Recent news coverage of hospital billing practices—including Steven Brill’s epic “Bitter Pill: Why Medical Bills Are Killing Us” and the widely-reported disparities in hospital charges released in May by Medicare—has fueled debate about the value that hospitals deliver. Hospitals and health systems that can adeptly transform their business models and engage non-traditional partners and sectors to improve community health will thrive in a post-reform environment. Those that remain committed to maximizing billable services as their primary mission will increasingly be viewed with skepticism by their customers and communities, undercutting their perceived value.

Community benefit programs will play an essential role in this tectonic shift in how health is perceived and achieved. Most hospitals and health systems in the United States are incorporated as not-for-profit entities. To maintain their tax exemptions, nonprofit hospitals must dedicate a portion of their revenue to provide benefits to the community. A recent analysis of the tax documents filed by more than 1,800 nonprofit hospitals, published in the New England Journal of Medicine, found that more than 85 percent of the $13 billion hospitals claimed as community benefit programs took the form of discounted or uncompensated health care services.

What is the future of community benefit programs after we implement the Affordable Care Act (ACA) and state health reforms? How will nonprofit hospitals dedicate their community benefit dollars after tens of millions more Americans have health coverage, reducing the need for uncompensated care? The answers to these questions will affect fields far beyond health care.

Health reform presents opportunities for health systems to work with new partners and align their community benefit investments toward primary prevention strategies that will create healthier communities. In fact, some forward-thinking hospitals already are. For example, between 2003 and 2011 Kaiser Permanente invested $236 million in its seven service regions through its Community Health Initiative, which supports strategies such as improving access to affordable, healthy foods, and enhancing neighborhood infrastructure to promote daily physical activity.

For the nation to realize the true promise of health reform, these investments need to become the norm rather than the exception. Let’s return for a moment to that $13 billion that hospitals and health systems claim annually in community benefit, about $11 billion of which constitutes uncompensated or discounted care. Imagine if those resources were shifted upstream to create the community conditions that have been shown to promote health and prevent disease—safe streets, early childhood development, high-performing public schools, etc. Such investments would yield a more sustained and equitable improvement in America’s health than any set of clinical procedures.

This strategy would face at least three significant challenges:

  1. Even after the ACA is fully implemented, millions of Americans are expected to still lack health coverage; thus, there will always be a need for some level of charity care.
  2. Many states are refusing to implement aspects of the ACA.
  3. Medicaid will always reimburse hospitals at lower rates than commercial health plans, and about 45 percent of that $13 billion (or $5.85 billion) is comprised of discounted care for Medicaid patients.

Even with these caveats, simply investing 20 percent (about $2.2 billion) of the community benefit dollars that are currently dedicated to uncompensated or discounted care to primary prevention would make a significant impact. To put that figure in perspective, $2.2 billion exceeds the amount that Congress has allocated to the Prevention and Public Health Fund this year. This fund represents the largest federal commitment to prevention in history, yet it has repeatedly been raided to pay for other programs.

The case for shifting community benefit funds from uncompensated medical services to community-based prevention goes beyond what the evidence demonstrates are the most effective investments in health. Health consumers, businesses, and public officials will increasingly view the value that hospitals deliver to their community differently in a post-reform environment. Hospital executives who now view their community benefit programs primarily as a way to generate positive public relations will need to recognize their central role in achieving their mission.

While hospitals have traditionally framed their value in clinical terms—the latest imaging equipment or the best team of heart surgeons—their consumers and host communities will increasingly ask what they are doing to keep their communities healthy. Medical care accounts for only about 10 percent of population health in the United States, a fact that is gaining increasing recognition in a wide range of policy, philanthropic, and business circles. Health systems and hospitals that can effectively demonstrate their commitment to community health will ultimately enhance their value while creating a healthier future.

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