-exempt sector as a whole, I emphasized the importance of 
reviewing this sector, drawing parallels to our agency's call to 
reexamine all major federal policies and programs in light of 21st 
century challenges.[Footnote 1,2]. Provisions granting federally 
recognized tax-exempt status and associated policies have been layered 
on one another to respond to challenges at the time, but they need to 
be reviewed and revised to reflect 21st century changes and challenges. 
On a broad scale, a comprehensive reexamination could help address 
whether exempt entities are providing services and benefits to the 
public commensurate with their favored tax status, whether the current 
number and nature of exemptions continue to make sense, whether the 
conditions and restrictions on the activities of tax-exempt entities 
remain relevant, and whether the framework for ensuring that exempt 
entities adhere to the requirements attendant to their status is 
satisfactory.

There are a number of issues that merit reexamination, including 
whether nonprofit hospitals perform sufficiently different services of 
benefit to the public to justify their tax exemption. To examine these 
hospitals' tax-exempt status, we must look back several decades. Before 
1969, the Internal Revenue Service (IRS) required hospitals to provide 
charity care to qualify for tax-exempt status. Since then, however, IRS 
has not specifically required such care for a hospital to be exempt 
from federal taxation and have access to tax-exempt bond financing and 
charitable donations, as long as the hospital provides benefits to the 
community in other ways. Community benefits include such services as 
the provision of health education and screening services to specific 
vulnerable populations within a community, as well as activities that 
benefit the greater public good, such as education for medical 
professionals and medical research. Nonprofit hospitals may also be 
exempt under state law from state and local taxes.

Seeking a better understanding of the benefits provided by nonprofit 
hospitals, this Committee requested that we examine whether nonprofit 
hospitals provide levels of uncompensated care--care provided to a 
patient that a hospital is not reimbursed for--and other community 
benefits that are different from other hospitals. My remarks today will 
focus on our examination, for selected states, of (1) the provision of 
uncompensated care by state and local government-owned, nonprofit, and 
for-profit hospitals and (2) hospitals' reporting of other community 
benefits.

To examine the provision of uncompensated care by the three hospital 
ownership groups,[Footnote 3] we analyzed cost data from two 
perspectives, namely each hospital group's percentage of (1) total 
uncompensated care costs in a state and (2) patient operating expenses 
devoted to uncompensated care. We obtained 2003 data from five states-
-California, Florida, Georgia, Indiana, and Texas. Hospitals in these 
states include 46 percent of the nation's for-profit hospitals and more 
than a quarter of all hospitals in the three ownership groups. We 
selected these states because they represented geographically diverse 
areas; had a number of hospitals in each ownership group sufficient to 
make comparisons; and collected hospital-specific uncompensated care 
data, which not all states maintain.[Footnote 4] We compared each 
hospital ownership group's provision of uncompensated care by examining 
each group's uncompensated care costs[Footnote 5] as a percentage of 
its total patient operating expenses.[Footnote 6] Our measure of 
uncompensated care includes the cost of charity care as well as bad 
debt and deducts any payments made by or on behalf of individual 
patients. We limited our analysis of uncompensated care to nonfederal, 
short-term, acute care general hospitals.[Footnote 7] In doing our 
work, we tested the reliability of the state data and determined they 
were adequate for our purposes.[Footnote 8] To examine hospitals' 
provision of community benefits other than uncompensated care, we 
reviewed 21 hospital or hospital systems' reports and Web sites for 
information about such benefits. These reports and Web sites covered 
nonprofit, for-profit, and government hospitals in the five states. We 
also examined laws in the five states regarding community benefit 
requirements for nonprofit hospitals, reviewed the literature, and 
interviewed state officials and state hospital association 
representatives. In addition, we interviewed officials from the Centers 
for Medicare & Medicaid Services (CMS), the American Hospital 
Association, and the Federation of American Hospitals. We conducted our 
work from February 2005 through May 2005 in accordance with generally 
accepted government auditing standards. (See app. I for more detail on 
our scope and methodology.)

In summary, the cost burden of providing uncompensated care varied 
among the three hospital groups, but the burden was generally 
concentrated in a small number of hospitals. In four of the five 
states, government hospitals, as a group, devoted substantially larger 
shares of their patient operating expenses to uncompensated care than 
did nonprofit and for-profit hospitals. The nonprofit hospitals' 
uncompensated care costs, as a percentage of patient operating 
expenses, were higher on average than those of the for-profit hospitals 
in four of the five states, but the differences were generally not as 
great as the differences between the government hospitals and both 
these groups. Further, the burden of uncompensated care costs was not 
evenly distributed within each hospital group but instead was 
concentrated in a small number of hospitals. For example, in 
California's nonprofit hospital group, the top quarter of hospitals, 
ranked by uncompensated care as a percentage of patient operating 
expenses, averaged 7.2 percent devoted to uncompensated care compared 
with an average of 1.4 percent for hospitals in the bottom quarter.

Regardless of ownership status, the hospitals we reviewed reported 
providing a wide range of other community benefits, from health 
education to clinic services specifically for the community's indigent 
population. Variations in the types of community benefits hospitals in 
the five states reported providing could be explained by differences in 
the services hospitals chose to provide as well as by variation in the 
applicability, specificity, and breadth of state requirements.

Background:

In 2003, of the roughly 3,900 nonfederal, short-term, acute care 
general hospitals in the United States,[Footnote 9] the majority--about 
62 percent--were nonprofit. The rest included government hospitals (20 
percent) and for-profit hospitals (18 percent). States varied-- 
generally by region of the country--in their percentages of nonprofit 
hospitals (see fig. 1). For example, states in the Northeast and 
Midwest had relatively high concentrations of nonprofit hospitals, 
whereas in the South the concentration was relatively low.

Figure 1: Geographic Distribution of Nonprofit Hospitals in 2003:

[See PDF for image]

Note: Hospitals include nonfederal, short-term, acute care general 
hospitals, but not critical access hospitals that provide general acute 
care.

[End of figure]

The five states we reviewed varied in number and ownership composition 
of hospitals (see table 1). For example, in California and Indiana, 
nonprofit hospitals accounted for over half of each state's hospitals. 
In Texas, government hospitals made up the state's largest percentage, 
although the distribution between nonprofit, for-profit, and government 
hospitals was similar; in Florida, most hospitals were either nonprofit 
or for-profit, while 11 percent were government.

