Nonprofit hospitals can join burgeoning PFS ecosystem and simultaneously maintain tax-exempt status
By Emma Kloppenburg and Harrison Siegel
Presence Health, a member of Ascension, the United States’ largest non-profit health system, had a problem. In its 2013 Community Health Needs Assessment, Presence Health found that 16.7% of residents in four of the Chicago-area neighborhoods it serves had been diagnosed with asthma. That figure was higher than the city, state, and national averages.
Beyond the individual health consequences, this high prevalence of asthma presented a massive cost burden to the community and state. In 2018, the Center for Disease Control (CDC) estimated that asthma costs the U.S. economy $80 billion a year in medical care, missed days of work and school, and death. Presence Health understood that to truly make a difference, it would need to take upstream action to prevent disease in the first place. Fully motivated, they had to figure out what to do, and how to pay for it.
Nonprofit Hospitals and Community Health
A key policy lever came in the form of the Affordable Care Act, which requires nonprofit hospitals to coordinate with public health officials and community members every three years to create a needs assessment and implementation strategy to diagnose and address local health problems. Community benefit funds are then directed to confront these health disparities.
Historically, with little incentive to innovate, community benefit programs have been reactive, fulfilling basic requirements but failing to fundamentally and meaningfully address broader community health challenges. Billions of dollars were traditionally tied up in uncompensated care and bad debt support. Now, the Affordable Care Act encourages community benefit funds to allocate capital towards local health priorities. With incentives and regulatory statutes currently aligned, many are now taking more proactive steps to finance prevention.
Presence Health & The Nationwide Innovators
Presence Health saw the opportunity to leverage community benefit funds to tackle the root causes of asthma—largely, the environmental triggers found in many urban and low-income homes. In partnership with the Green & Healthy Homes Initiative (GHHI) and Elevate Energy, Presence Health is using community benefit dollars to go into homes and improve air quality through the removal of mold, pests, dust mites, and other common environmental factors.
And Presence Health is not alone. Throughout the country, nonprofit hospitals are partnering with local governments, civil society, schools, and community-based organizations to effectively deploy their community benefit funds toward unique and far reaching projects that address the social determinants of health.
In Ohio, the City of Cleveland and Cuyahoga County are assessing how to use community benefit financing to reduce the number of lead poisoning incidences among children in lower-income urban areas.
In the 7 states it serves, the nation’s third largest hospital system—Providence St. Joseph Health (PSJH)—invested $1.6 billion in community benefit programs in 2017 to address factors such as education, housing, nutrition, and transportation. And
across the U.S., nonprofit hospitals are beginning to see community benefit programs as more than a requirement. They are using it to respond to deep-rooted health inequities and transform the communities they serve.
Innovation through Pay for Success
This shift toward preventive health, community partnerships, and outcomes-based payment provides a perfect opportunity for nonprofit hospitals to limit risk and scale innovative programs through Pay for Success (PFS). Specifically, the PFS model offers a unique opportunity for nonprofit hospitals to maintain their tax-exempt status by using community benefit dollars to develop projects that engage new sources of capital to drive even greater intervention scale and impact. Through PFS, nonprofit hospitals can de-risk innovation, augment community benefit investments, and ensure that the hospitals are paying for outcomes, not outputs.
As such, PFS presents a rare win-win-win approach; through greater stakeholder alignment and collaboration, investors provide upfront capital to service providers to run a program that generates positive social outcomes, and payors pay back the investors their initial capital investment plus a premium only if the intervention achieves some mutually pre-agreed upon measure of success. Further, nonprofit hospitals can use the evidence derived from the evaluation to demonstrate the effective response to the community health needs assessment. On top of this, the community benefits from an evidence-based intervention that improves its most pressing health issues.
Over $60 billion dollars are spent annually in the U.S. on hospital community benefit programs. The scale already exists to drive systemic changes to how health problems are addressed in America. Instead of treating people once they become sick, PFS can steer hospitals towards rigorously evaluated and proven strategies that prevent people from becoming sick in the first place.
