Cash Donations: Improving Hospital Quality?

Cash donations to hospitals have been a topic of discussion in the healthcare industry, with questions arising about their impact on quality and patient care. Hospitals, both for-profit and non-profit, have been known to solicit monetary donations from the public, with some employing aggressive tactics such as grateful patient programs to target potential donors. While donations can provide financial support for hospitals, it is important to examine how these funds are allocated and whether they truly improve the quality of healthcare services. This is especially relevant given the emergence of for-profit hospitals and the varying levels of transparency in hospital finances. As the public considers donating to hospitals, understanding the allocation of funds and the impact on quality becomes essential for informed decision-making.

Hospitals turning grateful patients into big donors

An increasing number of nonprofit hospitals are seeking large monetary donations from patients through so-called "grateful patient programs". An Advisory Board survey of 108 hospitals found that more than half had grateful patient programs, and there has been a dramatic uptick in strategic attention in the formation of these programs in the last 10 years. Grateful patient programs rely on a combination of software and patient information to identify and connect with patients who are potential donors.

Grateful patient programs are a fundraising initiative that healthcare institutions like hospitals use to cultivate relationships with patients whose lives have been positively impacted by the organization's providers and services. These programs enable patients to express their gratitude to the hospitals and healthcare organizations that helped them. The donations received help the organizations continue operating and make improvements to how they serve their communities.

While grateful patient programs are becoming increasingly popular, some experts are questioning whether the hospitals' strategies for identifying patient donors are ethical. Some hospitals conduct nightly wealth screenings—using software that culls public data such as property records, contributions to political campaigns, and other charities—to gauge which patients are most likely to be the source of large donations. Those who seem promising may receive a visit from a hospital executive in their rooms, as well as extra amenities like a bathrobe or a nicer waiting area for their families. Some patients say they are more willing to give donations when they know why the money is needed. For instance, Martin Faga was identified as a potential donor when he was treated at Inova Fairfax Hospital, but he initially was not interested in giving a donation. However, when fundraising staff told Faga that his donation would help train staff and purchase equipment for the hospital, he changed his mind and made a $200,000 donation.

Other forms of hospital fundraising

In addition to grateful patient programs, hospitals may also seek funding through other means. For example, federal regulations require that nonprofit hospitals provide some level of charity care and other community benefits as a condition of receiving tax-exempt status. Hospitals may also accumulate bad debt when patients are unable or unwilling to pay for their care. Some hospitals also spend a significant portion of their funds on fundraising salaries and advertising. For example, St. Jude's, the largest healthcare charity in the country, spent 30% of its contributions on fundraising in 2020.

Charity care and bad debt

Nonprofit hospitals have reported significant amounts of bad debt from patients likely eligible for charity care but did not receive it. This gap in payment can lead to hospitals charging insured patients more than uninsured patients for the same treatment to cover financial losses, which can then make insurance coverage unaffordable for more patients. Hospitals can offset some of these costs through disproportionate share hospital (DSH) payments from federal and state governments, but these funds are not available to all acute care facilities and are set to decrease in the coming years.

To address these issues, state and federal policymakers have considered options such as expanding Medicaid, reducing healthcare prices through regulation, and increasing consumer protections against medical debt. However, expanding charity care efforts may also protect patients who cannot afford their hospital bills, potentially resulting in trade-offs for hospitals.

While hospitals must balance their financial stability with providing care to those in need, the public may question why they should donate money to hospitals that engage in aggressive fundraising tactics and do not appear to prioritize patient care. Hospitals can improve their financial stability by increasing the number of insured patients and reducing the overall care costs, which can lead to lower bad debt ratios.

Nonprofit hospitals and tax exemption

Nonprofit hospitals are eligible for tax exemption, which means they do not have to pay federal and state corporate income taxes, state and local sales taxes, local property taxes, and can benefit from increased charitable contributions and decreased bond interest rates. The total estimated value of tax exemption for nonprofit hospitals was about $28 billion in 2020, which represented over two-fifths (44%) of net income for these hospitals. This figure increased from about $19 billion in 2011, a 45% increase.

