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Op-Ed: Nonprofit hospitals need to get
back to charity work
By William S. Smith | Pioneer Institute in Boston
Congress should require nonprofit hospitals and clinics to publicly
report the amount of revenue that they are securing through the 340B
program, and they also should be required to report, under a uniform
definition of charity care, the level of free or discounted care they
are providing.
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 Nonprofit hospitals are among the most important
safety net institutions in the United States. Thousands of times each day, they
treat low income patients without insurance at no cost to the patient. In 1992,
in order to support this charity work, the federal government created the 340B
drug discount program for nonprofit hospitals and clinics.
The 340B program allows these nonprofits to buy drugs at very steep discounts
compared with other customers, providing substantial revenues for the bottom
lines of hospitals. Consider an example of how this program boosts hospitals’
revenue. Suppose a hospital could purchase an oncology drug for $25,000, a 75%
discount from the drug’s market price (and a discount level not uncommon in the
340B program). However, if the hospital dispensed that drug to a patient with
good insurance coverage, they may be able to bill that insurance company at
$100,000, allowing the hospital to pocket a profit of $75,000 on a single
prescription.
One economist recently concluded that the 340B program had boosted nonprofit
hospital revenues by $40 billion in a single year, 2019. When they created the
340B program, Congress thought that this additional revenue should be devoted to
charity care programs. Unfortunately, at many nonprofit hospitals, charity care
has been declining at the same time that revenue from the 340B program have been
exploding.
A recent Wall Street Journal analysis concluded that nonprofit hospitals that
secure billions through the 340B program provide less charity care than
for-profit hospitals that receive zero revenue from the 340B program. “These
charitable organizations, which comprise the majority of hospitals in the U.S.,
wrote off in aggregate 2.3% of their patient revenue on financial aid for
patients’ medical bills,” write Anna Wilde Mathews, Tom McGinty, and Melanie
Evans in an investigative report for the Wall Street Journal. “Their for-profit
competitors … wrote off 3.4%, the Journal found in an analysis of the
most-recent annual reports hospitals file with the federal government.”
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Louisiana’s Ochsner Health system drew special attention from the Journal for
dedicating among the skimpiest share of patient revenue to charity care, less
than 1%.
Elsewhere, it was reported in February that Our Lady of the Lake and LCMC Health
had committed a quarter of a billion dollars to Louisiana State University, the
largest outside investment in university history. That’s all well and good until
you realize that according to their June 2020-June 2021 Schedule H filing, Our
Lady of the Lake contributes 0.5%, or $7.5 million – from a total of $1.54
billion – of its patient revenues to charity care. Did the hospital’s 340B funds
pay for a huge investment in LSU’s research?
It is true that many nonprofit hospitals have challenges with low reimbursements
from the Medicaid program, labor shortages and other difficulties. Therefore,
Congress could do one simple thing that may improve the 340B program and
increase patient access to charity care: transparency.
Congress should require nonprofit hospitals and clinics to publicly report the
amount of revenue that they are securing through the 340B program, and they also
should be required to report, under a uniform definition of charity care, the
level of free or discounted care they are providing. That way, policy makers
could see if 340B revenues are largely being devoted to charity care, which was
the intention of Congress, or if 340B funds are being diverted to executive
compensation, hospital acquisitions or other expenses.
Sadly, many nonprofit hospitals have lost their way and have gotten away from
the mission that animated their creation: helping those in dire economic need
afford healthcare. That needs to change.
William S. Smith, PhD, is Senior Fellow and Director of the Life
Sciences Initiative at Pioneer Institute in Boston
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