The Washington PostDemocracy Dies in Darkness

Value of tax breaks for nonprofit hospitals doubled in a decade

June 17, 2015 at 4:41 p.m. EDT
stethoscope and pen resting on a sheet of medical lab test results, with patient file and x-ray or mri film (Michael McCloskey/iStockphoto)

The value of tax breaks for nonprofit hospitals has doubled over the course of the past decade, new research shows, adding fuel to a long-standing debate on whether the hospitals are giving back enough to the public in return for their exemptions.

In 2002, nonprofit hospitals received about $12.6 billion in exemptions at federal, state and local levels. That number jumped to $24.6 billion in 2011, the latest data available, according to a study released Wednesday by the journal Health Affairs.

The rise in tax breaks contributes to a tension over hospitals' high, often inconsistent prices. Some groups, such as nurses unions, take issue with large profits not going back to communities, while free-market conservatives argue that the exemptions are a public subsidization of businesses.

“These are companies that are being insulated from the marketplace [and that] makes them more inefficient, and the taxpayers are financing them to do it,” said Joe Antos, a health policy expert at the American Enterprise Institute.

Here are the 50 hospitals in the country gouging patients the most

Hospitals taking advantage of the breaks must operate under nonprofit status and provide “community benefits” such as charity care for low-income people, research and professions training.

The study included a statistic reported by the Internal Revenue Service that nonprofits spent a total of $62.4 billion on community benefits in 2011.

“Today’s report shows that what nonprofit hospitals provide in terms of benefit to their communities far exceeds the value of tax exemption hospitals receive,” Tom Nickels, senior vice president at the American Hospital Association, said in a statement. He added the figure is consistent with an outside analysis showing that hospitals “are not only meeting, but are exceeding, the community benefit obligations conferred by their tax-exempt status.”

Critics argue that hospitals are inflating those numbers by overcharging uninsured patients.

“It’s an attempt to justify the profits they’re making,” said Robert Laszewski, president of Health Policy and Strategy Associates, a consulting firm for insurance companies, health facilities and physician groups.

The Affordable Care Act made it illegal for hospitals to charge uninsured patients more than others for services, but the practice still happens at most hospitals, according to recent studies.

Insured patients rarely pay the full sticker price for their care because insurance companies negotiate lower bills with the providers. Uninsured people don't have the option to negotiate, leaving them with charges that can be more than 10 times larger than everyone else's.

The IRS generally does not audit the community-benefit expenditures reported by hospitals — figures that have only started to be uniformly collected in 2009. The ACA expanded these requirements in 2010, asking hospitals to disclose how much they spend on “community health improvement” — including conducting area health assessments and working with young people to address mental health needs.

Spending at the community health improvement level, however, has taken up only about 8 percent of total benefits in 2011, according to IRS data.

“If you double that, that would be huge for communities but still be a modest investment for hospitals,” said George Washington University’s Sara Rosenbaum, the study’s lead author.

She noted that hospitals’ uncompensated care has dropped by $7.4 billion from 2013 to 2014 as a result of the ACA, which should result in more spending on community benefits.