Study: Harris County’s large uninsured population limits TMC spending on community health

The large uninsured population in Harris County may be limiting the ability of Texas Medical Center (TMC) institutions to spend funds on community health improvement or subsidized health services, according to a new issue brief by experts at Rice University’s Baker Institute for Public Policy.

Credit: University

“Community Benefit Spending and the Tax-Exempt Status of Nonprofit Hospitals” was co-authored by Marah Short, associate director of the institute’s Center for Health and Biosciences; Vivian Ho, the James A. Baker III Institute Chair in Health Economics and director of the center; and Alex Alexander, health policy intern for the center. The issue brief summarizes a study comparing the community benefit expenditures of two sets of Harris County hospitals — TMC and non-TMC hospitals — and proposes strategies that can better justify the tax exemptions the institutions enjoy.

“Although TMC hospitals spend more on community benefit provision than non-TMC hospitals, over 80 percent of that community benefit spending goes toward charity care, unreimbursed costs of means-tested government programs, health professions education and research,” the authors wrote. “Although these expenditures do provide a benefit and correspond to the TMC’s mission to ‘serve the health, education and research needs of Texas and the world,’ they leave little room for spending on community health improvement and subsidized health services, which would likely provide more direct benefit to the local community.”

Harris County has the highest number of uninsured people in Texas (approximately 740,000), according to Legacy Community Health. TMC hospitals spend 41.7 percent on average of total community benefit expenditure on charity care, while the national average is just over 25 percent, the authors found.

Most hospitals in the United States operate as nonprofit entities, which exempts them from federal taxation in recognition of the benefits they provide to the community. Concerns about the justification for this large tax exemption prompted Congress to include community benefit requirements in the Patient Protection and Affordable Care Act (ACA) — requirements that most hospitals would have needed to comply with by 2013.

These provisions require hospitals seeking tax-exempt status to conduct community health needs assessments (CHNAs) every three years and develop strategies to address those needs. According to the regulations governing these CHNAs, social determinants of health such as neighborhood safety, the availability of healthy foods and whether residents earn a living wage should be considered as health needs and addressed in hospital strategies. These new regulations are meant to direct tax-exempt hospitals “to look beyond providing medical services to patients and to address the health needs of their communities,” according to the brief.

“The ACA and the resulting decrease in uninsured rates was expected to reduce the demand for charity care and allow community benefit dollars to instead be shifted to other initiatives, such as those related to community health,” the authors wrote. “But Texas’s decision not to expand Medicaid and recent national policy decisions diminishing the efficacy of the health insurance marketplaces could minimize this spending shift.”

The IRS defines “community building” to include more general community improvements, such as physical, environmental and economic development (for example, efforts to develop safe, affordable housing or advance student achievement).

Since these activities fall outside of the IRS’s definition of a community benefit, they must meet additional criteria and be justified separately to the IRS as items that support community health in order for hospitals to credit such activities toward their community benefit expenditures, the authors said. “Making it easier for hospitals to do so may incentivize them to engage in more of these activities and allocate more of their community health expenditures toward endeavors that benefit communities more broadly,” they wrote. “Combining this strategy with clearly defined minimum requirements for certain categories, such as subsidized health services or community health improvement, could further increase the breadth of the impact of a hospital’s community benefit expenditures. These strategies can better justify the tax exemption enjoyed by these institutions and help align their actions with the needs of their communities.”

About Jeff Falk

Jeff Falk is associate director of national media relations in Rice University's Office of Public Affairs.