The vast majority of nonprofit hospitals aren't providing a level of community support equal to the value of what they are receiving in tax breaks, according to a study published Tuesday.
The study by the nonpartisan think tank Lown Institute reignites a contentious debate on whether nonprofit hospitals should qualify for tax breaks — and whether those hospitals hold up their end of the bargain. Unlike for-profit hospitals, nonprofit hospitals receive property, income and sales tax breaks based on the expectation they will give back to the communities they serve, such as providing free care or organizing wellness programs.
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Using 2021 Internal Revenue Service data, Lown found about 80% of nonprofit hospitals, or more than 1,900 out of 2,425 hospitals, received more in tax break benefits than the support provided to communities.
Hospitals spent an average 3.9% of their budget on community support in 2021, though the range varied from less than 1% at some facilities to nearly 9% at others, according to the study. In some cases, hospitals pocketed hundreds of millions of dollars more in tax break benefits than they allotted to community contributions, the study found.
Hospitals fell short on community support by a combined $25.7 billion in 2021. Michigan, West Virginia, Louisiana, Washington and Rhode Island had the highest percentages of hospitals where tax breaks outweighed community contributions. Most hospitals in Delaware, Montana, Maryland, Texas and Utah had community support that exceeded tax breaks.
"The majority of hospitals are not really managing to give back their fair share in terms of the tax benefits they enjoy. ... But there is an important minority that does and shows that it's certainly possible to do that and still be a functioning hospital," said Dr. Vikas Saini, president of the Lown Institute. "Part of what we're trying to point out is that while there are haves and have-nots, the haves certainly probably could do more than they're doing."
In last year's report, the Lown Institute found 77% of nearly 1,800 nonprofit hospitals received more in tax break benefits than they gave back in community support, based on 2020 IRS data. Tuesday's report included data from more than 650 additional hospitals.
Many, if not all, hospitals stepped up to serve their communities with free testing and other services when the COVID-19 pandemic hit in 2020, even as revenue sagged from lower patient volumes. By 2021, patient volumes started to rebound and hospitals had help from federal relief money, which bolstered revenue. The inflated revenue in 2021, largely from federal relief, likely led to a larger difference between what hospitals could have been taxed and the community support they provided, said Kevin Holloran, senior director at credit ratings agency Fitch Ratings.
The Lown study excludes any potential benefits to communities from medical research, training and Medicaid reimbursement shortfalls, which many facilities consider a form of community support.
In a statement, Rick Pollack, president and CEO of the American Hospital Association, said the institute "cherry-picks categories of community benefit and ignores other areas of great importance," including underpayments from government payers and services such as food security programs, maternal education and vaccination clinics.
Saini said he hopes the study will spark conversations about how hospitals report community contributions and stricter guidelines on how much facilities must contribute.