Tax Exemptions for Not-for-Profit Hospitals Doubled Over a Decade

Tax exemptions for not-for-profit hospitals have doubled in value over the past decade, according to study published in Health Affairs, Modern Healthcare reports (Kutscher, Modern Healthcare, 6/17).

Under current law, not-for-profit hospitals receiving tax exemptions must provide "community benefits," such as charity care for low-income individuals, research and professional training.

According to the study, tax exemptions for not-for-profit hospitals in 2002 equaled about $12.6 billion across the federal, state and local levels. In 2011, those exemptions equaled about $24.6 billion, the study found (Gebelhoff, Washington Post, 6/17). According to Modern Healthcare, the amounts include funding the hospitals raised through tax-exempt donations and municipal bonds under their not-for-profit status (Modern Healthcare, 6/17).

Meanwhile, the study noted that not-for-profit hospitals overall spent $62.4 billion in 2011 on community health benefits (Washington Post, 6/17). According to the study, 92% of those costs were spent on:

• Making up for Medicaid reimbursement shortfalls;
• Providing charity care for indigent patients; and
• Research and training efforts.

The remaining 8% of the costs were spent on efforts to improve community health, the study found (Modern Healthcare, 6/17).

Reaction

According to the Post, the study bolsters long-running debate over whether hospitals receiving the tax breaks are providing enough benefits for their communities. Particularly, some observers have criticized such hospitals for their large revenues, which they say should be going back to communities.

In addition, some argue not-for-profit hospitals inflate the amount of charity care they provide by charging uninsured patients more for their care. Robert Laszewski, president of Health Policy and Strategy Associates, said, "It's an attempt to justify the profits they're making" (Washington Post, 6/17).

Further, the Alliance for Advancing Nonprofit Health Care last month introduced a proposal calling on Congress to eliminate current requirements on not-for-profit hospital spending. Instead, AANHC said Congress should implement more stringent requirements that test whether the community benefits provided by such hospitals offset lost federal revenue from providing the tax breaks (Modern Healthcare, 6/17).

However, others argue the exemptions are part of public subsidies for businesses. Joe Antos, a health policy expert at the American Enterprise Institute, said, "These are companies that are being insulated from the marketplace (and that) makes them more inefficient, and the taxpayers are financing them to do it."

Meanwhile, American Hospital Association Senior Vice President Tom Nickels said the study "shows that what [not-for-profit] hospitals provide in terms of benefit to their communities far exceeds the value of tax exemption hospitals receive." Further, Nickels said the study's figures are consistent with other research displaying such hospitals "are not only meeting, but are exceeding, the community benefit obligations conferred by their tax-exempt status" (Washington Post, 6/17).