Working Paper

Abstract

What can governments do to encourage nonprofit hospitals to provide greater benefits to their communities? Recent efforts by the federal and state governments seek to hold hospitals accountable for community health, in part by incentivizing charity care provision. Laws that set benchmarks for charity care spending are increasingly used, but their efficacy is uncertain. In this study, the authors examine the extent to which Illinois’ minimum charity care provision (MCCP) law increases nonprofit hospital charity care. Importantly, the authors differentiate between responses for hospitals required to provide minimal charitable spending (nonprofits) and those that are not (for-profit and public). They use detailed panel (2009-2015) data from Illinois' Annual Hospital Questionnaire and county-level data from the American Community Survey. They exploit a discrete change in charitable care requirements for nonprofit hospitals to identify the effect of the MCCP law on charity care, controlling for hospital characteristics, county demographics, and year and county (or hospital) fixed effects.

Employing a differences-in-differences model, the authors find no evidence that the MCCP law increases charity care on average. Instead, they find some evidence that the law’s effects vary by how much charity care hospitals provided previously – charity care increases for those providing lower levels at baseline, narrowing the gap in charity care provision with those that provide high levels at baseline. The results suggest that setting low benchmarks does not create sufficient incentives for nonprofit hospitals to provide greater charity care on average, but instead may narrow the gap between high and low charity care hospitals.