Ethical issues facing private, not-for-profit hospitals in the U.S.: The case of the Methodist Hospital System

Pressures to contain costs have given private hospitals the economic incentive to reduce provision of charity care services, shifting the burden onto governmental hospitals. Budget pressures on governmental units have produced resistance to any further shift in the charity care burden. The authors observe in a lawsuit (State of Texas vs. The Methodist Hospital) what appears to be a classic moral hazard situation. The government expects a certain (unspecified) level of charity care to be performed in exchange for tax exemption; hospital management allegedly consumes perquisites and overstates reported charity care figues. Both sides use accounting numbers to defend their positions.