AHA: Nonprofit hospitals provided community benefits 9 times higher than 2019 tax exemptions

Nonprofit hospitals and health systems more than made up for their federal tax exemptions by providing $9 in community benefits for every dollar they didn’t have to pay in 2019, according to a pair of analyses backed by the American Hospital Association (AHA).

Nonprofit hospitals are required to provide benefits to patients and their surrounding communities as a condition of their tax exemption status. The community benefits reported to the IRS range from financial assistance and unreimbursed care to population health programs and the education of new healthcare professionals.

Using regulatory filings for fiscal year 2019, the most recent year for which comprehensive financial data were available, the hospital industry’s trade organization and accounting firm Ernst & Young found that nearly 2,500 tax-exempt hospitals provided just over $110 billion in total community benefits.

Nearly half of those total community benefits, $51.1 billion, were comprised of financial assistance, unreimbursed Medicaid and other unreimbursed costs from means-tested government programs, Ernst & Young wrote in its recent AHA-commissioned report.

During the same year, roughly $12.4 billion in tax revenue was foregone through a combination of federal corporate income tax exemption, tax-exempt bond financing and federal unemployment tax exemption, Ernst & Young found.

A similar review conducted last year for fiscal year 2018 found $105 billion in total community benefits.

An accompanying report released this week by AHA with the assistance of Ernst & Young noted an average 13.9% of tax-exempt hospitals’ total expenses went toward community benefits in 2019. The combination of financial assistance, unreimbursed Medicaid and other unreimbursed costs from means-tested government programs comprised an average 6.4% of hospitals’ total expenses.

“In addition to providing critical care, hospitals and health systems of all sizes, types and locations deliver a wide range of tailored benefits, activities, services, programs and research to meet the varied health needs of those they serve,” AHA President and CEO Rick Pollack said in a statement. “Today’s analysis shows that advancing health in their communities remains the North Star for America’s hospitals and health systems.”  

AHA and Ernst & Young’s analyses used a combination of IRS Form 990 Schedule H filings, Medicare hospital cost reports for nonprofit general hospitals and AHA’s 2019 Annual Hospital Statistics Survey.

With some of the nation’s largest nonprofit health systems raking in billions in revenue and profit, these organizations’ tax exemptions are often in the crosshairs of industry analysts and policy groups.

A study published earlier this year in JAMA Network Open, for instance, found that nonprofits shouldered a similar amount of unreimbursed Medicaid costs as their for-profit and government-run counterparts in 2019. Another Health Affairs study from the year before, found similar results when looking at organizations’ charity care expenses.

An April analysis from the Lown Institute looking at 275 nonprofit hospital systems tallied $18.4 billion in tax exemption deficits compared to the amount of charity care and community health improvement activities.

In response, the AHA said that the Lown Institute’s analysis was “an obvious example of relying on preconceived notions and faulty methodology to draw inaccurate conclusions" and added that the think tank selectively chose certain categories of community investment and not others.

“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, AHA said at the time.