Association for Public Policy Analysis & Management

Most hospitals in the United States are non-profit and therefore must provide community benefits as a condition of tax-exempt status under Section 501 of the Internal Revenue Code.  Although historically community benefits were narrowly defined as free and reduced price medical care to patients unable to pay, the current regulatory definition is broad with limited oversight, granting hospitals wide latitude to determine both the amount and composition of community benefit spending.  Previous work demonstrates that non-profit hospitals behave similarly to for-profit hospitals, for example offering more profitable service lines when faced with competition from for-profit hospitals.  If non-profit hospitals profit-maximize in the presence of greater competition, then they should provide the cost-minimizing bundle of community benefits subject to regulatory oversight.  Specifically, non-profit hospitals in markets with more for-profits should spend on community benefits that are cheaper to provide.  This paper will use 2009-2013 tax records from non-profit hospitals to estimate the relationship between changes in market structure and competition from for-profit hospitals on the amount of community benefit spending and the distribution of spending across detailed categories of expenditure including free and reduced price medical care, care to patients covered by means-tested government programs, cash and in-kind contributions to community organizations, health professions education, and research.