Effects of Board Composition on Pricing of Charity Care among Nonprofit Hospitals

Abstract

In recent years, nonprofit hospitals have been steadily raising listed prices for patient care, primarily due to competitive pressures from for-profit hospitals, increasing costs, and regulatory pressures. Prior literature shows that one reason for this trend has been to increase reported charity care to meet state regulatory reporting requirements for the measure. This study hypothesizes that the composition of the board of directors in nonprofit hospitals significantly influences the discretionary accounting choices that lead to increased reported charity care. Additional literature and anecdotal evidence suggest that CFOs will exert considerable influence over the trend in increased pricing among smaller hospitals. Lastly, regulation on charity care disclosure is expected to inhibit the increasing trend in gross charges due to greater transparency of charity care policies. The findings in this study support the board composition and disclosure assertions, while mixed evidence is found for CFOs. This study adds to the literature by analyzing board influence on the rising price of patient care in nonprofit hospitals and by examining whether regulation has a significant impact on the relative price of patient care over time.