The estimated tax revenue forgone due to the tax-exempt status of nonprofit hospitals was $13.2 billion during 2020, but the benefit tax-exempt hospitals provided to their communities, as reported on the federal Form 990 Schedule H, is estimated to be $129 billion, almost 10 times greater than the value of tax revenue forgone.
A study by accounting and consulting firm Ernst & Young
(EY) was commissioned by American Hospital Association for the year 2020, the most recent period for which complete comparable community benefit information is available for nonprofit hospitals. This study is based on Medicare hospital cost reports for approximately 2,500 nonprofit general hospitals. The analysis does not account for other nonprofit specialty hospitals, such as psychiatric or long-term acute care.
Three tax provisions that provide a federal exemption for nonprofit hospitals were analyzed:
* Federal corporate income tax exemption;
* Tax-exempt bond financing; and,
* Federal unemployment tax exemption.
Some hospitals might be exempt due to their educational or religious nature, rather than their charitable nature. In the absence of a tax exemption for charitable hospitals, certain organizations could continue to be exempted for other reasons, according to the report’s authors.
Four items are included in tax-exempt hospitals’ total benefit to communities reported on Form 990 Schedule H:
- Financial assistance and means tested government programs and other benefits (Part I, line 7k of the Form 990 Schedule H);
- Community-building activities (Part II of the Form 990 Schedule H);
- Medicare shortfall (Part III, line 7 of the Form 990 Schedule H); and
- Bad debt attributable to charity care (Part III, line 3 of the Form 990 Schedule H).
The hospital cost reports are not audited financial reports, but are filed by hospitals with the federal government. In 2020 — the year on which the analysis is based — 2,432 private, nonprofit, general hospitals filed Medicare hospital cost reports. The results are then grossed up to the entire field using data from the 2020 AHA Annual Survey of Hospitals and from the AHA Schedule H Community Benefit Reporting study, according to information in the report.
“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 via a statement. “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.”
Nonprofit hospitals are required by law to identify the range of challenges faced by their communities through input from residents, support programs and services aimed at addressing these issues, and to publicly report data on these community investments. This includes reporting on the provision of financial assistance (charity care and Medicaid shortfall) for those in need, and a wide range of tailored programs, initiatives and services designed to meet the current and future health needs of all they serve.
In addition, hospitals and health systems support emergency preparedness for all types of disasters, provide education and training for the next generation of caregivers, and invest in cutting-edge technology and medical equipment to ensure access to high-quality care.