Table 1: Distribution of Hospitals Reviewed, by Ownership Type, 2003:

California; 
Total number of hospitals: 331; 
Percent nonprofit: 51%; 
Percent for-profit: 27%; 
Percent state and local government: 22%.

Florida; 
Total number of hospitals: 169; 
Percent nonprofit: 43%; 
Percent for-profit: 46%; 
Percent state and local government: 11%.

Georgia; 
Total number of hospitals: 133; 
Percent nonprofit: 43%; 
Percent for-profit: 21%; 
Percent state and local government: 36%.

Indiana; 
Total number of hospitals: 97; 
Percent nonprofit: 56%; 
Percent for-profit: 9%; 
Percent state and local government: 35%.

Texas; 
Total number of hospitals: 332; 
Percent nonprofit: 33%; 
Percent for-profit: 32%; 
Percent state and local government: 35%.

Source: GAO analysis of state and CMS data.

Note: Hospitals include nonfederal, short-term, acute care general 
hospitals.

[End of table]

The average size of hospitals in our study, as measured by patient 
operating expenses, varied across the three ownership groups. (See 
table 2.) On average, nonprofit hospitals were larger than for-profit 
hospitals. The pattern held in all five states but the magnitude of the 
difference varied. For example, in California, nonprofit hospitals were 
twice as large as for-profit hospitals, whereas in Texas, this 
difference was smaller.

Table 2: Average Hospital Size as Measured by Patient Operating 
Expenses, 2003:

California; 
Average patient operating expenses (in millions): For-profit: $71.7; 
Average patient operating expenses (in millions): Nonprofit: $143.4; 
Average patient operating expenses (in millions): State and local 
government: $141.2.

Florida; 
Average patient operating expenses (in millions): For-profit: $90.8; 
Average patient operating expenses (in millions): Nonprofit: $181.8; 
Average patient operating expenses (in millions): State and local 
government: $229.3.

Georgia; 
Average patient operating expenses (in millions): For-profit: $52.7; 
Average patient operating expenses (in millions): Nonprofit: $91.8; 
Average patient operating expenses (in millions): State and local 
government: $72.4.

Indiana; 
Average patient operating expenses (in millions): For-profit: $62.1; 
Average patient operating expenses (in millions): Nonprofit: $116.1; 
Average patient operating expenses (in millions): State and local 
government: $47.6.

Texas; 
Average patient operating expenses (in millions): For-profit: $73.9; 
Average patient operating expenses (in millions): Nonprofit: $112.9; 
Average patient operating expenses (in millions): State and local 
government: $43.0.

Source: GAO analysis of state and CMS data.

Note: Hospitals include nonfederal, short-term, acute care general 
hospitals.

[End of table]

Hospitals' Qualifications for Federal and State Tax-exempt Status:

Hospitals may be extended a federal tax exemption by IRS if they meet 
the Internal Revenue Code's qualifications for charitable organizations 
under section 501(c)(3).[Footnote 10] Hospitals that qualify for 
nonprofit status are exempt from federal income taxes and typically 
receive other advantages, including access to charitable donations-- 
which are tax deductible for the individual or corporate donor--and tax-
exempt bond financing. To qualify for federal tax-exempt status, a 
hospital must demonstrate that it is organized and operated for a 
"charitable purpose," that no part of its net earnings inure to the 
benefit of any private shareholder or individual, and that it does not 
participate in political campaigns on behalf of any candidate or 
conduct substantial lobbying activities.[Footnote 11]

Before 1969, IRS required hospitals to provide charity care to qualify 
for tax-exempt status.[Footnote 12] Since then, however, IRS has not 
specifically required such care, as long as the hospital provides 
benefits to the community in other ways. This "community benefit" 
standard came into existence with an IRS ruling, which concluded that a 
hospital's operation of an emergency room open to all members of the 
community without regard to ability to pay promoted health in a way 
consistent with other activities--such as advancement of education and 
religion--that qualify other organizations as charitable.[Footnote 13] 
In addition, the 1969 ruling identified other factors that might 
support a hospital's tax-exempt status, such as having a governance 
board composed of community members and using surplus revenue to 
improve facilities, patient care, medical training, education, and 
research.

Nonprofit hospitals may also receive exemptions from state and local 
income, property, and sales taxes, which, in some cases, are of greater 
value than the federal income tax exemption. Some states have defined 
community benefits for nonprofit hospitals, but their statutes vary 
considerably in their specificity and scope. Appendix II provides more 
information on statutory definitions of community benefits in the 
states we reviewed.

Government Payments for Uncompensated Care and Other Costs:

Hospitals may receive direct payments from different government sources 
to help cover their unreimbursed costs, including those for charity 
care, bad debt, and low-income patients. For example, Medicare and 
Medicaid make payments to hospitals that serve a disproportionate share 
of low-income patients under their respective disproportionate share 
hospital (DSH) programs. Medicare bad debt reimbursement partially 
reimburses hospitals for bad debt incurred for Medicare patients. Other 
state payments may also be available to hospitals, although their 
specific types vary widely. For example, hospitals may receive payments 
from special revenues such as tobacco settlement funds, uncompensated 
care pools that are funded by provider contributions, and payment 
programs targeted at certain services such as emergency services. (See 
app. III for more information on payments for uncompensated care and 
other costs.)

Burden of Providing Uncompensated Care Varied among Hospital Groups, 
but Burden Was Generally Concentrated in a Small Number of Hospitals:

In our review of hospitals' provision of uncompensated care in five 
states, we analyzed cost data from two perspectives--namely, each 
hospital group's percentage of (1) total uncompensated care costs in a 
state and (2) patient operating expenses devoted to uncompensated care. 
The former relationship showed hospitals' uncompensated care costs in 
dollars, aggregated by groups; whereas the latter relationship showed 
hospitals' uncompensated care costs as a proportion of their operating 
expenses, thereby accounting for differences in hospital number and 
size among the hospital groups. In general, government hospitals, as a 
group, accounted for the largest percentage of total uncompensated care 
costs and devoted the largest share of patient operating expenses to 
uncompensated care costs. The uncompensated care cost burden was not 
evenly distributed within each hospital group but instead was 
concentrated in a small number of hospitals.

Government Hospitals Generally Accounted for the Largest Percentage of 
the Uncompensated Care Costs in States Reviewed:

Government hospitals, as a group, accounted for the largest percentage 
of the total uncompensated care costs in three of the five states-- 
California, Georgia, and Texas. Nonprofit hospitals, as a group, 
accounted for the largest percentage of the uncompensated care costs in 
Florida and Indiana. For-profit hospitals, as a group, provided 20 
percent or less of total uncompensated care costs in each state we 
reviewed. (See table 3).

