EDITOR'S NOTE: This story has been updated to reflect the American Hospital Association's response to the Lown Institute report.
U.S. nonprofit hospitals get billions more in tax breaks than they spend on charity care and community investment, according to a new analysis by the Lown Institute.
The think tank analyzed 275 nonprofit hospital systems with more than 1,800 hospitals using 2019 and 2018 IRS Form 990 data. Nonprofit hospitals are granted local, state and federal tax exemptions but must report to the IRS how much they spend to benefit their communities.
The categories the Lown Institute considered in its calculations included community health improvement activities, contribution to local groups and building activities and subsidized healthcare. It compared each system’s spend on these activities to the value of its tax exemption.
In all, 227 of 275 systems studied had fair share deficits, it determined, spending less on giving back than the value of their tax exemption. Taken together, the deficits made up $18.4 billion that, if taxed, could have potentially been spent by states on things like housing, food insecurity and other social drivers of health, the Lown Institute argued.
“What we’re looking at is a system in which there are lots of good intentions and I think that needs tightening up,” Vikas Saini, M.D., president of the Lown Institute, told Fierce Healthcare.
The 10 private nonprofit hospital systems with the largest fair share deficits, according to the Lown Institute analysis:
1. Providence Saint Joseph Health – $705 million
2. Trinity Health – $671 million
3. Mass General Brigham (FYE 2018) – $625 million
4. The Cleveland Clinic Health System – $611 million
5. University of Pittsburgh Medical Center – $601 million
6. University of Pennsylvania Health System – $571 million
7. Catholic Health Initiatives – $515 million
8. Advocate Aurora Health – $498 million
9. Dignity Health – $456 million
10. Ascension Health – $388 million
They account for $5.6 billion of the total fair share deficit. In the following seven states, the total deficit exceeds $1 billion: California, Pennsylvania, New York, Ohio, Illinois, Michigan, Massachusetts. (Several of these states ranked high in overall fair share spending.)
The Lown Institute also included in its analysis the top nonprofit hospital systems with fair share surpluses—where they spend more giving back than the value of their tax exemption. These included Memorial Hermann Healthcare System, Wellstar Health System and the Nebraska Medical Center.
In addition, the think tank found, many systems analyzed with fair share deficits also received CARES Act funding—such as the Cleveland Clinic Health System, which received $423 million while posting a $1.3 billion in surplus revenues in 2020.
In response to the report, the American Hospital Association put out a statement saying it "is an obvious example of relying on pre-conceived notions and faulty methodology to draw inaccurate conclusions," adding that it selectively chooses certain categories of community investment and not others. It cited hospital investment examples including the development of COVID-19 tests and vaccine clinics, services that it says were not captured in the report. It stressed "financial assistance is only one part of a hospital’s total community benefit and does not account for the numerous programs and services that hospitals tailor and provide" for their communities.
The Lown Institute’s methodology has been called into question before by hospitals, while some experts have said it is useful, if flawed. Tax exemptions for hospitals have long been a point of controversy in the U.S. and have been challenged in court. To Fierce Healthcare, Saini acknowledged the think tank does not account for certain categories like research or physician training. But hospitals also get paid to do those things, he noted.
In the past, some hospitals have lost or voluntarily given up nonprofit status over compliance.
Saini believes it's important to standardize the accounting and reporting of IRS requirements and review the results with an audit. Having a benchmark to guide hospital spending would also be beneficial, he said.
“If we as a society are going to be effectively bestowing this benefit.” he said, “we also have a duty and a responsibility to give them more guidance on what it is we expect of them in exchange for that.”