Pushing Nonprofit Hospitals to Live Up to the Name
Nonprofit hospitals have come under fire again. It’s no secret they rake in hefty tax benefits with little charitable giving to show for it. Due to their 501(c)(3) tax-exempt status, they save an average of $11 million annually in exchange for their “community benefit”—an umbrella term for uncompensated care and other charitable expenditures as defined by the IRS Form 990.
It’s also no secret that most nonprofit hospitals fall short on their community benefit spending. Studies show that nonprofit hospitals spend no more on charity care than their for-profit counterparts. Under lax IRS regulations, they can write off questionable charges as community benefit—like a lobby fountain as “community health improvement” or an advertising billboard as “community building.”
These practices are well-documented, but the solution is less clear. Some propose trying to entirely remove or reduce the tax exemption. But these solutions face formidable legal and lobbying battles at the state and federal levels. Instead of harsh punitive measures, states should pursue the opposite approach: incentivizing nonprofit hospitals to increase their community benefit spending to match the value of their exemption. They can do this by creating new primary care residencies.