Texas Tax-Exempt Hospitals & Charity Care: Surprisingly Progressive

In 1985 -- one year before Congress added EMTALA to Medicare's Conditions of Participation -- Texas became the first state in the country to enact a prohibition against patient-dumping, the practice of for-profit hospitals to transfer unfunded emergency patients to local public hospitals. See Tex. Health & Safety Code § 311.022. When a patient needs emergency medical treatment, the consequences of transfer-related delays could be dire, including death. See this 1985 N.Y. Times story:

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This isn't the only progressive healthcare law in Texas. For decades now, we have also required nonprofit hospitals to provide a certain minimum amount of charity care, both to maintain its nonprofit status (Tex. Health & Safety Code, ch. 311(D)) and to qualify for tax-exempt status (Tex. Tax Code § 11.1801). If a nonprofit hospital meets any one of three measures of required charity care, it gets its exemption:

(A)  charity care and government-sponsored indigent health care (e.g., Medicaid] are provided at a level which is reasonable in relation to the community needs, as determined through the community needs assessment, the available resources of the hospital or hospital system, and the tax-exempt benefits received by the hospital or hospital system; 

(B)  charity care and government-sponsored indigent health care are provided in an amount equal to at least 100 percent of the hospital's or hospital system's tax-exempt benefits, excluding federal income tax;  or 

(C)  charity care and community benefits are provided in a combined amount equal to at least five percent of the hospital's or hospital system's net patient revenue, provided that charity care and government-sponsored indigent health care are provided in an amount equal to at least four percent of net patient revenue. 

The statutes aren't perfect. They are written so that, with enough uncompensated care provided to Medicaid patients, a hospital (in theory) could meet any of the three standards with no charity care whatsoever. In addition,  with careful planning most nonprofit community hospitals can meet one of these standards, and both statutes provide for fairly generous exceptions to the three measures. For example, a recent study concluded that nonprofit hospitals in Texas provide charity care at a level approximately equal to 60% of the value of their tax exemption. Part of the problem is the extremely limited enforcement procedures and budget. And the root of the entire problem is that very few health systems have the level of excess income to do more than put a dent in their community's need for charity care. Medicaid meets some of that need, but most state Medicaid programs are underfunded.