Medical campus of VCU hospital, one of the largest providers of charity care in Virginia.
A new study of California hospitals between 2001 and 2011 has found no evidence that nonprofit hospitals provide more charity care when they gain market power. Nationally, 58% of all non-federal, general hospitals are nonprofit. Nonprofits dominate the health care sector in Virginia as well.
“Economic theory indicates that a balancing of social benefits against harm from market power may be appropriate under the assumption that nonprofits will provider greater social benefits when they have greater market power,” write Cory Caps, Guy David, and Dennis W. Carlton in a study undertaken as part of the National Bureau of Economic Research’s health care initiative.
They conducted the study to see if the theory held up in practice. In the case of California, it didn’t.
The study, “Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care,” could have implications for the debate over the Certificate of Public Need (COPN) in Virginia. Under the COPN law, the state must give its approval for major capital outlays such as new buildings, expansions and purchases of expensive equipment. The law is widely acknowledged to reduce competition and bolster profits for hospitals, but is justified on the grounds that helping hospitals maintain market share enables them to spend money on uncompensated care.
California is not Virginia, and the authors were exploring the relationship between a hospital’s market power and uncompensated care in the context of antitrust laws, not COPN. So, the findings may not be replicated in the Old Dominion. But insofar as the authors developed a methodology for examining the relationship between market power and uncompensated care, it would be worth conducting the same exercise in Virginia.
Virginia nonprofits receive exemptions from state, local and federal taxes. If it turns out that they aren’t using their revenue “surplus” to provide charity care and cover bad debts any more than their for-profit peers are, Virginians might legitimately ask what public benefits they are using their “surplus” for.
