Rethinking Tax-Exemptions for Non-Profit Hospitals
What is the problem?
Non-profit hospitals are exempt from taxes based on the benefit they provide to the community. However, over the last half century, hospitals have expanded what is considered a community benefit. This broad definition of community benefit has resulted in a limited amount of ‘charity care’ being provided to individuals who cannot afford healthcare. According to a recent report from the Kaiser Family Foundation, the total value of federal, state, and local taxes from which nonprofit hospitals nationwide were exempted in 2020 was about $28 billion, which far exceeds the estimated $16 billion in charity care to low-income patients.
Why is it important?
Research has concluded that community services provided by non-profit hospitals are less than the value of their tax exemptions for 62% of non-profit hospitals. It is estimated that non-profit hospitals spend $2.3 on charity care out of every $100 of total expenses. In 2018, the University of Illinois Hospital’s uncompensated care accounted for just 1.7% of its net revenue. For Northwestern Memorial Hospital, charitable care came out to 1.2% of net revenues. For University of Chicago Medical Center it was 1%, and for Loyola University Medical Center it was 0.6%.
What is the solution?
States should limit what non-profit hospitals can consider a community benefit. Community benefits should exclude health fairs, distribution of marketing materials, discounts to insurers and managed care organizations, residency programs and research.