The financial benefit that not-for-profit hospitals receive from their tax-exempt status has doubled over the past decade. Yet most of those funds aren't being spent on improving community health, a new study found.
The value of the tax exemption varies by state, but hospitals across the country received a collective $24.6 billion tax break in 2011, a recent study in the journal Health Affairs calculated. That number includes not only the direct savings from federal and state taxes, but hospitals' ability to raise money through tax-exempt donations and municipal bonds.
In 2002, in contrast, the value of that tax break was only $12.6 billion.
In exchange for their tax-exempt status, not-for-profit hospitals must show that they're giving back to their communities, and that goal can be met a number of ways.
Tax-exempt hospitals in 2011 provided $62.4 billion in community benefits, the study found, but 92% of that number encompassed charity care for indigent patients, Medicaid payment shortfalls, research and training. Only 8% supported ways to improve community health.
Previous studies have shown that nearly half of community benefit spending is going into residency programs, said Sara Rosenbaum, the lead author on the Health Affairs paper and a health law and policy professor at George Washington University's School of Public Health. While training new doctors is a worthwhile goal, hospitals also benefit from the work they perform at lower cost.
Another third is going toward Medicaid shortfalls, she added.
Moreover, the 8% spent on community health improvement initiatives represents less than 1% of total healthcare expenditures. “You want some community benefit that's going to give people a voice,” Rosenbaum said.
The community benefit breakdown could potentially change in the aftermath of the Affordable Care Act, which addresses the issue in a number of ways. In particular, it directs hospitals to conduct a community needs assessment every three years.
Hospitals also will be providing less uncompensated care as more people gain health insurance and, through accountable-care organizations and similar initiatives, they'll be getting paid for keeping people healthy—both of which could encourage additional spending on public health programs.
Massachusetts, which passed its own healthcare reform package in 2006, is also one of the states where not-for-profit hospitals are seeing the biggest tax breaks. But Rosenbaum said she didn't think hospitals there had shifted their community benefit spending as the state's uninsured rate has bottomed. “I would be surprised if Massachusetts looked different,” she said.
A number of states have started to pay attention to the issue of community benefit. Last year, Blue Shield of California lost its tax-exempt status after state officials concluded it was not returning enough of its profits to the public good. The insurer is challenging the decision.
In May, Modern Healthcare reported that The Alliance for Advancing Nonprofit Health Care, which includes Blues plans in seven states and the National Association of Community Health Centers, was contacting members of Congress and hospital CEOs with ideas to revamp oversight of tax-exempt hospitals.
The alliance's proposal calls for Congress to eliminate the ACA requirements—mandating community needs assessments and financial aid policies while restricting aggressive bill collection—and replace them with a test of whether the dollar value of hospitals' benefit to local communities is enough to offset the lost federal revenue from tax breaks.
