Beyond the Bottom Line: Evaluating Charity Care, Community Benefits, and Tax Exemptions in Nonprofit Hospitals
Study finds nearly one-quarter of nonprofit hospitals receive more in tax exemptions than they provide in community services
A new study from researchers in the Department of Health Policy and Management sheds light on the disparities between tax exemptions received by nonprofit hospitals and the benefits they provide to their communities. Led by Associate Research Professor Hossein Zare, PhD, this comprehensive analysis highlights how institutions’ geographical locations and operational characteristics impact the value of community services and charity care compared to the tax benefits they enjoy.
The research, which spans from 2017 to 2021, examined IRS Form 990 data to assess 17 types of community benefits and six main categories of tax exemptions in nonprofit hospitals across the U.S. By focusing on descriptive and regression analyses, the study draws attention to the complexities surrounding charity care, community benefits, and tax exemptions.
According to the study, on average, nonprofit hospitals allocated 8.8% (about $33 million) of their expenses to various community benefits, such as Medicaid shortfalls, charity care, and unreimbursed education. However, the data shows that 24% of these hospitals received more in tax benefits than they spent on community benefits.
The study further identifies differences between teaching and non-teaching hospitals. Teaching hospitals, on average, allocated a higher percentage of total expenses to community benefits (9.2%) than non-teaching hospitals (8.6%). These teaching institutions prioritized Medicaid shortfall, charity care, and unreimbursed education, while non-teaching hospitals focused more on charity care and subsidized health services.
Rural and urban hospitals exhibited key differences as well. Rural hospitals prioritized Medicaid shortfalls, and subsidized health services and charity care, reflecting their essential role as community anchors in areas with fewer health care options. In contrast, urban hospitals focused more on charity care and subsidized health services due to the more diverse populations they serve.
"This study underscores the need for a more transparent and equitable framework for nonprofit hospitals,” said Zare. “It’s critical that tax exemptions are justified by the tangible benefits hospitals provide to their communities, particularly in underserved rural and urban areas."
The study’s findings point to a critical need for clearer guidelines on the requirements nonprofit hospitals must meet to justify their tax-exempt status. Currently, there is no federal or state mandate linking the level of charity care or community benefit spending to a hospital’s tax exemptions except for a few states. As a result, significant variations exist across hospitals, leaving room for some to benefit from tax breaks without adequately contributing to community welfare.
As conversations around health care reform continue, the study calls for enhanced scrutiny of nonprofit hospitals’ roles and contributions. A more transparent and consistent system for reporting and evaluating community benefits could lead to stronger ties between hospitals and their communities, ensuring that nonprofit institutions fulfill their charitable missions.
