How much are Lehigh Valley hospitals giving back to the community? See the results from a recent report

St. Luke’s University Health Network’s hospitals proportionally gave back more to their communities than other hospitals in Pennsylvania in 2021, according to a new report from a health care think tank.

St Luke’s contributions to the communities — including through financial assistance, free or discounted care, community health improvement services and grants or donations to community causes — earned the health system a glowing evaluation from the Lown Institute, which analyzed the tax filings of nearly 2,500 nonprofit hospitals across the U.S.

About 60% of hospitals in the country are nonprofit, and therefore exempt from federal, state and local taxes. In return, they’re expected to serve their communities in ways that generate no profit.

Under Lown’s report nonprofit hospitals needed to contribute 5.9% of expenditures , the estimated tax benefit, to make up for their nonprofit status.

Lown’s report showed only one-fifth of nonprofit hospitals spent more than 5.9%, and St. Luke’s hospitals were among that minority.

Lown determined St. Luke’s University Hospital-Fountain Hill and St. Luke’s Hospital-Allentown, contributed more than $70 million, or nearly 7% of all expenditures, to community benefit. St. Luke’s Hospital-Easton proportionally spent the most on community benefit, at nearly 16%.

Under Lown’s criteria, no Lehigh Valley Health Network hospital analyzed met that 5.9% fair share threshold; the closest was LVH-Hazleton, where 3% of expenditures, or about $3.5 million, was invested in the community.

Lehigh Valley Hospital, which includes LVH-Cedar Crest, LVH-17th St. and LVH-Muhlenberg, contributed $39 million in community benefit, or nearly 2% of all expenditures in 2021, according to Lown.

How do hospitals give back?

Lown’s report is not without detractors.

In an emailed statement, LVHN spokesperson Jamie Stover said the network’s hospitals and physician practices qualify as purely public charities under Pennsylvania Act 55 , which sets criteria for what constitutes a charitable organization and defines what can be counted as uncompensated goods and services. Yet they are not included in Lown’s analysis.

She added that Lown and its criteria have been criticized by the American Hospital Association . LVHN calculated its community benefit for 2023 at nearly $865.5 million under Pennsylvania Act 55, Stover said.

What should qualify as community benefit is a controversial topic that has put researchers and third-party think tanks like Lown at odds with some hospitals and industry groups like the AHA and the Hospital and Healthsystem Association of Pennsylvania.

Though not all networks take umbrage with Lown’s report, St. Luke’s has praised it in the past.

“The facts speak for themselves. The annual Lown report has been in existence for years. Its methodology is well established. Anybody who is criticizing it, we feel that is sour grapes,” said Sam Kennedy, St. Luke’s spokesperson.

Lown Institute uses its own criteria for calculating community benefit , which excludes expenditures that are considered uncompensated care under Pennsylvania Act 55 and the IRS’s rules. Specifically, Lown does not include Medicaid shortfall or research and training.

Chris Daley, spokesperson for the HAP, said they estimate hospitals in Pennsylvania spent $9 billion to improve their communities. Of that, nearly 59%, or $5.3 billion was Medicaid and Medicare program shortfalls and 21% was on research and educating health care providers.

But Lown justifies excluding these categories because hospitals can choose to claim those expenses in multiple circumstances. It says it excludes research and education because while these are public goods the direct impact on surrounding community health needs, including for underserved populations, are dubious.

In the case of Medicaid shortfall, hospitals have means to make up the difference between what Medicaid pays and the cost of the service as determined by hospitals. Privately insured patients are often charged more to make up for those losses. Lown also notes that Massachusetts excludes Medicaid shortfall from financial reporting requirements for hospitals.

Accepting Medicaid or Medicare payers isn’t a function solely served by nonprofit hospitals, either. One 2022 study that looked at 3,446 private hospitals across the U.S. found that Medicaid shortfall represents about 2.5% of hospitals’ expenses. The study also found that the percentage of unreimbursed Medicaid costs absorbed by for-profit and nonprofit hospitals was similar. In almost half of U.S. states, for-profit hospitals incurred proportionally more in unreimbursed Medicaid costs than nonprofit ones, though Pennsylvania was not one of them.

Ge Bai, who was one of the researchers in that study, said many measures that are allowed to be counted as community benefit by nonprofit hospitals in many regards are highly gameable and subjective. She said certain marketing campaigns, for instance, are eligible to be claimed as community benefit.

For this reason, Bai, a professor of accounting and health policy at Johns Hopkins University, said looking at charity care — care provided to patients at no cost or a decreased cost — is a more useful measure.

Charity care spending is exactly what Bai focused on in a 2021 study of thousands of government, nonprofit and for-profit hospitals . The study showed that in aggregate for every $100 of expense incurred, nonprofit hospitals spent $2.30 on charity care, whereas for-profit hospitals spent $3.80. However, the study also noted that a slightly larger share of for-profit hospitals spent less than $1 of charity care per $100 of expenses, 43%, versus nonprofit hospitals, at 36%.

Bai noted that charity care can be written off by for-profit hospitals but at the same time, nonprofit hospitals are already tax-exempt.

“Nonprofit hospitals have to behave more like for-profit ones because of market pressures. The origin of nonprofit hospitals was hospitals almost exclusively serving the poor and staffed by volunteer clinicians,” Bai said. “That is why we have tax exemption standards for them. But things have changed and now they have to compete with the for-profit hospitals. The business nature is very similar for nonprofit and for-profit hospitals. Therefore it is not surprising that nonprofit hospitals treat charity care as an expense it should minimize.”

Daley said that charity care is only a small piece of the community benefit that hospitals provide. HAP’s estimates were that hospitals provided $397.5 million in charity care, compared to $796.7 million for services provided at a loss and $429.5 million for contributions and initiatives to improve community health.

“Statewide, hospitals invest billions in initiatives to improve public health, advance high-quality care and meet their communities’ unique needs,” Daley said.

Bai said since local taxpayers are the ones primarily subsidizing the tax breaks hospitals receive, they should expect substantial benefits in their local area from their hospitals. But understanding how much truly charitable work hospitals do compared to how much they get in tax exemptions and other benefits is difficult.

There should be better oversight, with hospitals required to disclose their estimated tax exemptions and other benefits they receive on an itemized basis so that lawmakers and local governments can better evaluate if nonprofit hospitals are providing enough community benefit, she said.