Sanders: Nonprofit hospitals 'should lose their tax-exempt status' if they 'refuse' to increase charity care

Senator Bernie Sanders, I-Vermont, is the latest federal legislator with nonprofit hospitals’ tax breaks in his crosshairs.

The Senate Health, Education, Labor and Pensions (HELP) Committee chairman released a report (PDF) Tuesday calling on Congress and the IRS to strengthen oversight on the community benefit and charity care spending necessary for nonprofit hospitals to retain their status.

The report also outlines the HELP Committee majority staff’s review of 16 major nonprofit health systems’ fiscal year 2021 financial statements, among which 12 dedicated less than 2% of their total revenue to charity care.

Among those, six nonprofit health systems—Providence St. Joseph, Massachusetts General Brigham, New York Presbyterian Hospital, Cedars-Sinai Medical Center, Allina Health System and Baptist Healthcare—dedicated less than a single percent of their total revenue to charity care, according to the report.

“In 2020, nonprofit hospitals received $28 billion in tax breaks for the purpose of providing affordable health care for low-income Americans,” said Sanders. “And yet, despite these massive tax breaks, most nonprofit hospitals are actually reducing the amount of charity care they provide to low-income families even as CEO pay is soaring. That is absolutely unacceptable.”

Sanders’ report was promptly contested by the hospital lobby as “just plain wrong.”

“Today’s report is totally off base and does not fully account for the wide range of community benefits that hospitals provide,” American Hospital Association (AHA) President and CEO Rick Pollack said in a rebuttal statement. “This tunnel-visioned ‘research’ neglects to consider that under the law community benefit is defined by much more than charity care and includes patient financial aid, health education programs and housing assistance, just to name a few.”

Sanders’ condemnation comes amid a wave of state-level scrutiny over nonprofit hospital spending and new legislation that either better defines charity care, increases spending transparency or sets new minimum charity care spending thresholds.

Questions have also been raised at the federal level by both sides of the political spectrum.

In August, for instance, Sens. Elizabeth Warren, D-Massachusetts, Raphael Warnock, D-Georgia, Bill Cassidy, M.D., R-Louisiana, and Chuck Grassley, R-Iowa, penned letters to tax regulators requesting more detailed information on nonprofit hospitals’ reported charity care and community investments.

They wrote in the letters that they were “alarmed by reports that … certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit’ and engaging in practices that are not in the best interest of the patient.”

Sanders’ report and accompanying statements highlight similar concerns. Alongside anecdotes of indebted patients, it cited outside analyses and news stories that found a dip in average charity care spending from 2011 to 2018 and aggressive billing among patients who unknowingly qualified for discounted care.

The report also noted CEO compensation of more than $8 million among the 16 major nonprofits whose financials were reviewed by committee staff.

“At a time when 85 million Americans are uninsured or underinsured, over 500,000 people go bankrupt because of medically-related debt, and over 60,000 Americans die each year because they cannot afford to go to a doctor when they need to, nonprofit hospitals should be providing more charity care to those who desperately need it, not less,” Sanders said. “And if they refuse to do so, they should lose their tax-exempt status.”

Similar to its prior defenses whenever policymakers or researchers critique nonprofit hospitals’ tax breaks, the AHA said that the industry’s repurposing of tax breaks extends beyond discounted care services and into other community-level investments.

Rather than the numbers cited by Sanders, Pollack pointed to the AHA’s own newly released numbers suggesting that tax-exempt hospitals provided nearly $130 billion in total benefits to their communities in 2020.

That report, which cites hospitals’ IRS Form 990 Schedule H for the 2020 tax year, also suggested that nearly 7% of nonprofit hospitals’ total expenses, or about $57 billion, went toward financial assistance for in-need patients.

Pollack also cited a prior report (PDF) prepared on behalf of the AHA by accounting firm EY that linked every dollar of federal tax exemption granted to nonprofit hospitals to $9 in community benefits.

Recent reports from the Lown Institute and the Kaiser Family Foundation concluded that nonprofit hospitals’ tax breaks handily outstrip their community investments and discounted care by the billions. AHA similarly contested those findings at the time.