VIDEO: Community Benefit launch

The value of the nonprofit tax exemption is worth tens of billions to hospitals. But what are we getting back in exchange for this hefty tax break? The Lown Institute recently released their community benefit results, including an analysis of which hospitals are spending their fair share on charity care and community investment. Watch the video below for a discussion of community benefit standards, hospital billing practices, and fair share spending with health policy experts.

Featuring:

  • Sara Rosenbaum, Harold and Jane Hirsh Professor of Health Law and Policy at George Washington University
  • Marty Makary, physician and public policy researcher at Johns Hopkins University
  • Vikas Saini, president of the Lown Institute
  • Shannon Brownlee, special advisor to the president at the Lown Institute

History of the community benefit requirement

How did nonprofit tax exemptions become tied to community benefit spending? Rosenbaum oriented viewers with a short history of hospital community benefit requirements. In the 1950s, the IRS required hospitals to maintain an emergency department open to all and provide charity care in order to be considered nonprofits. A big policy change came in 1969, when the Nixon administration eliminated these requirements and created a new amorphous category called “Community Benefit.”

The Nixon administration said to hospitals,”You all just do things that you believe will benefit the community and we will give you tax-exempt status.” It was an enormous deregulatory move.

Sara Rosenbaum

In the early 2000s, reports of egregious billing and collection practices were coming to light. Congressman Chuck Grassley pushed the IRS to do more, which led to the agency developing new reporting requirements, and breaking Community Benefit into meaningful categories. At the same time, the Affordable Care Act created more changes to the community benefit requirement, barring unreasonable collection practices and requiring hospitals to identify community health needs through regular needs assessments.

Yet despite these additional regulations, there is still a lack of accountability for hospitals to serve their communities. Rosenbaum estimated that the nonprofit tax exemption is likely worth close to $50 billion today. This is especially important for state and local governments, since the value of sales and property taxes are substantial.

Improving hospital accountability

Results from the Lown Hospitals Index show that most nonprofit hospitals aren’t spending their fair share on community health, given the value of their tax exemption. Some of the largest and most prestigious hospitals have the largest deficits, although other large hospitals like Boston Medical Center in Boston and Mount Sinai in NYC are pulling their weight — showing that it can be done.

Marty Makary, who led the Johns Hopkins University billing quality project, asserted that transparency is helping improve accountability for hospital billing practices. Since their team released their dashboard, two dozen hospitals have reached out wanting to know how they can improve.

Some hospital leaders have tried to understand their billing practices, and some immediately stop those practices. That’s good behavior the market should reward.

Marty Makary

However, hospital consolidation can be a threat to accountability, said Makary. If there’s only one hospital in a state, they don’t have to change their prices, regardless of the reporting requirements.

There also needs to be a shift in mindset, a broader understanding that a hospital’s billing quality is just as important to patients as their quality of care. We have a $3 trillion health care system but we spend less than $100 on measuring the billing quality of hospitals, said Makary. We need to invest more in making these numbers public.

If we can sequence the full human genome, we should be able to make hospital prices easily available.

Marty Makary

The tax exemption for nonprofit hospitals, while not the best use of tax dollars, is likely not going anywhere soon. However, there are other ways state and federal actors could improve accountability. Rosenbaum identified three key areas in need of change around community benefit.

First, the need for a connection between community need and community benefit spending. Currently hospitals are required to conduct community health needs assessments to identify the most pressing community health priorities. However, there are no requirements for hospitals to target their community benefit spending around these specific needs (at least, in most states). This is a critical gap in regulation that has to be filled.

Second, the need to consider more seriously what ought to count as a community benefit. The Lown Index analysis excluded certain IRS categories of community benefit spending that don’t provide a direct benefit to communities, or for which hospitals are already reimbursed. There is more discussion to be had on whether Medicaid shortfall or research spending should really be considered a community benefit.

Lastly, if we’re interested in transparency, we should require that community benefit spending be reported at the facility level. Many nonprofit hospitals report their spending on IRS Form 990 on a system-wide level, making it basically impossible for communities to know what their hospital is spending on them.

Hospitals should be expected to do good…to make contributions to society, no matter their tax status.

Sara Rosenbaum

The guests were optimistic that we’re on the path to change. There appears to be bipartisan consensus that hospitals need to be more transparent about their community benefit spending and billing practices. The largest barrier to change is the power of the hospital lobby, said Makary. They are well-funded and motivated to oppose any measures that could reduce hospital revenue. But the tide may be turning, especially with support not only from legislators across the aisle, but even hospital leaders who want to do right by their patients and communities.