Logan Reid
Nonprofit hospitals in the US have been found to earn substantial profits, with seven out of the ten most profitable hospitals in the country in 2013 being nonprofits, each earning over $163 million in profits from patient care services. These hospitals also received $37.4 billion in tax benefits in 2021, with benefits including federal income tax, sales tax, and property tax exemptions. While the majority of US hospitals lost money caring for patients, a small percentage made large profits, with the most profitable being the Gundersen Lutheran Medical Center in Wisconsin, which made $302.5 million in profits. Nonprofit hospitals are expected to provide charitable care and community benefits in exchange for their tax exemptions, but there is a growing gap between their profits and cash reserves and their charity care spending.
| Characteristics | Values |
|---|---|
| Number of nonprofit hospitals in the U.S. | Nearly 3,000 |
| Total tax benefits received in 2021 | $37.4 billion |
| Federal income tax benefits | $11.5 billion |
| Sales tax benefits | $9.1 billion |
| Property tax benefits | $7.8 billion |
| State and local tax benefits | $20.1 billion |
| Nonprofit hospitals with highest net patient revenue | New York-Presbyterian Weill Cornell Medical Center, Tisch Hospital |
| Nonprofit hospitals among the most profitable in 2013 | Gunderson Lutheran Medical Center, Sutter Medical Center, Stanford Hospital and Clinics, Norton Hospital, Hospital of the University of Pennsylvania, Sacred Heart Medical Center, Carle Foundation Hospital |
| Number of hospitals evaluated for community investment | 2,425 |
| Combined fair share deficit for hospitals studied | $25.7 billion |
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What You'll Learn
Nonprofit hospitals earned substantial profits in 2013
Nonprofit hospitals in the US earned substantial profits in 2013, with seven of the ten most profitable hospitals being nonprofits, according to research from Johns Hopkins Bloomberg School of Public Health and Washington and Lee University. The findings, published in the journal Health Affairs, revealed that while most US hospitals lost money on patient care, a small percentage generated substantial profits. The study analysed around 3,000 acute care hospitals, of which 59% were nonprofits, 25% were for-profit, and 16% were public.
The research highlighted that hospitals that were part of a larger system tended to be more profitable, likely due to their ability to negotiate higher prices from insurers. Additionally, hospitals with the highest price markups earned the largest profits. The fee-for-service model used by Medicare and Medicaid in 2013 incentivised hospitals to conduct more tests and procedures to increase revenue. This model has been phased out in favour of a value-based model that rewards hospitals for patient outcomes.
The top three nonprofit hospitals with the highest profits in 2013 were:
- Gundersen Lutheran Medical Center, La Crosse, WI: $302.5 million
- Sutter Medical Center, Sacramento, CA: $271.9 million
- Stanford Hospital and Clinics, Palo Alto, CA: $224.7 million
Nonprofit hospitals have certain financial advantages, such as tax exemptions and deductions, which contribute to their profitability. They are exempt from most federal and state taxes and can issue tax-exempt bonds. Additionally, they receive tax-deductible contributions, with the expectation that they will reinvest the proceeds into community benefit initiatives. However, there have been concerns about whether these hospitals are allocating enough funds towards charitable care and community investments.
Nonprofit hospitals also build financial reserves to maintain financial stability and ensure they can meet the medical needs of their communities during challenging times. These reserves are crucial for covering capital costs, maintaining facilities, and investing in new projects. While nonprofit hospitals provide valuable community benefits, there is a growing emphasis on balancing profitability with reasonable pricing and reinvesting profits into community services.
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Nonprofit hospitals received $37.4 billion in tax benefits in 2021
Nonprofit hospitals in the United States received approximately $37.4 billion in tax benefits in 2021, according to a study by researchers at the Johns Hopkins Bloomberg School of Public Health, Johns Hopkins Carey Business School, and Texas Christian University. The study, which analysed the latest financial data from nearly 3,000 US nonprofit hospitals, found that these tax benefits were larger than previously estimated, varied widely across states, and were mostly comprised of state and local-level benefits.
The central finding of the study was that nonprofits received a total of $37.4 billion in benefits, including federal income tax benefits ($11.5 billion), sales tax benefits ($9.1 billion), and property tax benefits ($7.8 billion). This is significantly higher than the estimated $28 billion in tax benefits received by nonprofit hospitals in 2020. The study also revealed that about 55% of the total benefits came from state and local tax benefits, with federal income tax making up 31%, sales tax 24%, property tax 21%, and state income tax 10%.
The analysis further showed that these tax benefits were concentrated among a small number of hospitals, with about 7% of the nearly 3,000 nonprofit hospitals included in the study accounting for half of the total tax benefits. This variation was attributed to factors such as hospital location and financial standing, with hospitals in wealthier areas and those with higher incomes receiving greater tax benefits.
The study highlights the ongoing debate around the value that nonprofit hospitals bring to their communities compared to the tax benefits they receive. While nonprofit hospitals are expected to provide charitable care, their sources of financial support have shifted towards paying patients and insurers, leading to practices similar to for-profit hospitals. Additionally, studies suggest that many nonprofit hospitals may not be providing sufficient community benefits to justify their tax-exempt status.
