AHA argues nonprofit hospitals more than make up for lost tax revenue

By | May 23, 2019

Dive Brief:

  • Federal tax revenue foregone in 2016 because of the tax-exempt status of nonprofit hospitals totaled $ 9 billion, but those hospitals spent more than 10 times that amount in providing community benefits, according to the American Hospital Association.
  • In a report released Wednesday, AHA said nonprofit hospitals spent nearly $ 44 billion in financial assistance, unreimbursed Medicaid and other unreimbursed costs from means-tested government programs. About $ 51.1 billion was spent on unspecified “other community benefits.” Those numbers were taken from the IRS Form 990 Schedule H.
  • The foregone tax revenue estimate, which accounting firm Ernst & Young prepared for AHA, found $ 4.6 billion was the result of tax-exempt bond financing and $ 4.2 billion from lost corporate income tax. The remainder was attributed to unemployment taxes.

Dive Insight:

AHA has obvious reasons for framing the debate over hospitals’ tax-exempt status by positioning their self-reported community benefits as a counterpoint to the foregone federal revenue. Nonprofit hospitals are under scrutiny, and in some cases caught in litigation, over their tax-exempt designation and the perks that come with it.

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, recently asked the IRS to probe the regulation of tax-exempt hospitals. Grassley, a frequent critic of nonprofit hospitals, said in a February letter to the IRS commissioner “it appears that at least some of these tax-exempt hospitals have cut charity care, despite increased revenue, calling into question their compliance with the standards set by Congress.”

In Pennsylvania, the state is challenging the University of Pittsburgh Medical Center’s tax-exempt status. The state’s attorney general filed a petition earlier this year asking a court to force the integrated health system to agree to a new contract with its rival Highmark, saying action was “absolutely necessary to prevent UPMC from inflicting further harm on the public by forsaking its charitable obligations in pursuit of commercial success.”

But hospitals argue their community work more than justifies the tax breaks.

“On top of delivering around-the-clock care to all who come to us, hospitals and health systems of all types are providing a wide range of comprehensive benefits, activities and services tailored to meet the specific needs of their patients and communities,” AHA CEO Rick Pollack said in a statement accompanying the new report.

Some hospitals are looking at concrete ways to improve and sustain engagement with neighboring populations. In March, nonprofit hospital operator Ascension hired its first ever chief community impact officer.

The family physician taking on that role, Tamarah Duperval-Brownlee, told Healthcare Dive recently the chain’s hospitals wants patients to thrive outside its walls. “If a community is productive and they see us as a trusted partner to meet their needs, then we’ll be the preferred hospital,” she said. “It seems counterintuitive to think that the healthier you make your community, that you would provide sustainability and profitability for your hospital or system, but it’s true.”

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