Table 3: Total Uncompensated Care Costs Incurred by Hospitals Reviewed, 
by State, 2003:

California; 
Total uncompensated care costs (in millions): $2,307; 
Nonprofit (percent of total): 34%; 
For-profit (percent of total): 9%; 
State and local government (percent of total): 57%.

Florida; 
Total uncompensated care costs (in millions): $1,561; 
Nonprofit (percent of total): 46%; 
For-profit (percent of total): 20%; 
State and local government (percent of total): 34%.

Georgia; 
Total uncompensated care costs (in millions): $830; 
Nonprofit (percent of total): 43%; 
For-profit (percent of total): 10%; 
State and local government (percent of total): 47%.

Indiana; 
Total uncompensated care costs (in millions): $342; 
Nonprofit (percent of total): 79%; 
For-profit (percent of total): 3%; 
State and local government (percent of total): 17%.

Texas; 
Total uncompensated care costs (in millions): $2,101; 
Nonprofit (percent of total): 39%; 
For-profit (percent of total): 18%; 
State and local government (percent of total): 43%.

Source: GAO analysis of state and CMS data.

Note: Hospitals include nonfederal, short-term, acute care general 
hospitals.

[End of table]

In each of the five states, the nonprofit hospital groups accounted for 
a larger percentage of total uncompensated costs compared with the For-
profit hospital groups. This difference was due, in part, to the larger 
number of nonprofit hospitals and their larger size relative to the for-
profit hospitals. For example, in California, the nonprofit group's 
percentage of total uncompensated care costs was almost four times 
higher than that of the for-profit group, but this is not surprising, 
as nonprofit hospitals outnumbered for-profit hospitals almost 2 to 1 
and were twice the size in patient operating expenses.

Government Hospital Groups Generally Devoted Largest Share of Patient 
Operating Expenses to Uncompensated Care, but Shares Varied across 
States:

In four of the five states reviewed, government hospitals devoted 
substantially larger shares, on average, of their patient operating 
expenses to uncompensated care than did nonprofit and for-profit 
hospitals.[Footnote 14] (See fig. 2.) In those four states, the 
differences in average percentages between the government hospital 
groups and the nonprofit hospital groups ranged from about 4.3 
percentage points in Georgia to 11.3 percentage points in Texas. In 
contrast, in the fifth state, Indiana, the nonprofit hospital group 
devoted the largest share, on average, of patient operating expenses to 
uncompensated care. Between the nonprofit and for-profit hospital 
groups, the nonprofit hospitals' average percentages were greater in 
four of the five states--ranging from 1.2 percentage points greater in 
Florida to 2.3 percentage points greater in Indiana. In contrast, in 
the fifth state, California, the nonprofit group's average percentage 
was similar to that of the for-profit group.

Figure 2: Average Percent of Patient Operating Expenses Devoted to 
Uncompensated Care, by Hospital Ownership Type, 2003:

[See PDF for image]

Notes: The average percent of patient operating expenses devoted to 
uncompensated care for a hospital ownership group is calculated by 
dividing the sum of uncompensated care costs for hospitals in that 
group by the sum of the group's total patient operating expenses. 
Hospitals include nonfederal, short-term, acute care general hospitals.

[End of figure]

The five states varied in their hospitals' shares of patient operating 
expenses devoted to uncompensated care, ranging from an average 4.1 
percent for all Indiana hospitals to an average 8.3 percent for Texas 
hospitals. (See table 4.) Similar state-to-state variation found in 
other studies was due, in part, to differences in states' proportions 
of uninsured populations, variation in Medicaid eligibility or payment 
levels, and the presence of state programs that provide health 
insurance to low-income uninsured individuals.[Footnote 15] 
Specifically, prior research showed that hospitals located in states 
with more uninsured individuals and hospitals in states with relatively 
more eligibility-restricted Medicaid programs may have higher levels of 
uncompensated care. Our data are consistent with these studies' 
findings on the uninsured. For example, in our five-state review, Texas 
had the highest percentage of uninsured--25 percent--and the highest 
share, on average, of patient operating expenses devoted to 
uncompensated care, whereas Indiana had the lowest percentage of 
uninsured--13 percent--and the lowest average share.

Table 4: Average Percentage of Patient Operating Expenses Devoted to 
Uncompensated Care, by State, 2003:

California; 
Average percentage of patient operating expenses devoted to 
uncompensated care: 5.6%.

Florida; 
Average percentage of patient operating expenses devoted to 
uncompensated care: 6.4%.

Georgia; 
Average percentage of patient operating expenses devoted to 
uncompensated care: 8.2%.

Indiana; 
Average percentage of patient operating expenses devoted to 
uncompensated care: 4.1%.

Texas; 
Average percentage of patient operating expenses devoted to 
uncompensated care: 8.3%.

Source: GAO analysis of state and CMS data.

Notes: We calculated the average percent of patient operating expenses 
devoted to uncompensated care for each state by dividing the sum of 
uncompensated care costs for hospitals in the state by the sum of the 
hospitals' total patient operating expenses in the state. Hospitals 
include nonfederal, short-term, acute care general hospitals.

[End of table]

For Each Hospital Group, Uncompensated Care Costs Were Concentrated in 
a Small Number of Hospitals:

For each group, uncompensated care costs were concentrated in a small 
number of hospitals. We observed this pattern when examining the 
percentages of patient operating expenses devoted to uncompensated care 
costs as well as hospitals' shares of total uncompensated care costs in 
a state. For the three hospital ownership groups, we ranked hospitals 
according to their share of patient operating expenses devoted to 
uncompensated care.

We found that, for all three hospital groups, the top quarter of 
hospitals devoted substantially greater percentages of their patient 
operating expenses to uncompensated care, on average, compared with the 
bottom quarter of hospitals. (See fig. 3.) For example, in California's 
nonprofit hospital group, the top quarter of hospitals devoted an 
average of 7.2 percent compared with 1.4 percent for the bottom quarter 
of hospitals. Similarly, in Florida's government hospital group, the 
top quarter of hospitals devoted an average 19.6 percent compared with 
an average 5.2 percent for the bottom quarter of hospitals. From state 
to state, the difference in ranges between top and bottom quarters was 
also substantial. For example, in Indiana's government group, the 
average share of operating expenses devoted to uncompensated care for 
hospitals in the top quarter was about 3 times larger than for those in 
the bottom quarter; whereas in California, the average share for the 
top quarter of hospitals was almost 13 times higher than that of the 
bottom quarter.

