Lown Institute: Even after community investment, nonprofit hospitals' tax savings enough to rescue 'every rural hospital at risk of closure'

The difference between nonprofit hospitals’ tax breaks and the amount they spent on community investments or discounted care is enough to “rescue the finances of every rural hospital at risk of closure,” according to the Lown Institute’s latest review of 1,773 private nonprofit hospitals’ 2020 financial disclosures.

Put another way, the collective $14.2 billion “fair share” deficit of these hospitals would also be sufficient to wipe the medical debts of 18 million Americans, the think tank said Tuesday.

“Americans desperately need hospitals to use their billions in tax breaks as intended: to relieve the problems of medical debt and access to care,” Vikas Saini, M.D., president of the Lown Institute, said in a release. “These are charitable organizations and they should do a better job at prioritizing social responsibility over profitability.”

Lown found that 77% of the reviewed hospitals spent less on community investments and charity care than the estimated value of their tax breaks. The group wrote that many facilities that had the largest deficit “also received millions in COVID-19 relief funding and ended the year with high net incomes.”

The worst offenders highlighted by the report were:

  • UPMC Presbyterian Shadyside in Pittsburgh, Pennsylvania, with a $246 million fair share deficit, a $406 million net income and $56 million in COVID-19 relief funding;
  • NYU Langone Hospitals in New York City, with a $173 million fair share deficit, $406 million net income and $500,000 in COVID-19 relief funding; and
  • Vanderbilt University Medical Center in Nashville, Tennessee, with a $158 million fair share deficit, a $177 million net profit and $56 million in COVID-19 relief funding.

Hospitals at the other end of the spectrum included:

  • New York-Presbyterian Hospital in New York City, with a $117 million fair share surplus (and had increased its community investment from $134 million in 2019 to $546 million in 2020);
  • Nebraska Medical Center in Omaha, with a $116 million fair share surplus; and
  • Stanford Health Care in Stanford, California, with a $92 million fair share surplus.

At the state level, Lown found the largest total fair share deficits in Pennsylvania ($1.65 billion), California ($1.38 billion), Illinois ($952 million) and Michigan ($901 million).

Forty-one states had hospitals with a total fair share deficit large enough to cover the net losses of all their state’s rural hospitals during the 2020 fiscal year, the think tank found.

Nonprofit hospitals within Massachusetts, Minnesota, Rhode Island and Washington, D.C., each tallied fair share deficits that would wipe all medical debt on the credit reports of their respective states, per the report.

Lown’s analysis relied on expenses reported on nonprofit private hospitals’ IRS 990 forms for 2020, as well as supplementary data from the Centers for Medicare & Medicaid Services and the Consumer Financial Protection Bureau.

The report lacked several major nonprofit players that did not yet have 2020 IRS filings available for review. These included Providence, Kaiser Permanente, Mass General Brigham, Cleveland Clinic and Henry Ford Health.

Lown said it considered any hospital that dedicated at least 5.9% of its overall expenditure to “charity care and meaningful community investment” to have met its tax savings, a cutoff established by prior academic research findings.

Of note, the group said it excluded certain IRS categories from counting toward the 5.9% threshold.

Medicaid shortfall was left out “because hospitals are already reimbursed for Medicaid patients by the state [and] … does not convey a hospital policy choice.”

Hospitals spending on health professionals’ education and research was also excluded because “these investments do not have a direct impact on the health of [a hospital’s] community. … Additionally, hospitals are already reimbursed for trainees,” Lown wrote.

Exclusions such as these are typically seized upon by the hospital lobby, which has previously argued that all such expenses should be considered when measuring a hospital’s community impact.

For instance, following a report last month from the Kaiser Family Foundation that valued the nonprofit hospital sector’s collective tax exemptions at $27.6 billion, the American Hospital Association criticized the group’s “narrow reading of community benefit limited to financial assistance” and pointed to public health activities, caregiver training and illness prevention initiatives as worthy considerations.

The industry group also pointed to “a more comprehensive report” conducted by Ernst & Young and backed by the hospital group. It concluded that nonprofit hospitals and health systems provided $9 in community benefits for every tax dollar they didn’t pay during 2019.

KFF’s report questioned whether some of the substantial tax exemptions enjoyed by nonprofit hospitals could potentially be better employed by federal, state and local governments. Saini was more direct in critiquing hospitals for falling short of their “spending obligations” despite many having the financial means to do so.

“Nonprofit hospitals aren’t going to change their behavior on their own,” Saini said. “These hospitals are supposed to be accountable to federal, state and local authorities—but oversight has been negligible.”