Report: Nonprofit hospitals make billions more in tax breaks than they reinvest into communities
A full three-quarters of hospitals examined by the Lown Institute failed to meet their expected community investments.
Photo: John Fedele/Getty Images
A new report examining the finances of 1,773 nonprofit hospitals in the U.S. finds that more than three quarters fall short on expected investments in their communities.
Nonprofit hospitals are exempted from paying most federal, state, and local taxes in exchange for providing free or discounted care and programs that address community health needs, such as substance abuse treatment, affordable housing or access to healthy foods.
Lown Institute analysts identified more than 1,350 hospitals that have "fair share" deficits, meaning the value of their community investments fails to equal the value of their tax breaks. The combined deficits of nonprofit hospitals totaled $14.2 billion in 2020, enough to relieve the medical debt of 18 million Americans or prevent 600 at-risk rural hospitals from closing, data showed.
"Americans desperately need hospitals to use their billions in tax breaks as intended: to promote health while relieving the problems of medical debt and access to care," said Dr. Vikas Saini, president of the Lown Institute. "These are charitable organizations and they should do a better job at prioritizing social responsibility over profitability."
WHAT'S THE IMPACT?
The Lown Institute calculated fair share spending based on 2020 IRS Form 990 by comparing the estimated value of hospitals' tax exemptions to the amount spent on financial assistance and meaningful community investment – including community health improvement activities, contributions to community groups, community building activities and subsidized healthcare services.
For hospitals that file as a group, expenses, income, and community investment data were prorated across hospitals based on their share of system revenue. For hospitals filing with universities where Schedule E was submitted, financial audit or CMS cost report information was used to calculate expenses and net income.
UPMC Presbyterian had the largest fair share deficit of any hospital in the country at $246 million in 2020.
Other hospitals with the largest deficits in the nation include NYU Langone Hospitals in New York, Vanderbilt University Medical Center in Nashville, Hospital of University of Pennsylvania in Philadelphia, Indiana University Health in Indianapolis, Spectrum Health Butterworth Campus in Grand Rapids, Michigan, Cedars-Sinai Medical Center in Los Angeles, M Health Fairview University of Minnesota Medical Center in Minneapolis, UMass Memorial Medical Center in Worcester, Massachusetts, and Arizona General Hospital Mesain Mesa, Arizona.
Many of these hospitals ended the year with net incomes close to or exceeding their fair share deficits, suggesting they had the financial means to meet their spending obligations, authors determined.
"Nonprofit hospitals are going to need help changing their behavior," said Saini. "These hospitals are supposed to be accountable to Americans through federal, state and local authorities – but oversight has been negligible."
Hospitals for which 2020 IRS filings were unavailable were not included in this year's report. This includes some large and well-known health systems like Providence, Kaiser Permanente, Mass General Brigham, Cleveland Clinic and Henry Ford.
THE LARGER TREND
A 2021 study in JAMA Network Open found 40% of nonprofit hospitals fell short of meeting the community health needs assessment (CHNA) requirements put in place in the Patient Protection and Affordable Care Act, and that by not fulfilling these mandates, a significant portion of them put their tax-exempt status at risk.
Other reports have shown that it's been a rough few years financially for the nation's nonprofit hospitals. A January Fitch ratings report found that credit ratings for nonprofit hospitals will be under threat this year due to investment losses and rising expenses eating into margins.
Cash and investment portfolios have provided a significant rating cushion and helped hospitals weather significant operational challenges in 2022, the report said. That cushion, though, has diminished, with lower portfolio values as a result of market declines.
Operating margins have been hit hard over the past year due to cost inflation, particularly staffing, and weaker liquidity will mean operations may have even less flexibility to address higher expenses. Cash flow could mitigate portfolio declines, but continued expense pressures this year will likely constrain this cash flow generation.
Health systems with comparatively weaker balance sheets for the rating category are more likely to face negative rating pressure, said Fitch.
Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com