Figure 3: Average Share of Patient Operating Expenses Devoted to 
Uncompensated Care for Hospitals Ranked in Top and Bottom Quarters, by 
Ownership Type, 2003:

[See PDF for image]

Notes: Hospitals were ranked by percentage of patient operating 
expenses devoted to uncompensated care. The average percent of patient 
operating expenses devoted to uncompensated care for a hospital 
ownership group is calculated by dividing the sum of uncompensated care 
costs for hospitals in that group by the sum of the group's total 
patient operating expenses. Hospitals include nonfederal, short-term, 
acute care general hospitals.

[End of figure]

When examining hospitals' shares of total uncompensated care costs in a 
state, we found that uncompensated care costs remained concentrated in 
a disproportionately small number of hospitals. Specifically, each 
state's top quarter of hospitals accounted for a disproportionately 
large share of the state's uncompensated care costs. For example, in 
Texas, the top quarter of hospitals accounted for about 50 percent of 
total uncompensated care costs, yet accounted for only 18 percent of 
the total beds. (See table 5). Moreover, in Texas, six major government 
teaching institutions accounted for 34 percent of total uncompensated 
care costs, which amounted to over half of the contribution of the 
hospitals in the top quarter. This pattern was also true for 
California, Florida, and Georgia. For example, in California, 13 major 
teaching hospitals accounted for 42 percent of total uncompensated care 
costs.[Footnote 16] In contrast, in Indiana, total uncompensated care 
costs were distributed more evenly across a greater number of hospitals.

Table 5: Percentage of Total Uncompensated Care Costs in a State for 
Hospitals Ranked in Top Quarter, 2003:

State: California; 
Percentage of state's total uncompensated care: 68%; 
Percentage of states' hospital beds: 25%.

State: Florida; 
Percentage of state's total uncompensated care: 47%; 
Percentage of states' hospital beds: 22%.

State: Georgia; 
Percentage of state's total uncompensated care: 39%; 
Percentage of states' hospital beds: 19%.

State: Indiana; 
Percentage of state's total uncompensated care: 21%; 
Percentage of states' hospital beds: 14%.

State: Texas; 
Percentage of state's total uncompensated care: 50%; 
Percentage of states' hospital beds: 18%.

Source: GAO analysis of state and CMS data.

Notes: Hospitals were ranked by percentage of patient operating 
expenses devoted to uncompensated care. Hospitals include nonfederal, 
short-term, acute care general hospitals.

[End of table]

Several factors explain which hospitals were likely to be in their 
group's top and bottom quarters. For example, in our five-state 
analysis, we found that whether a hospital was a teaching institution 
was an important predictor of whether it would be in the top quarter of 
a state's government hospital group. Hospitals that had teaching 
programs were more likely to be in the top quarter of a government 
hospital group. In contrast, teaching status was not an important 
predictor for either the nonprofit or for-profit hospital groups' top 
quarter. For nonprofits, hospitals in rural areas were more likely to 
be in the top quarter than hospitals located in urban areas. Other 
factors that were outside the scope of this study, such as differences 
in the proportion of uninsured populations in the hospital market, may 
have also influenced the likelihood of a hospital's inclusion in the 
top or bottom quarter.

Hospitals Reported Providing a Wide Range of Other Community Benefits:

In addition to providing uncompensated care, hospitals may provide 
other services to their communities for which they are not reimbursed. 
In our review of hospitals' Web sites and reports about community 
benefits--published documents specifying the types and value of 
services hospitals provide to communities--we found that, regardless of 
ownership status, hospitals reported providing a wide range of 
community benefits.[Footnote 17] Variations in the types of community 
benefits hospitals reported providing could be explained by differences 
in the community benefits hospitals chose to provide as well as by 
variations in the applicability, specificity, and breadth of state 
requirements.

Certain hospital industry guidance defines community benefits as the 
unreimbursed goods and services hospitals provide that address their 
communities' health needs, including health education, screening, and 
clinic services, among others. Consistent with this industry 
definition, we found through our review of reports and Web sites that 
hospitals reported providing similar types of services, including:

* community health education such as parenting education, smoking 
cessation, fitness and nutrition, health fairs, and diabetes management;

* health screening services such as screening for high cholesterol, 
cancer, and diabetes;

* clinic services, including clinics targeted to specific groups in the 
community, such as indigent patients;

* medical education for physicians, nurses, and other health 
professionals;

* financial contributions, including cash donations and grants, to 
community organizations;

* coordination of community events and in-kind donations--such as food, 
clothing, and meeting room space--to community organizations; and:

* hospital facility and other infrastructure improvements.

Community health education and health screenings were listed by most of 
the reports and Web sites we reviewed. Clinic services, support groups, 
community event coordination, cash contributions to charities, and 
medical education for health professionals were listed by over half of 
the reports we reviewed.[Footnote 18]

Because of the wide variation in hospitals' reporting of community 
benefits, we were not able to discern clear patterns in the provision 
of these benefits across hospital ownership groups. The variation could 
be explained by differences in the community benefits hospitals chose 
to provide as well as by variations in the applicability, specificity, 
and breadth of state requirements. Specifically, the five states 
reviewed require all hospitals to report financial data, including data 
on the cost of charity care they provide. However, as shown in table 6, 
California, Indiana, and Texas also have statutory requirements for 
nonprofit hospitals to develop plans for meeting their communities' 
health needs and to report annually on the types and value of the 
community benefits they provide.[Footnote 19] Of these three states, 
only Texas and Indiana require nonprofit hospitals to report using 
standardized forms and have the explicit statutory authority to impose 
fines for noncompliance as part of the requirements.[Footnote 20] The 
Texas form is more specific, as it includes line-items that capture the 
hospitals' unreimbursed costs associated with providing traditionally 
"unprofitable" health services such as trauma care and community 
clinics, education of medical professionals, medical research, and cash 
and in-kind donations made by the hospital to local charities. 
Indiana's form provides nonprofit hospitals more flexibility in 
delineating the types and value of their community benefits but 
includes supplementary guidance to nonprofit hospitals about what 
should be considered community benefits, including financial or in-kind 
support of public health programs, community-orientated wellness and 
health promotion programs, and outreach clinics in economically 
depressed communities. California has no form for annual community 
benefit reports but requires that hospitals classify the services 
provided into broad, statutorily defined categories, including cash and 
in-kind donations to public health programs, efforts to contain health 
care costs and enhance access, and services that help maintain a 
person's health.

