Most Nonprofit Hospitals Skimp on Care for Poor, Report Says

Most nonprofit hospitals are spending less on charity care than they reap in benefits from their tax-exempt status, according to a new report from a think tank on equity in health care.

Nonprofit hospitals are exempt from paying most federal, state, and local taxes in exchange for providing free or discounted care and programs to low-income patients, and addressing community health needs.

The Lown Institute calculated the “fair share” spending in 2020, for 1,710 nonprofit hospitals by comparing how much they spent on charity care and community investment with how much they benefited from tax breaks. Around 77% of hospitals were found to have a “fair share” deficit, meaning they spent less than they gained.

“The major disconnect between the real health needs of communities and how the money flows is the fundamental problem,” said Vikas Saini, M.D., president of the Lown Institute. “And the nonprofit tax exemption is a lens on that problem.”

How They Calculated

The institute calculated spending from each hospital’s IRS Form 990. Financial assistance, or charity care, is one category. Another category is services that improve community health like free clinics, uncompensated Covid-19 testing, donations to community groups, and activities that promote affordable housing.

However, the report excluded items that many hospitals report as community investment such as uncompensated Medicaid costs, education of health professionals, and medical research.

Hospitals that gave at least 5.9% of overall expenditures to charity care and community investment were considered to have spent their “fair share.”

“The definition of ‘community benefits’ is a narrow one, based on a form designed to assess tax status,” said Jonathan Jaffery, M.D., the chief health-care officer of the Association of American Medical Colleges. “It’s an important concept, but does not represent the whole picture.”

Largest ‘Fair Share’ Deficits

The UPMC Presbyterian Shadyside in Pittsburgh topped the list of hospitals with the largest “fair share” deficits, receiving $246 million more in tax breaks than it spent in 2020, the report said. Its net income that year was $44 million.

It was followed by NYU Langone in Manhattan, Vanderbilt University Medical Center in Nashville, Tenn., the Hospital of the University of Pennsylvania in Philadelphia, and Indiana University Health in Indianapolis, according to the report.

The total “fair share” deficit for hospitals nationwide amounted to $14.2 billion in 2020. That could wipe out the medical debts of 18 million Americans or save more than 600 rural hospitals at risk of closure, the institute said.

Many of the hospitals also received millions in federal pandemic aid under the CARES Act enacted in March 2020, according to the report.

Saini said there was no question that the pandemic was a significant blow to hospital finances, but the overall impact was not as cataclysmic as everyone feared.

“By the end of the year, there were a lot of hospitals that were more than whole,” said Saini. “I don’t see them as having exploited it, but I do see it as not good management of taxpayer money on the part of the government.”

In Pennsylvania alone, 89 hospitals were found by the report to have a “fair share” deficit, totaling $1.65 billion. Additionally, four hospitals owned by Tower Health LLC were paid big executive salaries and three were later disqualified from charitable tax-exempt status by a Pennsylvania appeals court in February.

Sen. Charles E. Grassley (R-Iowa), who has conducted several investigations on whether nonprofit hospitals are meeting their charitable requirements, has said he will work with the IRS, the Government Accountability Office, and other senators to ensure that hospitals are abiding by the rules. “Requirements on transparency and accountability must be strengthened rather than softened,” he said in a statement.

Medicaid shortfall, the difference between what Medicaid pays hospitals for the care they provide and what hospitals say is the actual cost of the service, was not included. However, the institute said hospitals already make up for the shortfall by charging private insurers more or by receiving disproportionate share hospital payments.

The institute also excluded spending on educating health professionals and medical research as community investment.

Saini questioned the relevance of education to the community, explaining that only about one-quarter of resident physicians report practicing in medically underserved areas after their training. Saini also suggested that most medical research around the world was “not useful” and “flawed,” citing a 2014 Lancet study.

“Medical research is responsible for most of the important breakthroughs in prevention and treatment,” said Melinda Hatton, the general counsel for the American Hospital Association.

“Many of these programs have impacts that are long-term in nature and cannot be quantified on a form, but will benefit communities in, and for, years and decades to come,” said Jaffery.

It is also possible that a hospital could use the money from a tax break the following year. New York Presbyterian spent $134 million in 2019 before contributing $546 million in 2020 to top the “fair share” surplus list this year.

—With assistance from Alex Ruoff.