David Dranove
Walter McNerney Distinguished Professor of Health Industry Management, Professor of Strategy and Chair of the Department of Strategy, Northwestern University's Kellogg School of Management
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Nonprofit hospitals provide charity care as a community benefit, in exchange for substantial tax exemptions. However, the supply of and demand for this care is not well aligned geographically.
A floor-and-trade system wherein each state designates a minimum amount of charity care for each hospital to provide and an income threshold for patients receiving charity care should be designed. Hospitals would then trade credits of charity care to adjust for differences in local need and preference.
Many uninsured Americans rely on charity care provided by nonprofit hospitals, which receive substantial tax benefits in exchange for providing community benefits. In this discussion paper we show that the hospitals that receive the largest tax benefits tend to be located in wealthier communities, whereas the demand for uncompensated care is highest in poorer communities. To ameliorate this geographic mismatch between the supply of charity care and the demand for charity care, we propose a floor-and-trade system whereby nonprofit hospitals would be required to meet charity-care standards, either by providing care to local patients or by purchasing credits from other hospitals. We explain how state governments can best implement our proposal while tailoring the plan to their specific needs.