Table 6: Community Benefit Requirements for Nonprofit Hospitals:

State: California[A]; 
Description of requirements: Maintain community benefit plans that 
include measurable objectives for meeting the community's needs within 
specified time frames and mechanisms to evaluate effectiveness. In 
addition, report annually on the plans, as well as the types and value 
of community benefits provided;
Penalties for noncompliance: None explicitly authorized as part of 
requirements.

State: Florida; 
Description of requirements: None;
Penalties for noncompliance: Not applicable.

State: Georgia[B]; 
Description of requirements: None;
Penalties for noncompliance: Not applicable.

State: Indiana[C]; 
Description of requirements: Maintain and report annually on community 
benefit plans that include measurable objectives for meeting the 
community's health care needs within a specified time frames, 
evaluation strategies, and a budget. In addition, must describe the 
types and value of any additional community benefits;
Penalties for noncompliance: Fines explicitly authorized as part of 
requirements for failure to make annual report.

State: Texas[D]; 
Description of requirements: Maintain and report annually on community 
benefit plans that include measurable objectives for meeting the 
community's health care needs within specified timeframes, mechanisms 
for evaluating effectiveness, and a budget. In addition, must describe 
the types and value of community benefits provided;

At a minimum, hospitals are required to provide: 

(1) charity and government-sponsored indigent care at a level that is 
reasonable in relation to community needs, the available resources of 
the hospital, and the tax-exempt benefits received; (2) charity and 
government-sponsored indigent health care equal to 100 percent of state 
tax-exempt benefits; or; (3) charity care and other community benefits 
equal to at least 5 percent of net patient revenue, provided that 
charity care and government-sponsored indigent health care are provided 
in an amount equal to at least 4 percent;
Penalties for noncompliance: Fines explicitly authorized as part of 
requirements for failure to make annual report; Hospitals that fail to 
provide the required community benefits must be reported annually to 
attorney general and comptroller.

Source: GAO analysis.

[A] CAL. HEALTH & SAFETY CODE §§ 127345, 127350, and 127355 (2004).

[B] Georgia requires all "hospital authorities," which create or 
operate nonprofit hospitals, to submit "community benefit reports" that 
disclose the cost of charity and indigent care provided. GA. CODE ANN. 
§ 31-7-90.1 (2004). However, this information is otherwise required of 
hospitals in all groups in Georgia as part of financial reporting 
requirements. GA. CODE ANN. § 31-6-70 (2004).

[C] IND. CODE § 16-21-9-4 - 16-21-9-8 (2004).

[D] TEX. HEALTH & SAFETY CODE ANN. §§ 311.043 - 311.047 (2004).

[End of table]

According to state officials or state hospital association 
representatives in the five states we reviewed, for-profit and 
government hospitals are not required to report on the community 
benefits they provide outside of the requirements to report financial 
data, including data on the cost of charity care they provide. However, 
as we found through our review, some of these hospitals report 
publicly--for promotional purposes--on the community benefits they 
provide, either through published reports or by posting general 
information on their Web sites.

Moreover, the three states with community benefit reporting 
requirements--California, Indiana, and Texas--conduct limited 
monitoring of nonprofit hospitals' community benefit reports. For 
example, according to officials from state agencies, none of the three 
states conducts audits of nonprofit hospitals' self-reported community 
benefits information, although Texas reviews the reports to ensure that 
"reasonable" types of services are listed as community benefits. In 
addition, these states do not routinely use the data collected through 
community benefit reports to review hospitals' tax-exempt status.

Concluding Observations:

Our comparison of the hospital ownership groups' uncompensated care 
costs, as a percentage of patient operating expenses, was instructive. 
Differences between the nonprofit and for-profit groups were often 
small when compared with the substantial differences between the 
government group and the other two groups. Moreover, the burden of 
uncompensated care costs was not evenly distributed among hospitals, 
which meant that a small number of nonprofit hospitals accounted for 
substantially more of the uncompensated care burden than did others 
receiving the same tax preference.

As for the other community benefits hospitals reported providing, we 
were not able to discern a clear distinction among the government, 
nonprofit, and for-profit hospital groups. Hospitals in the five states 
reported conducting a variety of activities, which the hospitals 
themselves considered community benefits. We were unable to assess the 
value of these benefits or make systematic comparisons between 
hospitals or across states.

These observations illustrate a larger point that I and others raised 
at the hearing last month--namely, that current tax policy lacks 
specific criteria with respect to tax exemptions for charitable 
entities and detail on how that tax exemption is conferred. If these 
criteria are articulated in accordance with desired goals, standards 
could be established that would allow nonprofit hospitals to be held 
accountable for providing services of benefit to the public 
commensurate with their favored tax status.

Mr. Chairman, this concludes my prepared statement. I will be happy to 
answer questions you or the other Committee Members may have.

Contact and Acknowledgments:

For further information regarding this testimony, please contact A. 
Bruce Steinwald at (202) 512-7101. Kristi Peterson, Thomas Walke, 
Joanna Hiatt, Kelly DeMots, Mary Giffin, Emily Rowe, Craig Winslow, and 
Hannah Fein contributed to this statement.

[End of section]

Appendix I: Scope and Methodology:

To examine the provision of uncompensated care by the three hospital 
ownership groups, we obtained 2003 uncompensated care data from five 
states--California, Florida, Georgia, Indiana, and Texas. We obtained 
all other data, such as cost-to-charge ratios,[Footnote 21] patient 
operating expenses,[Footnote 22] and all descriptive statistics, from 
2002 and 2003 Medicare hospital cost reports.[Footnote 23] We selected 
the five states because they represented geographically diverse areas; 
had a number of hospitals in each ownership group sufficient to make 
comparisons; and collected hospital-specific uncompensated care data, 
which not all states maintain.[Footnote 24] The 2003 state 
uncompensated care data and 2002 and 2003 Medicare hospital cost 
reports were the most recent available at the time of our analysis. We 
also interviewed health officials from all five states as well as 
officials from the Centers for Medicare & Medicaid Services (CMS), the 
American Hospital Association, and the Federation of American 
Hospitals. We limited our analysis to nonfederal, short-term, acute 
care general hospitals for which a cost report was available.[Footnote 
25] This analysis included critical access hospitals that provide 
general acute care. Our study included about 92 percent of nonfederal, 
short-term, acute care hospitals in the five states.

