Do nonprofit hospitals use their tax exemptions to the fullest advantage?

Many health systems are classified as nonprofit hospitals. Nonprofit hospitals receive many benefits, such as tax breaks and not paying federal income taxes. Still, the Lown Institute has found that these healthcare organizations are not performing well in charity spending. The report by Lown Institute on nonprofit hospital charities revealed that nearly three-quarters of nonprofit hospitals’ charity spending fails to match the value of their tax exemptions.

The Lown Hospitals Index 2021 Community Benefit ranking examined 3,641 hospitals based on their Medicaid revenue and other investments that directly benefit the community. Data sources include hospital cost reports filed with the Centers for Medicare and Medicaid Services and IRS 990 forms (both from 2018).

Based on figures found using the 2018 Medicare Hospital Cost Reports, Health Affairs found a deficit between how much of their total expenses are incurred by a hospital and what percentage correlates to charity care. For nonprofits, this amount was $2.3 out of every $100 instead of a government hospital that has generated an average figure of $4.1.

The following research provides an interesting perspective on charity care spending, but many institutions offer extraneous programs which are not listed as direct charity care. There hasn’t been a challenge to the tax-exempt status in decades, and there will likely be no changes in the future. Unfortunately, the real problem is that healthcare cost is also growing at alarming rates annually.