All hospitals - for-profit and non-profit alike - have an obligation to serve the sick and uninsured. Tax-exempt hospitals, like Sutter Health, are further bound by a basic social contract with the general public due to their tax-exempt status. In exchange for receiving millions of dollars in tax breaks, tax-exempt hospitals are expected to provide charitable services to poor and uninsured patients. Tax-exempt hospitals' tax breaks include exemptions from property and income taxes, access to tax-free bonds issued through government agencies, and access to tax-deductible donations from the public.

In California, state law asserts that "non-profit hospitals assume a social obligation to provide community benefits in the public interest" in exchange for "favorable tax treatment by the government." Foremost among these public benefits is charity care, which is defined as free health services for uninsured and underinsured individuals. Despite this "social contract," non-profit Sutter Health receives massive tax breaks yet provides little charity care to the uninsured in exchange.

In 2003, Sutter spent only 0.6% of its net patient revenues on charity care. According to the Office of Statewide Health Planning and Development, non-profit hospitals across California spent on average nearly twice as much of their patient revenues on charity care than did Sutter in 2003.

Community Benefits?

Sutter Health has often attempted to duck the question of charity care by seeking to focus attention on "community benefits expense" as an alternative measure of charitable activity. "Community benefits" is such a loosely defined term that hospitals often include activities whose primary purpose is marketing and that provide negligible benefit to the public. For example, many hospitals conduct marketing operations in shopping malls where they set up booths to offer passers-by free blood-pressure tests and literature that markets the hospital's services. While clearly a marketing event, hospitals commonly label such activities "patient education" and attribute the costs of such activities to their community benefits expense.

As a measure, "community benefits expense" artificially inflates the value of services delivered to the public. The bulk of hospitals' community benefits expenses typically consist of "unpaid costs of public programs" - a category of expenditure that (1) does not represent actual monies spent by the hospitals and (2) are "costs" that are similarly borne by for-profit hospitals. This category represents the difference between Medicare and Medi-Cal reimbursement rates and what the hospitals would charge to individual patients paying cash for their services. Since every hospital that participates in the Medicare and Medicaid programs must accept these reimbursement rates, the hospitals provide no extra community benefit by accepting the standard payment.