We defined uncompensated care as the sum of charity care and bad debt 
costs as reported in the state data. To determine uncompensated care 
costs, we multiplied uncompensated care charges by a hospital-specific 
cost-to-charge ratio. Although specific definitions of charity care 
varied, states generally defined it as charges for patients deemed 
unable to pay all or part of their bill, less any payments made by, or 
on behalf of, that specific patient. States generally defined bad debt 
as the uncollectible payment that a patient is expected to, but does 
not pay. Our definition of uncompensated care does not include any 
contractual allowances or cost shortfalls.[Footnote 26] In addition, we 
did not subtract any charity care-specific block grants or donations a 
hospital may receive, as this information was not available for all 
states.

We analyzed uncompensated care cost data from two perspectives---- 
namely, each hospital ownership[Footnote 27] group's percentage of (1) 
total uncompensated care costs in a state, and (2) average patient 
operating expenses devoted to uncompensated care. To examine factors 
that could explain differences in the provision of uncompensated care 
by hospital ownership groups, we examined certain hospital 
characteristics including a hospital's size, teaching status, and 
location. We used patient operating expenses to measure hospital size. 
For teaching status, we defined major teaching hospitals as those 
hospitals having an intern/resident-to-bed ratio of 0.25 or more and 
minor teaching hospitals as those having an intern/resident-to-bed 
ratio greater than 0 and less than 0.25. We defined a hospital as urban 
if it was located in a metropolitan statistical area and as rural if it 
was not located in a metropolitan statistical area. We supplemented our 
analysis with a review of the literature to determine other factors 
that could explain differences in the provision of uncompensated care 
by hospital ownership groups.

We assessed the reliability of the hospital Medicare cost reports and 
the reliability of state uncompensated care cost data from California, 
Florida, Georgia, Indiana, and Texas in several ways. First, we 
performed tests of data elements. For example, we examined the values 
for uncompensated care costs and patient operating expenses to 
determine whether these data were complete and reasonable. We also 
verified that the dollar amount of uncompensated care in the 2003 data 
was consistent with the amount in 2002. Second, we reviewed existing 
information about the data elements. For example, we compared 
descriptive statistics we calculated from the Medicare hospitals cost 
reports with statistics published by CMS. Third, we interviewed state 
and agency officials knowledgeable about the data in our analyses and 
knowledgeable about hospital uncompensated care costs. We determined 
that CMS and all five states performed quality assurance tests on the 
data before releasing them. Overall, we determined that the data we 
used in our analyses were sufficiently reliable for our purposes.

To examine hospitals' provision of community benefits other than 
uncompensated care, we reviewed 21 hospital reports and Web sites for 
information about such benefits in five states. Specifically, we 
reviewed 12 publicly available reports about the community benefits 
provided by nonprofit and for-profit hospitals and 3 reports for For-
profit hospital systems representing multiple hospitals. We also 
reviewed 6 government hospitals' Web sites to determine the extent to 
which they publicized the provision of services that are generally 
considered community benefits. We also examined laws in five states 
regarding community benefit requirements for nonprofit hospitals, 
reviewed the literature, and interviewed state officials and hospital 
association representatives.

We conducted our work from February 2005 through May 2005 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Statutory Definitions of Community Benefits in the Five 
States Reviewed:

Table 7 summarizes the statutory definitions of community benefits for 
nonprofit hospitals in the states we reviewed. We found that the 
statutes vary considerably in their specificity and scope. In addition, 
of the five states we reviewed, only the Texas statute contains an 
explicit link between the statutory definition of community benefits 
and hospitals' qualifications for state tax exemptions.

Table 7: Statutory Definitions of Community Benefit for Purposes of 
Requirements Specific to Nonprofit Hospitals:

State: California[A]; 
Statutory definition of community benefit: Hospital activities to 
address community needs and priorities through disease prevention and 
improvement of health status, including, but not limited to: 

(1) health care services, rendered to vulnerable populations (e.g., 
charity care and unreimbursed costs of providing services to uninsured 
and underinsured); (2) health promotion, prevention services, adult day 
care, child care, medical research and education, nursing and other 
professional training, home delivered meals, aid to the homeless, and 
outreach clinics; (3) financial or in- kind support of public health 
programs; (4) donation of funds, property, or other resources for a 
community priority; (5) health care cost containment; (6) enhancement 
of access to health care; (7) services offered without regard to 
profitability to meet a community need; and; (8) goods and services to 
help maintain a person's health;
Cross-reference to tax exemption in community benefit provisions: No 
provisions explicitly cross-referencing definitions and related 
requirements to tax exemption.

State: Florida; 
Statutory definition of community benefit: Not defined;
Cross-reference to tax exemption in community benefit provisions: Not 
applicable.

State: Georgia[B]; 
Statutory definition of community benefit: Not defined, but community 
benefit reporting requirement refers to charity and indigent care;
Cross-reference to tax exemption in community benefit provisions: No 
provisions explicitly cross-referencing definitions and related 
requirements to tax exemption.

State: Indiana[C]; 
Statutory definition of community benefit: Unreimbursed cost to 
hospitals of providing charity care, government- sponsored indigent 
care, donations, education, government-sponsored program services, 
research, and subsidized health services. Does not include hospital 
taxes or other government assessments;
Cross-reference to tax exemption in community benefit provisions: No 
provisions explicitly cross-referencing definitions and related 
requirements to tax exemption.[D].

State: Texas[E]; Statutory definition of community benefit: 
Unreimbursed cost to hospitals of providing charity care, government- 
sponsored indigent health care, donations, education, government- 
sponsored program services, research, and subsidized health services, 
but not hospital taxes or other government assessments;
Cross-reference to tax exemption in community benefit provisions: 
Numerous provisions cross-referencing definition of community benefit 
and related requirements to tax exemption.

Source: GAO analysis.

[A] CAL. HEALTH & SAFETY CODE §§ 127340 and 127345(c) (2004).

[B] GA. CODE ANN. § 31-7-90.1 (2004).

[C] IND. CODE ANN. §§ 16-18-2-64.5 and 16-21-9-1 (2004).

