Nonprofit: a legitimate status for hospitals or a way to avoid paying taxes?

Nonprofit hospitals are on alert after a hospital in Pennsylvania lost its nonprofit status – but it wasn’t without reason.

The hospital converted to a nonprofit, tax-exempt entity, which meant the nearby school district lost $900,000 from the hospital’s property taxes, according to KFF Health News. The district sued and the court cited “eye-popping” compensation for hospital executives as the reason for revoking the hospital’s nonprofit status.

Typically, when hospitals receive significant tax exemptions, they are supposed to offer community services such as free or discounted care and health screenings. But, according to analysts at KFF, hospitals in 2020 received $28 billion in exemptions and provided only $16 billion in community services.

States are taking action. In 2019, Oregon passed legislation to set minimum spending requirements for community benefit based on hospitals’ past expenditures and profit margins. This move aims to ensure that nonprofit hospitals contribute sufficiently to their communities. Other states, such as Illinois and Utah, have also implemented spending requirements based on the property taxes hospitals would have paid as for-profit organizations.

These state initiatives highlight the growing push to hold nonprofit hospitals accountable and ensure that they provide adequate community benefits. The American Hospital Association argues that hospitals should not solely be measured by charity care, emphasizing the community benefits hospitals deliver, such as keeping their doors open. But a congressional watchdog agency, the Government Accountability Office, says that “community benefit” needs to be better defined.

“It’s not clear what a hospital has to do to justify a tax exemption,” said Jessica Lucas-Judy, a GAO director. “What’s a sufficient benefit for one hospital may not be a sufficient benefit for another.” 

Lawmakers at all levels and in both parties are chiming in.

North Carolina State Treasurer Dale Folwell, a Republican, said many hospitals “have disguised themselves as nonprofits.

“They’re not doing the job. It should be patients over profits. It’s always now profits over patients.” What are your thoughts? Should hospitals be allowed to hold nonprofit status and be exempt from taxes? Tell us why here.