Tax Breaks Exceed Community Care Spending At Large Majority Of Nonprofit Hospitals: Report

Dive Brief:

• Eighty percent of nonprofit hospitals studied by the Lown Institute received more money in tax breaks than they spent on charity care and community investment, according to a new report from the healthcare think tank.
• Nonprofit hospitals agree to provide charity care in exchange for exemptions from certain federal, state and local taxes. However, hospitals’ combined “fair share” deficits totaled $25.7 billion in 2021 — enough to pay off the medical debt of everyone in California, Texas, New York and Pennsylvania combined, according to the report released Tuesday.
• Kaiser Permanente and Providence had the two largest fair share deficits of all nonprofit health systems in the U.S., both surpassing $1 billion in 2021.

Dive Insight:

Hospital charity care programs provide free or discounted medical care and can be a lifeline for in-need patients as healthcare costs continue to rise. This year, roughly one in four adults reported delaying health services in the past year because of cost, according to the KFF.

However, nonprofit hospitals have come under fire from lawmakers following reports of scant charity care spending. 

The Lown report, which analyzed tax records, audits and CMS cost reports of 2,425 nonprofits, found hospitals on average spent 3.87% of their overall expenditures on financial assistance and community investments in 2021.

That’s less than the 5.9% spending threshold that’s considered to be a “fair share,” according to the report.

Some of the largest nonprofit health systems had the biggest fair share deficits. Five of the 10 health systems with the largest deficits were Catholic organizations, according to the report. 

Fair share deficits were also notable at a facility level, Lown found. The ten hospitals with the largest fair share deficits, including Cleveland Clinic Main Campus, Massachusetts General Hospital and Mayo Clinic Hospital, reported at least $100 million in net income in 2021.

While some hospitals and health systems reported fair share spending surpluses, the overall trend is troubling, according to Vikas Saini, president of the Lown Institute.

“When four out of five nonprofit hospitals do not meet obligations to benefit their community, it’s a sign that regulations and incentives need to be revisited,” Saini said in a statement. “Everyone wants to see their local hospital thrive, but not at the expense of the communities they serve.”

In an accompanying policy brief, Lown suggested establishing minimum thresholds for hospital community benefit spending, requiring more detailed tax reporting and adopting intermediate enforcement actions like financial penalties for noncompliance.

The recommendations include defining eligibility thresholds for financial assistance, potentially pegged to local income levels or hospitals’ financial positions.

“Federal regulation of community benefit spending is woefully ineffective and in need of reform,” Saini said. “Though hospitals are required to report their community contributions to the IRS, there is no minimum spend, there are many loopholes, and enforcement is practically nonexistent.”

Hospital groups like The American Hospital Association have pushed back on prior research published by the Lown Institute, calling its methodology flawed. Last year, the AHA said Lown cherry-picked metrics of community investment while “simply ignoring” others, such as educating doctors and nurses.

Lown joins other voices calling for charity care reform. In October, Sen. Bernie Sanders, I-Vt., called on Congress to beef up enforcement of charity care, citing last year’s report from the Lown Institute.

Some states have also sought to increase the scope of charity care laws and increased enforcement. 

Washington, for example, recently moved to reform its charity care laws, and has pursued lawsuits against health systems that used collection practices against patients who should have qualified for charity care. Earlier this year, Providence agreed to pay $158 million to erase or refund medical bills. And in November, PeaceHealth agreed to repay patients $13.4 million.