Do Minimum Charity Care Provision Requirements Increase Nonprofit Hospital Performance? Examining Hospitals’ Responses to Regulatory Changes

Abstract

Abstract Institutional form is believed to influence organizational behavior and performance in producing collective goods such as healthcare services. Recent efforts in the United States seek to increase healthcare services provided by hospitals, but it is unclear whether and how these organizations respond to the policy changes. In this study, we examine the extent to which nonprofit hospitals change their provision of charity care in response to a regulatory policy specifying a target benchmark aimed at expanding charitable obligations. Specifically, we focus on the minimum charity care provision (MCCP) requirements in Illinois. Importantly, unlike previous research, we differentiate between hospitals facing minimum charity care spending requirements (nonprofits) and those not (for-profit and public). We use panel data from Illinois’ Annual Hospital Questionnaire and county data from the American Community Survey, employing a differences-in-differences model. We find no evidence that nonprofit hospitals increase charity care in response to the MCCP requirements on average. Instead, we find that there is heterogeneity in responses; hospitals providing low levels of charity care prior to the policy increase charity care, while hospitals providing high levels of charity care prior to the policy do not respond or, if anything, decrease charity care. Thus, while regulations that set low-target benchmarks provide insufficient incentives for nonprofit hospitals to increase charity care on average, explicit policy mandates that reduce directive goal ambiguity may still narrow gaps in performance.