Restoring the Social Contract Between Nonprofit Hospitals and Taxpayers

Christopher Jones

Tanner H. Jones

Ryan Quandt, Ph.D.

Joshua Reynolds

Issue Areas

Nonprofit hospitals receive billions in tax exemptions each year in exchange for “community benefit” provision. In theory, these tax breaks constitute one end of a social contract: hospitals enjoy tax relief, and communities enjoy community health programs and health education, preventative care initiatives, medical research, and reduced medical costs, including charity care. It is unclear, however, whether nonprofit hospitals meet their community benefit obligations, yet their communities lose an otherwise lucrative source of tax revenue. Absent clear reporting requirements and accountability measures, tax-exempt hospitals may spend only a token amount on charity care as they pour funds into other

While nonprofit hospitals and health systems avoid taxes, they also consistently lobby both the federal and state governments for programs to address the rising cost of providing care to the uninsured, underinsured, and their bad debt obligations. Over the years, policy has attempted to address the providers’ concerns. These include facility-based payments, 340b, disproportionate share hospital payments, sole community hospital payments, and, most recently, state-directed payments—all payments to address the unpaid costs these providers incur. However, there is little to no transparency on these payments, so it is unclear the extent to which (and how well) nonprofit hospital and health system spending is being used to lessen their cost burden while addressing community needs.