Hospitals’ charity work hard to assess

For-profit hospitals in California provide free care to indigent patients at rates equal to nonprofit hospitals that receive income and property tax exemptions, according to a report released Thursday by the state auditor’s office.

But, according to the report, nonprofits provide other community benefits such as medical research, physician training and wellness promotion valued at $656 million, nearly three times the $242 million they would have paid in corporate income and property taxes in 2005.

That is, if the numbers can be believed.

The 61-page report concluded with a call to the state Legislature to give nonprofit hospitals more specific instructions on reporting costs for uncompensated care and evaluating community benefits.

“There is no real way of knowing what nonprofit community benefits are,” said Doug Cordiner, chief deputy to California Auditor Elaine M. Howle. “If there’s a desire on the Legislature’s part to better understand the benefits provided, then we recommend that a more standardized way for reporting benefits be required.”

State law requires that nonprofit hospitals submit an annual “community benefit plan” to the Office of Statewide Health Planning and Development, which was the source of the data used by the auditor’s office. But it is up to each hospital to decide which services qualify as a benefit to the community and what values to assign to them.

Even auditors’ efforts to estimate lost tax revenues were hampered by numerous errors in county assessors’ property valuations, Cordiner said.

The report comes at a time when national and local critics are questioning whether nonprofit hospitals are providing the charity care that federal and state laws require in exchange for tax-exempt status.

“The California auditor’s report highlights the problem with nonprofit hospitals and their tax-exempt status: There aren’t uniform standards for what’s charity care and what isn’t, so everyone’s left to define it for themselves,” said Sen. Charles E. Grassley (R-Iowa), ranking member of the Senate Finance Committee.

Grassley is pushing the Internal Revenue Service to craft new regulations that would give hospitals better guidance and the public clearer information.

State Sen. Sheila Kuehl (D-Santa Monica), chairwoman of the Senate Health Committee, agrees that both federal and state laws need clarification.

“Even comparing the not-for-profits with the for-profits just in terms of bottom-line charity care may or may not be salient because of the other things the nonprofits do” such as teaching and research, Kuehl said.

She was not surprised that for-profit and nonprofit hospitals provided roughly equal amounts of charity care. The report found that from 2001 to 2005, uncompensated costs as a percentage of patient revenues -- the amount collected from patients and third-party payers -- was about 3.6% for nonprofit hospitals and 3.5% for for-profit hospitals.

“They’re all having to serve too many poor patients because of the insurance crisis,” Kuehl said. She has introduced Senate Bill 840, which would create a government-run insurance program for California.

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mary.engel@latimes.com