Nonprofit hospitals can become a part of the expanding PFS ecosystem by unleashing not only their community benefit funds, but also their local influence, creativity, and drive, to finance projects that positively impact their communities and simultaneously maintain their tax-exempt status. Community benefit programs and PFS offer incredible opportunities to improve community health, drive down healthcare costs, and spur innovation. Quantified Ventures is looking forward to contributing to the next health PFS revolution by combining outcomes-based financing with community benefit programs.
Thank you to Julie Trocchio and Indu Spugnardi from the Catholic Health Association of the United States for sparing their valuable time and educating us on the history, trends, and future of community benefit programs. This blog would not have been possible without their generous assistance and vast subject matter expertise.
1. “About Community Benefit,” Catholic Health Association of the United States. https://www.chausa.org/communitybenefit/resources/defining-community-benefit
2. “Community Health Needs Assessment 2013,” Presence Health. https://www.presencehealth.org/documents/about/community-reports/CHNA_PSJH-C_2013.pdf
3. Kyle, Michael Anne. “Tax exemptions and nonprofit hospitals: An uncertain future,” Harvard Law. (March 2016). http://blogs.harvard.edu/billofhealth/201,6/03/23/tax-exemptions-and-nonprofit-hospitals-an-uncertain-future/
4. Inserro, Allison. “CDC Study Puts Economic Burden of Asthma at More Than $80 Billion Per Year,” America Journal of Managed Care.” (January 2018).https://www.ajmc.com/newsroom/cdc-study-puts-economic-burden-of-asthma-at-more-than-80-billion-per-year
5. Interviews with Catholic Health Association of United States’ Julie Trocchio (Senior Director, Community Benefit and Continuing Care) & Indu Spugnardi (Director, Advocacy and Resource Development)
6. James, Julia. “Nonprofit Hospitals' Community Benefit Requirements,” Health Affairs. (February 2016). https://www.healthaffairs.org/do/10.1377/hpb20160225.954803/full/
7. Olson, Andrew E. “Community Benefit Investment Funds Getting the Most out of Your Community Benefits,” Green & Healthy Homes Initiative. (May 2018) https://www.weact.org/wp-content/uploads/2018/05/GHHI_Andrew_Olson_Community-Benefit-Revolving-Fund.pdf
8. Oss, E. Monica. “Charity Care In The News Again,” Open Minds. (June 2018). https://www.openminds.com/market-intelligence/executive-briefings/charity-care-in-the-news-again/
9. “Pay for Success: A How-to Guide for Local Government Focused on Leadsafe Homes,” Centers for Disease Control and Prevention (CDC), Deloitte Consulting. (April 2017). https://www.cdc.gov/nceh/lead/docs/pay_for_success_guide.pdf
10. Providence St. Joseph Health Makes Significant Investment in Community Benefit to Build Healthier Populations,” PR Newswire. (May 2018).https://www.prnewswire.com/news-releases/providence-st-joseph-health-makes-significant-investment-in-community-benefit-to-build-healthier-populations-300652474.html
11. Rosenbaum, Sara et al. “The Value Of The Nonprofit Hospital Tax Exemption Was $24.6 Billion In 2011,” Health Affairs, Vol. 34, No. 7: Medicaid’s Evolving Delivery Systems. (July 2015). https://www.healthaffairs.org/doi/10.1377/hlthaff.2014.1424
12. “Using Local & Institutional Policy to Address Root Causes of Asthma, https://movinghealthcareupstream.org/innovations/using-local-institutional-policy-to-address-root-causes-of-asthma/team-profiles/team-profile-chicago-illinois
13. “What is Community Benefit,” Community Benefit Connection. https://www.communitybenefitconnect.org/about-us/about_what-is/
14. Young, J. Gary et al. “Provision of Community Benefits by Tax-Exempt U.S. Hospitals,” The New England Journal of Medicine. April 2013; 368:1519-1527. https://www.nejm.org/doi/full/10.1056/NEJMsa1210239