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Not-for-profit Hospital Nonprofit Status Under Fire for Reduced Charity Care – a Myopic View?

An influential nonprofit hospital critic, Republican Chairman of the Senate Finance Committee Chuck Grassley, asked the IRS in 2019 to probe whether the hospitals are living up to their charitable obligations.1 Senator Grassley helped enact requirements included in the Affordable Care Act and set standards for nonprofit hospitals and information they’re required to disclose. Nonprofit hospitals are required to report to the IRS data on their community benefits.

A recent study found richer not-for-profit hospitals less generous with charity care.2 An article about the study reports — “nonprofit hospitals make a tacit promise for their tax-exempt status: provide charity care to its poorer patients and their families. But a new study in JAMA by researchers at Johns Hopkins University concludes that financially better-off facilities provide proportionately less charity care than their poorer performing counterparts. Hospitals in states that expanded Medicaid eligibility under the Affordable Care Act also tend to provide less charity care.”3

There have been dramatic decreases in the uninsured. This explains most of the reduction of charity care and the coinciding increase in the sums attributed to Medicaid underpayments. Still, nonprofit hospitals need to monitor the community benefits they provide closely. Their favored tax status is intended to be an acknowledgment of the “community benefit” provided by these institutions. Nonprofits, or “non-tax paying entities” as their for-profit competitors like to call them, are typically exempt from federal, state, and local income, and often real estate taxes. The trade-off and expectation are that nonprofit hospitals are to provide community benefits in lieu of paying these taxes. What should the value of their community benefit be? You can bet that politicians hunting for more revenue would say, about the same amount as the dollar value of the taxes the institution avoided. For many nonprofits, this is millions and tens of millions of dollars a year.

To beat up nonprofit hospitals focusing on charity care alone is flawed—charity care in one element of community benefits. Many nonprofit hospitals provide education for the next generations of physicians, nurses, radiologists, clinical lab scientists, and more. Hospitals provide support through scholarships, increase access to care through physician recruitment, support of community clinics, community health education, food banks, low-cost health services, and much more. Society has shifted social responsibilities to all hospitals (public, nonprofits, and for-profits alike), without adequate compensation that hospitals did not shoulder forty years ago. For example, the severely mentally ill now become the responsibility of the local emergency department instead of being jailed.

Along with charity care, there are other unfunded mandates, such as regulations that require hundreds of millions of dollars for building and equipment upgrades. Hospitals lose money, providing care for underfunded programs government programs such as Medicaid and Medicare. These should all be weighed as part of community benefits.

Regardless of their significant efforts, nonprofit hospitals should take the JAMA report and the criticism of Senator Grassley to heart, tally their community benefits, and compare them to the taxes they would have paid if they were for-profit. If it appears that the hospital is not living up to its charitable obligations, now is the time to take action. Consider how the institution can provide support through population health efforts and position these for its community benefits. Do not wait until the next recession when politicians are looking to close gaps in their revenues by stripping institutions of their nonprofit status.


Comments? Questions? Please reach out to Tom Dougherty at tdougherty@copoehealthsolutions.com or join the conversation by following COPE Health Solutions on social media.





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