VIDEO: Are nonprofit hospitals earning their tax breaks?

Nonprofit hospital systems are expected to give back to their communities in amounts that justify their massive tax breaks. But how many of them actually provide charity care and community investments commensurate with their tax exemption?

We discussed hospital fair share spending with North Carolina Treasurer Dale Folwell, Chief People and Equity Officer at Health Leads Jennifer Valenzuela, and Lown Senior Fellow Paul Hattis. Watch the recording of the event below:

Are hospitals paying their fair share?

Results from the Lown Hospitals Index show that the vast majority of nonprofit hospitals are receiving high value tax exemptions but are not comparably investing in their communities. Some of the largest and most prestigious hospitals have the largest deficits, despite bringing in extra funding through the federal government’s CARES Act grant. The total fair share deficit for all hospitals comes out to $18.4 billion.

What does this forgone spending mean for communities? Jenn Valuenzuela pointed out that $18.4 billion would go a long way to reducing food insecurity and homelessness in the U.S.

Imagine what we could actually do if we had three times our current budget for homelessness services…we could make a really huge impact in Boston and across Massachusetts.

Jenn Valenzuela

For North Carolina, the fair share deficit and high hospital prices have a huge impact on state workers. “A beginning teacher or state trooper may have to work one week out of every four” to afford their health insurance premium, said Treasurer Dale Folwell.

We have one nonprofit in NC that has $9 billion in the bank…. They made all that money on the back of sick people. That’s three times more than the state debt of the whole state.

Dale Folwell

Improving hospital accountability

How do we ensure that hospitals do more to pay their fair share and improve community health? The panelists discussed innovative programs hospitals can do to address the social determinants of health, such as investing in affordable housing and building a grocery store in a food desert. Since hospitals are some of the largest employers, they could use their fair share spending to raise wages at the bottom level to improve financial security in the community.

The panel suggested regulatory tactics that could be helpful as well. Jenn Valenzuela proposed making applications for community group grants more simple and pooling community benefits into a trust with community-led priorities. Paul Hattis suggested that cities require hospitals and other large nonprofits to pay Payments In Lieu of Taxes (PILOT payments) to make up some of the fair share deficit.

“Police, fire, and sanitation make up about 25% of municipal budgets, and hospitals get real value from these services. The fact that hospitals don’t pay at least pay that portion of the property tax to pay for those services seems sort of crazy to me.”

Paul Hattis

While creating a spending floor for community benefit seems appealing, the panelists pointed out that hospitals always find ways to game the system when it comes to accounting tests.

What about taking away the nonprofit tax exemption for hospitals entirely? “There are days I wake up and think we should get rid of the exemption and just give a tax credit for the activities we want them to do,” said Paul Hattis.

But having a hospital be nonprofit also makes a difference in the decisions they make day to day. For example, nonprofit hospitals are more likely than for-profit hospitals to offer lines of service that are low-margin, like psychiatric care and substance abuse treatment.

In all, there is substantial room for improvement for hospitals on charity care and community investment. We hope shining a light on fair share spending will motivate hospitals to take more steps in the right direction.