The American Hospital Association recently claimed that tax-exempt nonprofit hospitals provided a staggering $105 billion in community benefits in 2018.
But recent evidence suggests that despite these large expenditures, nonprofit hospitals are failing to meet the obligations created by their favorable tax status, reports The Regulatory Review. This failure could mean that tax exemptions provide nonprofit facilities an unearned advantage over for-profit hospitals. In addition, inadequate engagement in community benefit activities by nonprofit hospitals could reduce the quality of care and harm patients.
Federal tax law allows nonprofit hospitals to receive certain tax exemptions in return for providing “community benefit” to the areas they serve. Community benefit often takes the form of hospitals absorbing the costs of uncompensated or subsidized medical care, otherwise referred to as “charity care.”
But according to the federal tax code, engaging in medical research and investing in improved facilities and technologies also qualify. Furthermore, federal law does not define a threshold of community benefit spending that nonprofit hospitals must meet to receive tax-exempt status.
Individual states and municipalities provide additional tax exemptions and benefits to nonprofit hospitals, but the prerequisites to receiving them vary.
According to a study by the Lown Institute, 72 percent of private nonprofit hospitals experienced a tax-break deficit, meaning that they spent less on community benefits than they received in tax breaks. Read more.
