Tax-exempt hospitals are increasingly coming under fire for failing to deliver contributions to the community that are supposed to offset those tax breaks.
A Washington state nonprofit hospital, PeaceHealth, was ordered to return up to $13.4 million to patients who should have received financial assistance by the Washington Attorney General late last year.
In Connecticut, a coalition of groups is trying to pass a measure in the legislature to make it easier for people to get financial aid from hospitals.
In 2020, Oregon enacted legislation that includes minimum spending for charity care based on a nonprofit hospital’s annual income and community-benefit spending, as well as the needs of the community.
In 2023, Minnesota enacted legislation tightening requirements for hospitals to screen patients to see if they are eligible for financial assistance.
In May, several members of the House of Representatives called on the Treasury and the I.R.S. “to strengthen and enforce financial assistance policy requirements and collections restrictions that apply to tax-exempt hospitals, just as the IRS appears to be increasing examinations in this area,” Ernst and Young reported.
More tax breaks
Why is this happening now? With health costs rising, higher insurance deductibles and the specter of medical debt threatening many Americans, the problem has gained more attention. The kind of financial aid known as “charity care” is granted based on income and household size. But sometimes it’s not given easily.
The Lown Institute, a healthcare nonprofit, issued a report saying more than 1,900 nonprofit hospitals in the United States get more in tax breaks than they spend on community investments.
“These hospitals enjoy substantial tax benefits due to their nonprofit status,” DollarFor, a nonprofit that helps people find financial aid at hospitals, wrote. “However, the expected return on these benefits, in terms of community health investments, is often not met.”
The problem is not new: In 2017. Dan Diamond wrote over at Politico “How the Cleveland Clinic grows healthier while its neighbors stay sick.”
“There’s an uneasy relationship between the Clinic — the second-biggest employer in Ohio and one of the greatest hospitals in the world — and the community around it,” he wrote. “Yes, the hospital is the pride of Cleveland, and its leaders readily tout reports that the Clinic delivers billions of dollars in value to the state. … But it’s also a tax-exempt organization that, like many hospitals, fought to preserve its not-for-profit status in the years leading up to the Affordable Care Act. As a result, it doesn’t have to pay tens of millions of dollars in taxes, but it is supposed to fulfill a loosely defined commitment to reinvest in its community.”
How charity care is dispensed
DollarFor helps people find if they are eligible for charity care. On their website, they have a questionnaire; after you fill it in, they’ll help you and guide you through the process.
“If you meet the income requirements, hospitals are legally required to write off your medical bills,” Jared Walker, the founder, said in an interview. “Unfortunately, hospitals don’t do a great job telling people about these things. So we have millions and millions of people that are declaring bankruptcy or on payment plans for bills that they actually don’t have to pay.”
Hospitals make it hard for people to find their policies, and then make it hard for people to comply, he said. Most people do not realize that the income testing for financial aid is fairly generous. It’s confusing, though — rules vary from state to state, and hospital to hospital, and a lot of people just aren’t aware that this possibility exists.
What is the legal framework? The charity care policies of hospitals are based on Internal Revenue Service regulations for supplying “community benefit,” which is required to maintain nonprofit status under Section 501(r) of Schedule H of their tax return, Walker said.
Part of the problem is proving it, and squishy requirements. “Nonprofit hospitals are deemed tax exempt by the Internal Revenue Services (IRS) in exchange for an obligation to provide charitable contributions to the community,” Evan Hsiang writes over at Health Affairs in a piece titled “Underregulated Nonprofit Hospitals: Hindering Competition Without Benefitting Communities.”
“Specifically, the 1956 Revenue Ruling 56-185 defines the ‘charity care standard’ that enables hospitals to qualify for nonprofit status by providing care to ‘indigent members of the community’ at reduced or no cost. The 1969 Revenue Ruling 69-545 broadens this prerequisite to allow hospitals to qualify by contributing to ‘community benefit.’ This community benefit is frequently fulfilled by establishing medical training programs or investing in population health. Given that nonprofit hospitals comprise 58 percent of community hospitals, socioeconomically disadvantaged populations often turn to nonprofit hospitals to receive care. Yet, a lack of a minimum requirement to demonstrate community benefit has nonprofit hospitals skirting their patient responsibilities while also engaging in acquisition maneuvers to limit competition. Unless better definitions and regulations become reality, the actions of these hospitals will continue to hurt the patients who need help the most.”
“Why many ‘nonprofit’ (wink, wink) hospitals are rolling in money,” is a piece Elisabeth Rosenthal wrote for Kaiser Health News. Her answers: There’s not a lot of IRS oversight, there’s plenty of legal maneuvering and there’s a lot of industry lobbying.
What do these hospitals look like? “One owns a for-profit insurer, a venture capital company, and for-profit hospitals in Italy and Kazakhstan; it has just acquired its fourth for-profit hospital in Ireland.],” she writes “Another owns one of the largest for-profit hospitals in London, is partnering to build a massive training facility for a professional basketball team, and has launched and financed 80 for-profit start-ups. Another partners with a wellness spa where rooms cost $4,000 a night and co-invests with ‘leading private equity firms.'”
She wrote that she has been asked for donations to nonprofit hospitals and she routinely refuses. “As a journalist, I know too much about how many hospital have become multi-national business conglomerates with all kinds of for-profit businesses that they have somehow pulled under their nfp umbrella. So don’t pay taxes,” she wrote on X Twitter.
What can be done?
State and federal regulations are on the horizon, but will they pass?
Hsiang wrote: “Providing clear and specific guidelines for what constitutes as ‘community benefit’ will ensure that nonprofit status leads to actual improvements in population health. For one, states can require community investments in new facilities or food assistance programs to occur in socioeconomically disadvantaged neighborhoods as defined by metrics from income, percentage of uninsured citizens, and rates of chronic disease such as diabetes or asthma. …
“In addition, a minimum monetary value of charity care can be required. For example, Illinois only provides hospital tax credits at ‘the cost of free or discounted services provided.’ By following this monetary threshold strategy, other states can make sure that qualifying charity care truly benefits the lives of their patients.
“Congressional leaders should work with the IRS in narrowing the ‘community benefit’ standard for nonprofit hospitals,” Hsiang concludes. “The stakes have never been higher in getting these regulations right so that underserved communities can receive the charity care that they so desperately need.”
What you can do
DollarFor has expertise and resources in finding charity care. Here’s a listing of state charity care laws.
She turned a $6,000 hospital bill into a $466 bill when we connected her to DollarFor.
Is your hospital a non-profit? Some non-profits are required to provide financial assistance to patients with income up to 400% of the federal poverty level. You can find federal poverty income guidelines here. The National Consumer Law Center has more details in its recent review of hospital financial assistance policies across the country.
Here’s a toolkit from Communiity Catalyst to use if your medical debt has been sent to collections.
Our post on finding a grant to pay for healthcare.
The PAN Foundation has information on funds for specific illnesses and conditions
.Patient-led groups can be a good source of information. Here’s a listing from Susannah Fox, author of “Rebel Health,” of a number of such groups.
The Alliance of Professional Health Advocates has listings of advocates. If you’re going to hire one, check credentials and be sure of charges.
Often a hospital has a patient advocate or financial aid office — which people often don’t know about.
Pro tip: Sometimes a hospital website will direct you to “financial aid” and then offer you a consumer loan or credit card or similar. Be wary: These forms of financing act like consumer debt, and will affect your credit differently than the kind of financial aid known as charity care.
