Do non-profit hospitals provide more charity care when faced with a mandatory minimum standard?
) Journal of Accounting and Public Policy, 2010, vol. 29, issue 3, pages 242-258 Abstract: Policymakers often question whether not-for-profit (NFP) hospitals provide enough charity care to justify tax advantages. In 1993, Texas enacted legislation requiring NFP hospitals to provide certain community benefits at levels set forth in specific criteria to retain tax-exempt status; this paper focuses on the effect of the legislation’s requirement that NFP hospitals spend a minimum of 4% of net patient revenue on charity care. We also study a modification of the law passed in 1995, which allows the deduction of bad debts expense when calculating net patient revenue. This change effectively lowers required charity care spending, and our study considers whether Texas hospitals responded by reducing charity care spending. We test the Texas laws’ effect on hospital charity care spending using financial data for 1992 through 1997. As anticipated, results show that, on average, NFP hospitals spend
