Growing tax breaks for nonprofit hospitals questioned
A new study has added fuel to the continuing debate over whether notfor-profit hospitals are earning their tax breaks.
The financial benefit that not-forprofit hospitals receive from their taxexempt status has doubled over the past decade, a new Health Affairs study found. Yet most of those funds are not being spent on improving community health.
Hospitals across the country received a collective $24.6 billion tax break in 2011, although tax-exemption values vary by state, the study calculated. That figure included not only the direct savings from federal and state taxes but also hospitals’ ability to raise money through tax-exempt donations and municipal bonds. In 2002, the value of that tax break was $12.6 billion.
In exchange for their tax-exempt status, not-for-profit hospitals must show that they’re giving back to their communities. That goal can be met a number of ways.
Tax-exempt hospitals provided $62.4 billion in community benefits in 2011, with 92% of that total representing charity care for indigent patients, Medicaid payment shortfalls, research and training, the study found. Only 8% supported programs to improve community health.
Richard Umbdenstock, president of the American Hospital Association, noted, however, that “there is no stipulation on what the percentages have to be within the categories.”
The study comes as some state and local governments, facing budget crunches and hunting for new tax revenue, have challenged the tax-exempt status of their not-for-profit hospitals and insurers. Florida Gov. Rick Scott has questioned the community benefits provided by hospitals in his state amid its battle over Medicaid expansion. California recently stripped notfor-profit Blue Shield of California of its tax-exempt status after concluding the insurer was not returning enough of its earnings for public benefits.
Previous studies have shown that nearly half of hospitals’ community benefit spending goes to medical residency programs, said Sara Rosenbaum, a George Washington University law professor, and lead author of the Health Affairs study. Another third of community benefit spending goes toward making up Medicaid payment shortfalls. The 8% spent on community health improvement initiatives represents less than 1% of total healthcare spending, she said.
The Affordable Care Act could affect the community benefit debate. Under the law, hospitals will provide less uncompensated care because more people will have coverage. And new value-based payment models, under which providers are rewarded for keeping people healthy, could encourage hospitals to spend more on community health programs.
“In general, hospitals have been moving upstream so they can keep people healthier,” Umbdenstock said.
There is an effort to restructure rules governing tax-exempt hospitals. The Alliance for Advancing Nonprofit Health Care, which includes not-forprofit Blues plans in seven states, and the National Association of Community Health Centers, are urging Congress to eliminate ACA rules requiring community needs assessments, financial aid policies and limits on aggressive bill collection. The group wants to replace those rules with a test of whether the dollar value of not-for-profit hospitals’ benefit to their communities is enough to offset lost federal revenue from their tax-exempt status.
The AHA and the Catholic Health Association oppose the proposal.