Charity care costs are likely to rise. Here’s what systems can do

By Caroline Hudson / September 26, 2025

Hospitals and health systems are exploring tactics to avoid charity care cuts as they face the possibility of billions of dollars in expected program cost increases.

The need for charity care, which refers to free or discounted healthcare services, is likely to rise under the new tax law. The law outlines drastic reductions to Medicaid funding and the exchange marketplaces, as well as stricter eligibility requirements. Charity care or financial assistance programs could be subject to cuts as health systems navigate an influx of uninsured or underinsured patients. But many systems view that as a last resort and are looking instead to shore up their programs.

“Is it an option that’s on the table? Sure. It’s something that could be considered for systems looking to squeeze every dollar and protect their operating margins,” said Mark Pascaris, senior director at credit ratings agency Fitch Ratings. “You’ve got to generate enough cash flow in order to support that mission.”

As of August, charity care as a percentage of gross revenue had increased at a median 9.7% over the last two years, according to a Kaufman Hall analysis.

The stakes are especially high on such a sensitive subject.

Cleveland, Ohio-based MetroHealth came under fire earlier this year for considering changes to its charity care and financial assistance policies.

Some of the proposed changes include:

• Reducing the discount to 75% of billed charges, from 100%, for most Cuyahoga County households at 251% to 300% of the federal poverty level.

• Reducing the discount to 70% of billed charges, from 75%, for households at 301% to 400% of the federal poverty level.

MetroHealth’s changes were proposed after the system’s charity care levels skyrocketed to more than $1 million per day — well before the tax law will take effect, said MetroHealth President and CEO Dr. Christine Alexander-Rager.

“We have to do the hard work of saying, how do we best care for our community? How do we leverage the resources that we have, so that we can continue to serve those with the greatest [need]?” she said.

Alexander-Rager said the new guidelines would be aligned with charity care services other systems are providing in northeast Ohio. She expects the changes to be finalized in October.

Nonprofit systems often review charity care policies as they seek to comply with legally mandated conditions of their tax-exempt status. Policy reviews are also a way to recalibrate services offered with patients’ needs, said Chad Mulvany, director of healthcare consulting at professional services firm Forvis Mazars.

“Regardless of [the ‘One Big Beautiful Bill’], I think it’s important for tax-exempt facilities to periodically reevaluate the economic situation, the community, their patient population, look at where they’re having write-offs for uncollectible accounts and seeing what changes you might need to make as an organization to match the needs of the community with the organization’s financial wherewithal,” Mulvany said.

Several system executives said they are committed to maintaining their charity care levels and financial assistance options. To avoid cuts in these areas, systems are implementing operational efficiency tactics and taking a proactive approach to enrollment to help offset the pressure on these programs and the systems’ bottom lines.

Systems are hoping those moves will pay off as costs increase.

Sanford Health Chief Financial Officer Nick Olson said the system might consider pulling back on growth plans if it isn’t able to weather increased charity care costs or other expenses. But Olson said Sanford has no plans to alter its financial assistance policy.

The Sioux Falls, South Dakota-based system offers assistance to households at or below 375% of the federal poverty level. He said the system receives an average of more than 2,500 new applications per month and ends up providing assistance for about 95% of those applications.

The system invested more than $200 million in uncompensated care in 2024 through financial assistance or unpaid services.

“I think for us it’s really taking a proactive approach [and] trying to get out in front of these headwinds that could arise and make sure that we’re staying on the forefront, so that we don’t have to make any changes that would negatively impact our patients,” Olson said.

Sanford launched its premier performance plan earlier this year to promote margin improvement by focusing on operating efficiencies and standardization in labor and supplies. The plan wasn’t directly related to charity care concerns, but its objectives will help Sanford navigate an influx of uninsured patients, Olson said.

Fewer uninsured patients generally means lower charity care costs in the long run. So, health systems are also investing resources in financial liaisons to help patients learn about insurance options, fill out appropriate paperwork and avoid losing coverage.

A UPMC spokesperson touted the Pittsburgh-based system’s patient advocacy team “who work daily with patients and families to assist them with financial aid and applying for Medicaid,” in addition to collaborating with state case workers during the process.

Phoenix Children’s Hospital in Arizona has a large social work department to provide similar services, plus philanthropic donations to support patients. It is also looking into artificial intelligence and other technologies on the operational side to streamline paperwork for insurance and financial assistance, President and CEO Bob Meyer said.

“Some of the Medicaid issues are unique and complex,” Meyer said. “We’re not here to disadvantage anybody. Our job is to make it easy.”

The system spent more than $5.5 million on charity care in 2024, plus another nearly $184 million on unreimbursed Medicaid costs.

Phoenix Children’s will provide medically necessary care at no cost if a family’s income is 225% or less than the federal poverty level. Those with family incomes at 226% to 400% of the federal poverty level will receive a 75% discount for hospital services and a 65% discount for medical group services.

Sharp HealthCare partners with federally qualified health centers, or FQHCs, to reach vulnerable populations with available options, said Jason Broad, vice president of strategy integration and community engagement at Sharp.

Sharp offers financial assistance to patients with a family income at or below 400% of the federal poverty level and in cases where medical expenses exceed 10% of family income.

Broad said he doesn’t think cutting charity care is an option for the health system.

“I don’t think it’s who we are in terms of the fabric of the organization. It’s certainly our obligation as a community provider and it’s our obligation as a not-for-profit,” he said. “What I do see is us finding ways to be more strategic about the investment that we make in the community.”

San Diego, California-based Sharp launched a larger cancer screening campaign last year to address high disease rates in the city and help funnel patients to appropriate care sites. Broad said the strategy can help reduce charity care costs. Going farther upstream is a way to avoid later interactions in high-cost settings that patients may not be able to afford, he said.

Sharp set a goal for 800 cancer screenings during its latest fiscal year, which ends Sept. 30. It has completed more than 1,200 screenings this year, Broad said.