Study Suggests Nonprofit Hospitals May Not Be Using Tax Credits As Intended
Nonprofit hospitals netted $24.6 billion in tax exemptions in 2011. In 2017, these hospitals had higher net income than for-profit institutions, which are not tax-exempt. Those nonprofit hospitals that generated substantial profit provided disproportionally low amounts of charity care compared with those that incurred a net loss. The tax-exempt status of nonprofit hospitals has been challenged recently. For example, Pennsylvania local courts are requiring nonprofit hospitals to pay property taxes, and Senator Grassley (R-IA) is seeking similar measures on a federal level.
A recent study published in Health Affairs by Bai et al. sought to examine the relationship between hospitals' profit status and the charity care they provide. The authors examined 4,663 general acute care hospitals in the 2018 Medicare Cost Report. Surprisingly, the authors discovered that nonprofit hospitals provided the least charity care: $2.3 per $100 of total expenses compared to $4.1 in governmental and $3.8 profit hospitals.
Bai et al.'s unexpected result implies that the substantial tax benefits and earmarked federal funds given to nonprofits may not result in efficient fulfillment of their intended objective: providing free medical care to those who need it most. Instead of awarding tax benefits based purely on profit status, the authors recommend that state and local governments create a ranking system according to a hospital's charity-care-to-expense ratio. Alternatively, all hospital types should have a certain charity care requirement they must meet in order to receive tax exemption, and could subsidize other hospitals in needier communities to receive "charity credits" to meet minimum charity requirements.
Regardless of which proposed solution would be more effective, the results of this study certainly warrant a closer look at the current tax-exempt status of nonprofit hospitals.
Abstract
Article: Bai G, Zare H, Eisenberg MD, Polsky D, Anderson GF. Analysis suggests government and nonprofit hospitals' charity care is not aligned with their favorable tax treatment. Health Aff (Millwood). 2021;40(4).
Abstract: The different tax treatment of government, nonprofit, and for-profit hospitals implies different charity care obligations, with the greatest obligation for government hospitals and the least for for-profit hospitals. Prior research has not examined charity care provision among all three ownership types at the national level. Using 2018 Medicare Hospital Cost Reports, we compared charity care provision across 1,024 government, 2,709 nonprofit, and 930 for-profit hospitals. In aggregate, nonprofit hospitals spent $2.3 of every $100 in total expenses incurred on charity care, which was less than government ($4.1) or for-profit ($3.8) hospitals. No hospital ownership type outperformed the other two types with respect to charity care provision in a majority of hospital service areas containing all three types. Using different kinds of analyses, we also found wide variation in charity care provision within ownership types and a lack of a consistent pattern across ownership types. These results suggest that many government and nonprofit hospitals' charity care provision was not aligned with their charity care obligations arising from their favorable tax treatment. Policymakers may consider initiatives to enhance hospitals' charity care provision, particularly hospitals with government and nonprofit ownership.
EMRA + PolicyRx Health Policy Journal Club: A collaboration between Policy Prescriptions and EMRA
As emergency physicians, we care for all members of society, and as such have a unique vantage point on the state of health care. What we find frustrating in our EDs - such as inadequate social services, the dearth of primary care providers, and the lack of mental health services - are universal problems. As EM residents and fellows, we learn the management of myocardial infarctions and traumas, and how to intubate, but we are not taught how health policy affects all aspects of our experience in the ED. Furthermore, given our unique position in the health care system, we have an incredible opportunity to advocate for our patients, for society, and for physicians. Yet, with so many competing interests vying for our conference education time, advocacy is often not included in the curricula. This is the gap this initiative aims to fill. Each month, you will see a review of a new health policy article and how it is applicable to emergency physicians.