There has been much debate in the press, courts and state legislatures about the tax-exempt status of "not-for-profit" hospitals. MODERN HEALTHCARE has taken a leadership role in bringing this issue to the attention of the healthcare industry.
My firm, Healthcare Management Decisions, St. Petersburg, Fla., has done a number of studies that compare the community benefits provided by publicly and privately owned tax-paying and tax-exempt hospitals.
HMD's first analysis of hospital exemption from property, federal and state income and sales taxes was conducted in 1989 in preparation for the Florida Legislature's 1990 session.
We looked at charity care and state, local and federal taxes. Hundreds of hours were spent poring over county tax rolls to assess hospital property values.
What we discovered in that first study was that many tax-exempt hospitals spent considerably less money on the delivery of state-defined charity care than the value of their tax exemptions. These same hospitals were posting millions of dollars in profits.
HMD's methodology analyzes only financial data that are certified by each hospital and audited financial statements when available. Not-for-profit hospitals' taxes are estimated based on the same methodology used to determine for-profit hospitals' taxes.
To calculate the net benefit of charity care, any local unrestricted tax revenues and restricted funds hospitals received for providing such care must be subtracted. A 1995 study of all Florida hospitals showed that nearly 75% of tax-exempt hospitals provided less free care than the value of their tax exemptions.
HMD studies have shown that tax-paying hospitals provided $220.3 million in Florida taxes and charity care. This compares with tax exemptions after charity care of $119 million in Florida for not-for-profits.
Many industry professionals and public officials express disappointment with these findings because it isn't obvious what the differences are between community service provided by tax-paying and tax-exempt hospitals. Tax-exempt hospitals purport to invest their profits in services to their communities, while publicly owned, tax-paying hospitals pay dividends to shareholders and return on equity.
Some tax-exempt hospitals do offer something unique. Top teaching hospitals offer highly specialized tertiary care, and often provide educational and research opportunities that are costly and benefit everyone. However, for all tax-exempt hospitals to claim they should be regarded in the same light as leading teaching hospitals-and as offering something the publicly owned, tax-paying hospital down the street cannot provide-isn't substantiated by the facts.
If tax-exempt hospitals still believe they're different, then the time has come to prove it. Our work thus far shows that there is no pattern of service given by tax-exempt community hospitals that is measurably superior to tax-paying hospitals.
Scott L. Hopes