[D] There are no provisions explicitly cross-referencing community 
benefits to nonprofit hospitals' tax exemption, but hospital-owned 
physician offices or practices, or other property not substantially 
related to inpatient facilities, must provide or support charity care 
or community benefits, as it is defined above, to qualify for property 
tax exemption. IND. CODE ANN. § 6-1.1-10-18.5 (2004).

[E] TEX. HEALTH & SAFETY CODE ANN. §§ 311.042 and 311.045 (2004).

[End of table]

[End of section]

Appendix III: Government Payments for Uncompensated Care and Other 
Unreimbursed Costs:

Hospitals may receive direct payments from different government sources 
to help cover their unreimbursed costs. Such payments may include 
special Medicare and Medicaid payments, known as disproportionate share 
hospital (DSH) payments, Medicare bad debt reimbursement, and other 
state payments.

Medicare DSH: The Medicare DSH adjustment provides payments to 
hospitals that serve a disproportionate share of low-income patients. 
The Congress mandated this adjustment in 1986 to address the concern 
that hospitals that serve such patients have higher Medicare costs per 
case because they have higher overhead and labor costs and their 
patients are in poorer health with more complications and secondary 
diagnoses. Hospitals qualify for the Medicare DSH adjustment based on 
their low-income patient share.[Footnote 28] The low-income patient 
share is computed as the percentage of a hospital's Medicare inpatient 
days attributable to patients that are eligible for both Medicare part 
A and Supplemental Security Income[Footnote 29] plus the percentage of 
total inpatient days attributable to patients eligible for Medicaid, 
but not Medicare part A. For hospitals that qualify for a DSH 
adjustment, their actual adjustment is based on several factors, 
including the number of acute care beds, number of patient days for low-
income patients, and location (rural or urban). See table 8 for 
Medicare DSH payments in 2003 to the hospitals in the selected states 
we analyzed.

Table 8: Medicare DSH Payments to Hospitals Reviewed, 2003 (in 
millions):

State: California; 
Medicare DSH payment to hospitals (in millions): $1,122.

State: Florida; 
Medicare DSH payment to hospitals (in millions): $486.

State: Georgia; 
Medicare DSH payment to hospitals (in millions): $209.

State: Indiana; 
Medicare DSH payment to hospitals (in millions): $94.

State: Texas; 
Medicare DSH payment to hospitals (in millions): $637.

Source: GAO analysis of state and CMS data.

Note: Hospitals include nonfederal, short-term, acute care general 
hospitals.

[End of table]

Medicaid DSH: The Medicaid statute requires that states make DSH 
adjustments to the payment rates of certain hospitals treating large 
numbers of low-income and Medicaid patients. The Medicaid DSH 
adjustment was established by the Congress in 1981 and establishes 
broad guidelines for hospital eligibility to receive Medicaid DSH and 
for the methods used to compute the amount of payment. States have 
discretion in designating DSH hospitals and calculating adjustments for 
them.[Footnote 30] States also vary in terms of program rules and 
resource levels as well as the degree to which they target payments to 
different types of hospitals.[Footnote 31]

Medicaid DSH is the largest source of financial support for hospital 
uncompensated care and is funded jointly by the states and the federal 
government. State approaches to financing the state portion of Medicaid 
DSH include obtaining funds from hospitals through provider taxes or 
intergovernmental transfers in order to establish the state's 
contribution required to obtain the federal match for Medicaid DSH 
funding. Therefore, it is not always possible to determine what portion 
of Medicaid DSH payments to individual hospitals is the net additional 
payment to the hospital.

Medicare bad debt reimbursement: Medicare partially reimburses acute 
care hospitals for bad debts resulting from Medicare beneficiaries' 
nonpayment of deductibles and copayments after providers have made 
reasonable efforts to collect unpaid amounts. If a hospital can 
document that a Medicare patient is indigent, the hospital can then 
forgo collection efforts from the patient. Medicare pays hospitals 70 
percent of their reimbursable bad debts, except critical access 
hospitals,[Footnote 32] for which it pays 100 percent of their 
reimbursable bad debts. See table 9 for total Medicare bad debt 
reimbursements in 2003 to the hospitals in the selected states we 
analyzed.

Table 9: Medicare Bad Debt Reimbursements to Hospitals Reviewed, 2003:

State: California; 
Medicare bad debt reimbursement to hospitals (dollars in millions): 
$160.

State: Florida; 
Medicare bad debt reimbursement to hospitals (dollars in millions): $55.

State: Georgia; 
Medicare bad debt reimbursement to hospitals (dollars in millions): $45.

State: Indiana; 
Medicare bad debt reimbursement to hospitals (dollars in millions): $20.

State: Texas; 
Medicare bad debt reimbursement to hospitals (dollars in millions): $78.

Source: GAO analysis of state and CMS data.

Note: Hospitals include nonfederal, short-term, acute care general 
hospitals.

[End of table]

Other state sources: Other state sources of payment to hospitals for 
uncompensated or unreimbursed care vary widely, and may include special 
revenues such as tobacco settlement funds, uncompensated care pools 
that are funded by provider contributions, and payment programs 
targeted at certain services such as emergency services. For example, 
Massachusetts has used a portion of the state's tobacco settlement fund 
to help cover uncompensated care costs. 

FOOTNOTES

[1] GAO, Tax-Exempt Sector: Governance, Transparency, and Oversight Are 
Critical for Maintaining Public Trust, GAO-05-561T (Washington, D.C.: 
Apr. 20, 2005). 

[2] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005). 

[3] The state and local government-owned hospitals in this statement 
refer to state-owned hospitals, such as those at state universities, 
and locally owned hospitals, such as county and city hospitals. In this 
statement we will refer to these as government hospitals. Federal 
hospitals, such as those operated by the Department of Veterans 
Affairs, are not included in this definition. 

[4] Reliable, hospital-specific data were not available nationwide. In 
addition, some states do not have sufficient diversity in hospital 
ownership to make comparisons for the purpose of this analysis; in 
particular, some states have very few for-profit hospitals. 

[5] To obtain uncompensated care costs, we multiplied hospitals' 
uncompensated care charges reported in the state data by hospital- 
specific, cost-to-charge ratios from Medicare hospital cost reports. 
These cost-to-charge ratios are specific to hospital costs and charges 
as a whole, not to Medicare costs and charges. 

[6] Patient operating expenses include those expenses incurred for 
patient care. They exclude such expenses as those incurred for 
operating a parking garage, gift shop, and certain other nonmedical 
expenses. 

