Are Nonprofit Hospitals Really Giving Back More Than They Get?

Nonprofit hospitals in the U.S. spent less on their communities than they received in tax breaks, resulting in a “fair share deficit” for what are ostensibly charitable organizations, according to a new report.

A hospital index report from the nonprofit Lown Institute found that 77% of the 1,773 nonprofit hospitals analyzed spent less on charity care and community investment than the estimated value of their tax breaks in 2020. With the equivalent of $14.2 billion in these “fair share deficits,” 18 million Americans could have their medical debt cleared, and more than 600 rural hospitals at risk of closure could stay open.

The report also noted that many hospitals with the highest disparities between tax breaks and community spending ended the year with high net incomes, and received millions in COVID-19 relief funding. These hospitals “ended the end of the year in the black, and significantly in the black beyond what they actually could have paid for their fair share deficit,” said Vikas Saini, MD, a cardiologist and president of the Lown Institute.

To fulfill U.S. tax requirements, nonprofit hospitals must spend part of their income on services that benefit their communities in exchange for their tax exempt status, but some have argued the Internal Revenue Service (IRS) definition of “community benefits” is too broad, letting hospitals off the hook in areas that might be losing potential tax revenue with little to show for it.

“The paradigm we’ve been operating in for the last 30, 40, 50 years is kind of broken, and I don’t think you have to ask too many doctors or nurses before you get a lot of consensus on that point,” Saini told MedPage Today. “We’re asking people to start thinking, ‘What could this look like that would be different, that’s truly beneficial to the community?'”

UPMC Presbyterian Shadyside in Pittsburgh was at the top of the “fair share deficit” list, with a -$246 million difference in community investment versus tax breaks. The report estimated that the medical center could erase 167,060 medical debts in Pennsylvania with that amount, or cover losses for 248 rural U.S. hospitals.

NYU Langone Hospitals in New York City came in second, with a $173 million deficit, and next was Vanderbilt University Medical Center in Nashville, Tennessee, with a $158 million deficit.

The report also highlighted hospitals spending the most on charity care and community investment, compared to the value of their 2020 tax exemptions. Leading in “fair share surpluses” was NewYork-Presbyterian Hospital in New York City, which spent $117 million more than their tax break on community investment. From 2019 to 2020, they increased their community benefit spending by $412 million.

Next on the list was Nebraska Medical Center in Omaha, with a “fair share surplus” of $116 million, followed by Stanford Health Care in California, who spent $92 million more than the value of their nonprofit tax break.

The report also looked at all the nonprofit hospital deficits by state, and estimated that four states had enough of a fair share deficit to wipe out all of the medical debt on credit reports in their respective states: Massachusetts, Minnesota, Rhode Island, and Washington, D.C.

In 41 states, deficits were greater than the amount of net income losses for all rural hospitals in a given state. For example, Pennsylvania’s “fair share deficit” could have made up the total of $39 million in losses their six rural hospitals faced in 2020 — four times.

The Lown report calculated community investment based on “a subset of community benefit categories reported to the IRS that provide a direct benefit to community health,” namely:

• Subsidized health services, such as free clinics
• Community health improvements like COVID testing and health education classes
• Contributions to community groups
• Activities that address social determinants of health, such as housing and food assistance

The report excluded spending that hospitals can technically count toward their reported community benefits, such as training for health professions, research, and Medicaid shortfalls, or the difference between what the hospital charged for Medicaid services and what the Centers for Medicare & Medicaid Services actually reimbursed. The report argued that Medicaid shortfalls do not reflect a hospital policy choice; that research doesn’t directly benefit surrounding communities; and that “hospital trainees help provide patient care, but their work is not targeted toward particularly underserved patients or specialties.”

Regarding the omitted categories, Saini said, “I think it would be reasonable to say these are public goods that really do need to be funded. But the issue here is, who’s doing the funding and what’s the accountability?”

“What we’re seeing in the nonprofit filings … is that it’s pretty routine, things are reported, there’s not much oversight or accountability to it, and it isn’t really meeting the needs of communities,” he added.

However, according to the hospitals — even those at the top of the fair share surpluses list — leaving out these categories constitutes a flawed methodology. In emails to MedPage Today, Nebraska Medical Center and NewYork-Presbyterian, the top in fair share surpluses, cited the American Hospital Association’s (AHA) position on last year’s version of the report. The AHA called the Lown report “an obvious example of relying on pre-conceived notions and faulty methodology to draw inaccurate conclusions.”

UPMC Presbyterian Shadyside told MedPage Today in an email that “it’s hard to discern how the Lown Institute came up with any numbers. They appear to be missing a lot of actual data from UPMC.”

“UPMC contributes more in IRS-defined community benefits and charity care than any other health system in Pennsylvania and ranks among the highest in charity care provided when compared to its national peers,” UPMC said in the email, providing a breakdown of their community benefits spending for 2021, including all the IRS-defined categories. Based on their calculations, community benefits spending amounted to $1.5 billion, $101 million of which was charity care and $473 million of which was health programs and charitable contributions.

NYU Langone, the second on the “fair share deficit” list, also shared their qualms with the report in an email to MedPage Today. “The Lown Institute’s math is plain wrong by failing to include $1.4 billion in NYU Langone’s benefit to the community,” they wrote. “The right way to judge a non-for-profit hospital is how it serves the community with reduced mortality, lower infection rates, minimal lengths of stay, infrequent readmissions, and all of the other quality metrics that encompass excellent healthcare.”