G Bai et al. NEJM 2023; 389: 196-197. Do Nonprofit Hospitals Deserve Their Tax Exemption?

Excerpts:

Roughly 60% of community hospitals are incorporated as nonprofit institutions, which means that they don’t have shareholders and cannot distribute dividends…Nonprofit status doesn’t automatically confer tax exemption. Section 501(c)(3) of the Internal Revenue Code authorizes tax exemption for nonprofit organizations pursuing charitable, religious, educational, or scientific missions…In 1969, the IRS adopted the community-benefit standard, which required nonprofit hospitals to promote “the health of a class of persons that is broad enough to benefit the community.”…

An analysis by the Kaiser Family Foundation estimated that the value of nonprofit hospitals’ tax exemption was $28.1 billion in 2020…In 2018, for every $100 of expenses incurred, nonprofit hospitals in aggregate spent $2.30 on charity care, as compared with $3.80 spent by for-profit hospitals. And in 2019, nonprofit and for-profit hospitals had similar Medicaid shortfalls as a share of total expenses…

Many nonprofit hospitals also generate substantial profits from the federal 340B Drug Pricing Program. The 340B program… was designed to help safety-net hospitals serve low-income patients…

Some hospitals have also adopted aggressive revenue enhancing activities, such as declining to offer charity care to eligible patients and suing patients and garnishing wages because of unpaid medical bills. These examples make it clear that nonprofit status provides no assurance that hospitals will behave in accordance with their charitable mission or provide sufficient community benefit to justify favored tax status…

Disclosure might not be sufficient to catalyze changes in hospital behavior, but we believe
greater visibility is a prerequisite for policy action…Many nonprofit hospitals face substantial fiscal challenges, so heavy-handed policies — such as eliminating tax-exempt status across the board — are likely to be counterproductive…Mandating increased financial transparency would give stakeholders and policymakers the flexibility to understand, design, and test approaches to encourage nonprofit hospitals to provide meaningful community benefit

My take: This commentary piece makes a strong argument that many nonprofit hospitals do not deserve to be exempt from taxes.

Related blog posts:

• Have Nonprofit Hospitals Lost Their Mission? The average chief executive’s package at nonprofit hospitals is worth $3.5 million annually.…Particularly in communities with a shortage of health care resources, tax exemption can make sense. In medically saturated areas, where profits and executive compensation approach Wall Street levels, tax exemption should raise eyebrows.
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