[7] Cost, charge, and other data obtained from the states and other 
sources are for individual hospitals, even if a hospital is part of a 
larger hospital system. 

[8] We excluded 8 percent of the hospitals in the five states because 
certain key information, such as total patient operating expenses, was 
not available. 

[9] This total does not include critical access hospitals that provide 
general acute care. Critical access hospitals are small, rural 
hospitals that receive payment for their reasonable costs of providing 
inpatient and outpatient services to Medicare beneficiaries, rather 
than being paid fixed amounts under Medicare's prospective payment 
systems. By excluding critical access hospitals, which are numerous and 
small, we removed the effect that they would have on the distribution 
of hospitals by ownership group. 

[10] Section 501(c) specifies 28 types of entities that are eligible 
for tax-exempt status. Over 1.5 million entities have been recognized 
as exempt by IRS. 

[11] Charitable activities may include those that relieve the poor, 
distressed, or underprivileged; those that lessen the burdens of 
government; and those that promote social welfare. 

[12] See, for example, IRS Rev. Rul. 56-185, 1956-1 C.B. 202. 

[13] See IRS Rev. Rul. 69-545, 1969-2 C.B. 117. A revenue ruling is a 
formally published interpretation of tax law by the IRS upon which 
taxpayers are entitled to rely. 

[14] These results are consistent with studies showing a similar 
relationship. See L. Fishman, "What Types of Hospitals Form the Safety 
Net?" Health Affairs, vol. 16, no. 4 (July/August 1997); J. Mann, et 
al., "A Profile of Uncompensated Hospital Care, 1983-1995," Health 
Affairs, vol. 16, no. 4 (July/August 1997); and S. Zuckerman, et al., 
"How Did Safety-Net Hospitals Cope in the 1990s?" Health Affairs, vol. 
20, no. 4 (July/August 2001). 

[15] See G. Atkinson, W. Helms, and J. Needleman, "State Trends in 
Hospital Uncompensated Care," Health Affairs, vol. 16, no. 4 (July/ 
August 1997); L. Fishman, "What Types of Hospitals Form the Safety 
Net?" Health Affairs, vol. 16, no. 4 (July/August 1997); A. Davidoff, 
A. LoSasso, G. Bazzoli, and S. Zuckerman, "The Effect of Changing State 
Health Policy on Hospital Uncompensated Care," Inquiry, vol. 37 (Fall 
2000); K. Thorpe, E. Seiber, and C. Florence, "The Impact of HMOs on 
Hospital-Based Uncompensated Care," Journal of Health Politics, Policy 
and Law, vol. 26, no. 3 (June, 2001); and GAO, Nonprofit Hospitals: 
Better Standards Needed for Tax Exemption, GAO/HRD-90-84 (Washington, 
D.C.: May 30, 1990). 

[16] We defined major teaching hospitals as those hospitals having an 
intern or resident-to-bed ratio of 0.25 or more and minor teaching 
hospitals as those having an intern or resident-to-bed ratio greater 
than 0 and less than 0.25. 

[17] To determine the types of community benefits hospitals reported 
providing, we reviewed 15 publicly available reports about community 
benefits for nonprofit and for-profit hospitals and six government 
hospitals' Web sites. 

[18] Our findings on the types of community benefits hospitals reported 
providing are consistent with our findings in GAO/HRD-90-84 and 
industry publications. 

[19] Georgia requires all "hospital authorities," which create or 
operate nonprofit hospitals, to submit "community benefit reports" that 
disclose the cost of charity and indigent care provided. GA. CODE ANN. 
§ 31-7-90.1 (2004). However, this information is otherwise required of 
hospitals in all groups in Georgia as part of financial reporting 
requirements. GA. CODE ANN. § 31-6-70 (2004). 

[20] In Texas, for-profit and government hospitals receiving Medicaid 
DSH payments are generally required to meet the same community benefit 
reporting requirements as nonprofit hospitals. TEX. HEALTH & SAFETY 
CODE ANN. § 311.046(e) (2004). 

[21] These cost-to-charge ratios are specific to hospital costs and 
charges as a whole, not to Medicare costs and charges. 

[22] Patient operating expenses include those expenses incurred for 
patient care. They exclude such expenses as those incurred for 
operating a parking garage, gift shop, and certain other nonmedical 
expenses. 

[23] The reporting period of certain hospitals differed between the 
state data and the cost reports. Therefore, we combined the 2003 state 
data with the cost report, either 2002 or 2003, that best overlapped 
the state data's reporting period. 

[24] Reliable, hospital-specific data were not available nationwide. In 
addition, some states do not have sufficient diversity in hospital 
ownership to make comparisons for the purpose of this analysis; in 
particular, some states have very few for-profit hospitals. 

[25] Cost, charge, and other data obtained from the states and other 
sources are for individual hospitals, even if a hospital is part of a 
larger hospital system. 

[26] Contractual allowances are the difference between a hospital's 
full charges for a service and the payment it has agreed to accept for 
that service from a particular insurer. Cost shortfalls are the 
difference between the accepted payment for a service and the actual 
cost of that service, in the case that the payment is less than the 
cost. 

[27] In order to determine a hospital's ownership status, we compared 
its ownership from the state data (if available) to that from the 
Medicare cost report data. Where the two sources did not match, we used 
the 2002-2003 AHA Guide to confirm one of the sources as correct. If 
possible, we also confirmed ownership status using the hospital's Web 
site. 

[28] To qualify for Medicare DSH, a hospital must have a share of low- 
income patients that exceeds 15 percent. Alternately, large hospitals 
located in urban areas can qualify if more than 30 percent of their 
total net inpatient care revenue is for indigent care and comes from 
state and local governments (excluding Medicare and Medicaid funds). 

[29] Medicare Part A pays for inpatient hospital stays, care in a 
skilled nursing facility, hospice care, and some home health care. The 
Supplemental Security Income program makes payments to people with low 
income who are at least 65 or are blind or have a disability. 

[30] Congressional Research Service, Medicaid Disproportionate Share 
Payments (Washington, D.C.: 2005), 15. 

[31] Congressional Research Service, Medicaid Reimbursement Policy 
(Washington, D.C.: 2004), 36. 

[32] See GAO, Medicare: Modest Eligibility Expansion for Critical 
Access Hospital Program Should Be Considered, GAO-03-948 (Washington, 
D.C.: September 2003).