Charity Care and Bad Debt Reporting by Nonprofit Hospitals: Examination of Charity Care Thresholds for Tax-Exemption.

Presented at the 2019 AAA Annual Meeting

We examine how the threat of losing income tax-exemption affects nonprofit hospitals’ uncompensated care misreporting behavior when the hospitals (i) are required to provide charity care subject to a minimum threshold in exchange of keeping the tax-exemption, (ii) are partially reimbursed for their bad debts, and (iii) can misrepresent their privately observed information regarding bad debts and charity care provided. Two different regimes of charity care thresholds are evaluated. Our model illustrates that an optimal charity care threshold policy does exist in certain situations. These findings may be used in future research to empirically examine specific hospital and manager behavio