Cities, legislatures challenge tax breaks, status of nonprofit hospitals

Nonprofit hospitals across the country aren't giving back to their communities in a ratio that fairly matches their tax exemptions, which add up to more than $12 billion annually, the New York Times reported.

The Times cites a study in The New England Journal of Medicine, which found hospitals spent about 7.5 percent of operating costs on charity care and community benefits, with some spending less than 1 percent and others about 20 percent, according to the article.

Under the Affordable Care Act, nonprofit hospitals' status will be subject to review every three years, although the government doesn't name an amount of benefit they need to provide to be exempt from federal taxes. Now, some cities and politicians are challenging that status. For example, the city of Pittsburgh has filed a suit calling into question University of Pittsburgh Medical Center's tax-exempt status, claiming the hospital only spends about 2 percent of patient revenues on charity care, and demanding it pay about $20 million in taxes, the Times reported.

The hospital responded that it spends an additional $150 million in paying bills for Medicaid shortfalls and patients who don't pay, as well as funding college scholarships for public school students. Hospital officials accused the city of abusing its tax laws, according to the article. Critics who say nonprofits don't deserve tax-exempt status argue facilities can manipulate and inflate what is charged as "charity" care.

Johns Hopkins Hospital spent 11 percent of revenue on charity care, but only 2 percent was for free or discounted treatment, according to the article. Meanwhile, the Cleveland Clinic spent nearly 14 percent on charity care, but at least half of those funds from each facility were for professional education.

This spring, California lawmakers considered requiring nonprofit hospitals to spend at least 8 percent of their annual operating margin on charity care, FierceHealthcare previously reported. In Pennsylvania, the Senate passed legislation giving the legislature sole authority over defining tax exemptions for hospitals and other public nonprofits.

To learn more:
- here's the New York Times article 
- check out the study