Do non-profit hospitals change the expense shift when faced with law amendment?- Implicit tax-motivated expense shifting

Abstract

Taiwan’s Medical Care Act was amended in 2005 to lower the minimum appropriate standards for non-profit hospitals in providing community benefit services, and the calculation base for the total amount of community benefit services was modified from medical revenue into medical net income. This study aimed to investigate the impact of the law amendment on the non-profit hospitals in shifting expense from non-medical activities to medical activities. In this paper, we use 46 non-profit hospitals in Taiwan during 2001 - 2013 were adopted. The OLS were applied to conduct regression analysis in order to review the connection, which controls both hospital and environmental characteristics, between law amended and the expense-shifting of non-profit hospitals. The empirical results show that the amendment of the Medical Care Act in modifying the calculation base for community benefit services has significant impact on the ratio of expense shifting between medical and non-medical activities. The religious groups has similar level expense shifting with doctor and governments groups (reference groups) before the law amendment. After the law amendment, the religious groups have higher level expense shifting than reference groups. The business groups has lower level expense shifting than reference groups before the law amendment. After the law amendment, which indicated the business groups non-profit hospitals were pay more attention on medical performance than others. After the law amendment, business groups have higher level expense shifting than reference groups. No matter before or after the law amendment, the level of expense shifting between religious and business groups have no significantly difference.