To qualify for tax-exempt status, nonprofit hospitals must demonstrate their charitable purpose by providing services that benefit their communities. This can include patient benefits such as charity care, system benefits such as unreimbursed medical education, and community-building activities such as addressing environmental hazards. Federal regulations require that nonprofit hospitals provide some level of charity care, however, there are no minimum standards defined for eligibility or the level of assistance provided.

There has been scrutiny over whether nonprofit hospitals provide sufficient community benefits to justify their tax-exempt status. Some research suggests that nonprofit hospitals may devote a similar or smaller share of their operating expenses to charity care and unreimbursed Medicaid costs compared to for-profit hospitals. Additionally, there have been concerns over aggressive debt collection practices, including suing patients over unpaid medical debt.

Nonprofit hospitals have broad latitude in determining the community benefits they provide, which can lead to a lack of transparency and inconsistent reporting. The IRS has identified 8 specific categories of community benefits and developed new rules for hospitals to follow when reporting these benefits to improve data consistency.

While tax exemption provides significant financial benefits to nonprofit hospitals, there are ongoing discussions and research regarding the balance between these benefits and the community benefits provided by these hospitals.

Hospitals' spending on fundraising

Hospitals, clinics, and medical research and educational institutions have complex needs. Healthcare fundraising plays a critical role in the healthcare revenue puzzle and can significantly impact the long-term effectiveness of an institution and the outcomes it drives for its patients and community. It enables growth, allowing institutions to expand access, fund research, secure life-saving equipment, and more.

However, the nature of the relationships at play makes healthcare fundraising more complicated and nuanced. Healthcare development employs a different set of best practices and compliance concerns than charities typically encounter. While payment for medical services represents a major portion of many institutions' overall revenue, it's important to remember that these services are costly to provide and highly resource-constrained.

For hospitals and other institutions, fundraising is just one of many revenue streams. Grants, donations, and investment income are generally considered part of healthcare development, a more specific form of revenue generation. The exact structure can vary based on factors such as whether a hospital is a research institution. Most fundraising activities are conducted by an associated hospital foundation rather than directly by the institution itself.

Hospitals face unique challenges in fundraising. Potential donors may have preconceived notions or misunderstandings about the services provided. For example, a hospital specializing in pediatric care might be perceived as only serving certain age groups or conditions, limiting its appeal to broader donors. Addressing these misconceptions through clear and transparent communication is crucial for aligning donor expectations with the organization's capabilities.

Economic trends can also directly and indirectly impact fundraising results. For instance, the 2023 Giving USA report found that overall giving to nonprofits decreased from 2021 to 2022 due to inflationary pressures and economic turbulence. Despite this, giving to healthcare institutions was a positive outlier, with overall giving increasing by 5.1% in current dollars.

Patient wealth screenings

Many hospitals conduct nightly wealth screenings to identify patients who can make large donations. Wealth screening software helps hospitals identify, segment, and prioritize high-potential donors based on their capacity and inclination to give. This software uses public data such as property records, political campaign contributions, and donations to other charities to determine a patient's ability to donate. Hospitals may then use this information to provide extra amenities to patients who are likely to be the source of large donations. Doctors and nurses may also be trained to identify patients who have expressed gratitude for their care and put them in touch with staff fundraisers.

Wealth screenings have been used for decades to research donors and prospective donors. While some believe that wealth screenings are unseemly, they are not considered illegal or unethical. However, wealth screenings can be time-consuming and may not provide a complete picture of a donor's capacity and inclination to give. Other important factors to consider include affinity and propensity to give.

Wealth screening software has evolved from printed directories to internet-based directories and now includes a broader range of data sources, such as philanthropic history and wealth indicators. This software can provide real-time updates on donor information, helping hospitals engage with prospective donors at the right time.

When choosing wealth screening software, it is important to consider key features such as the ability to pull in a wide range of data points to build a complete profile of each donor, including wealth indicators, stock ownership, business affiliations, and philanthropic history. Customization options that allow organizations to tailor searches and filters based on their unique priorities are also important. Advanced wealth screening platforms use artificial intelligence and predictive modeling to identify prospective donors with the greatest likelihood of making major gifts.

Overall, patient wealth screenings can be a useful tool for hospitals to identify potential donors and improve their financial position. However, it is important to consider the potential ethical implications and limitations of relying solely on wealth screenings to inform fundraising strategies.

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