Two studies released days apart explore nonprofit hospitals' tax-exempt status; one study focuses on the benefits hospitals receive, the other on the benefits hospitals provide.
In a study published Sept. 26 in JAMA, researchers from Baltimore-based Johns Hopkins University and Fort Worth-based Texas Christian University found that nonprofit hospitals received at least $37.3 billion in tax benefits during 2021. The study questions whether these tax benefits are justified given the practices of nonprofit hospitals, which increasingly resemble for-profit hospitals in areas such as debt collection.
Conversely, an EY report prepared for the American Hospital Association found that tax-exempt hospitals provided $10 in benefits to their communities for every dollar's worth of federal tax exemption in 2020. Data represents an increase from $9 in benefits versus 2020 despite the COVID-19 pandemic.
Eleven things to know:
JAMA study: "Estimation of Tax Benefit of US Nonprofit Hospitals"
1. Tax benefits varied widely by state, with 55% coming from state and local taxes, and a small number of hospitals receiving most of the benefits, according to researchers. For example, Massachusetts had the highest tax benefit per bed ($159,464), while Delaware had the lowest ($25,098).
2. Overall, just 7% of nonprofit hospitals accounted for half the total tax benefits, according to the study.
3. The $37.4 billion in benefits that nonprofit hospitals received in 2021 includes federal income tax benefits ($11.5 billion), sales tax benefits ($9.1 billion) and property tax benefits ($7.8 billion). This is substantially larger than a KFF analysis published last year that estimated that nonprofit hospitals received $28 billion in tax benefits in 2020 using a different methodology.
4. "The methodology we developed here can be used for future tax-benefit estimates, from the national level down to individual nonprofit hospitals," said study co-author Ge Bai, PhD, who is a professor at the Johns Hopkins Carey Business School, with a joint appointment in the Bloomberg School's Department of Health Policy and Management.
5. In an interview with Becker's, Dr. Bai argued that policy tends to favor nonprofit hospitals, leading to tax exemptions and other advantages that create an uneven playing field. Nonprofit hospitals also benefit from programs such as 340B, which spur consolidation and limit competition by incentivizing hospitals to acquire independent physician practice to expand the reach of the drug pricing program. To level the playing field, Dr. Bai suggested reforms that eliminate tax exemptions and unfair advantages for nonprofit hospitals, encouraging open competition. "One can imagine that nonprofit hospitals in the future might conduct their own annual estimates and disclose them to inform the public and policymakers," Dr. Bai said.
6. The study covered the 2,927 U.S. hospitals identified as nonprofits in standard Medicare Cost Reports in 2021, the latest year for which such data are available. Benefits were defined as corporate taxes that would otherwise have been payable under for-profit status, interest expense savings from being able to issue tax-exempt bonds and the fair-market value of donations received.
Click here for more details on the JAMA study.
EY report: "Estimates of the value of federal tax exemption and community benefits provided by nonprofit hospitals, 2020"
7. Nonprofit hospitals' tax exemptions amounted to $13.2 billion in 2020, stemming from federal income tax, tax-exempt bond financing and unemployment tax exemptions, according to EY.
8. In comparison, these hospitals provided $129 billion in community benefits, nearly 10 times the value of the tax exemptions.
9. Financial assistance, community-building, Medicare shortfalls and bad debt attributed to charity care make up the bulk of the $129 billion in community contributions, according to the report.
10. The analysis estimates federal tax revenue forgone in 2020 using Medicare hospital cost reports from 2,432 nonprofit hospitals. Data is scaled up using AHA survey information. Not all tax rules could be applied to the available data, so some estimates involve assumptions and additional data.
11. "All of America's hospitals and health systems are cornerstones of their communities — delivering not only around-the-clock care and essential services but a broad range of critical health, social and other programs that advance community health," AHA President and CEO Rick Pollack said. "Nonprofit hospitals have a special obligation to those they serve and this new analysis from EY shows these efforts are more than a worthy investment and that improving the health of their communities remains at the heart of the mission of the hospital field."
Click here for more details on the EY report.