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Nonprofit hospitals have higher net patient revenue
Nonprofit hospitals in the US received $37.4 billion in tax benefits in 2021, according to a study by researchers at Johns Hopkins Bloomberg School of Public Health, Johns Hopkins Carey Business School, and Texas Christian University. The study analysed the latest financial data from nearly 3,000 US nonprofit hospitals and found that tax benefits were larger than previously estimated, varying widely from state to state and concentrated among a small number of hospitals.
Nonprofit hospitals have two main sources of funding: revenue from operations and patient services, or borrowing funds by issuing debt in bond markets. They use these funds to build strong financial reserves to meet medical needs, even during financial distress. While nonprofit hospitals are expected to provide community benefits, some practices, such as debt collection from patients, resemble for-profit hospitals.
In 2013, seven of the ten most profitable hospitals in the US were nonprofit, each earning over $163 million in profits from patient care services. The fee-for-service model incentivised hospitals to conduct more tests and procedures to earn more money. The most profitable nonprofit hospital, Gundersen Lutheran Medical Center, earned $302.5 million, or $4,241 per patient.
Nonprofit hospitals with higher net patient revenue tend to be located in major cities or heavily populated states. New York-Presbyterian Weill Cornell Medical Center, for example, tops the list for both net patient revenue and number of discharges. Its location in a large city contributes to its higher net patient revenue. Children's hospitals also tend to have higher net patient revenue due to their reliance on commercial insurance over Medicare.
While nonprofit hospitals provide community benefits, they also receive substantial tax benefits and can generate high profits from patient care services. Their practices sometimes resemble those of for-profit hospitals, and they may not always invest sufficiently in their communities.
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Nonprofit hospitals have more cash reserves
Nonprofit hospitals have been found to have substantial cash reserves, but these reserves do not always translate into increased charity care or community investment. While these hospitals are exempt from most federal and state taxes, they are expected to direct proceeds to community benefit. However, studies have shown that many nonprofit hospitals have lower ratios of charity care to total expenses than for-profit hospitals.
In a study of changes in hospital profits and charity care spending from 2012 to 2019, it was found that while nonprofit hospital operating profits and cash reserves increased significantly, there was no corresponding increase in charity care. This trend was also observed in a survey that found that 41% of adults have debt caused by medical or dental bills, with 24% having past-due or unpaid bills. The allocation of nonprofit hospital profits toward cash reserves instead of charity care has important policy implications and can ease the financial stress faced by families in the US.
Nonprofit hospitals also receive substantial tax benefits, estimated at $37.4 billion in 2021, which include federal income tax, sales tax, and property tax benefits. These benefits are expected to be reinvested in the community, but there is criticism that this is not always the case. Of 2,425 nonprofit hospitals evaluated, 80% spent less on financial assistance and community investment than the estimated value of their tax breaks, resulting in a combined fair share deficit of $25.7 billion for 2021.
While cash reserves are essential for financial stability, especially during financial crises, the accumulation of profits and reserves by nonprofit hospitals has raised questions about their commitment to community benefit. Hospitals with more days of cash on hand have better access to resources for investment and growth and may qualify for lower interest rates when borrowing. However, the prioritization of market expansion and financial gain over community benefits has led to criticism of the nonprofit hospital model.
In summary, nonprofit hospitals have significant cash reserves, but the allocation of these reserves toward charity care and community investment remains a concern. The substantial profits and tax benefits enjoyed by these hospitals have led to expectations of increased community support, which has not always been reflected in their spending. As a result, there are ongoing discussions about the role and responsibilities of nonprofit hospitals in serving their communities.
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Nonprofit hospitals spend less on community investment
Nonprofit hospitals in the US received $37.4 billion in tax benefits in 2021, according to a study by researchers at Johns Hopkins Bloomberg School of Public Health, Johns Hopkins Carey Business School, and Texas Christian University. The study analysed financial data from nearly 3,000 US nonprofit hospitals and found that tax benefits were larger than previously estimated, varied widely from state to state, and were mostly comprised of state and local-level benefits.
Despite receiving substantial tax benefits, many nonprofit hospitals have been criticised for not investing enough back into their communities. A report by the Lown Institute evaluated the "Fair Share Spending" of 2,425 private nonprofit hospitals by comparing their spending on financial assistance and community investment to the value of their tax exemption. The report found that 80% of hospitals spent less on these areas than the value of their tax breaks, resulting in a combined fair share deficit of $25.7 billion for 2021. This deficit could have been used to erase 29% of the country's medical debt.
Some specific examples of hospitals with significant fair-share deficits include Massachusetts General Hospital in Boston, with a deficit of $179 million, and the University of Michigan Health System in Ann Arbor, with a deficit of $169 million. On average, hospitals spent 3.87% of their budget on community investments, but this proportion varied widely. For instance, the Hospital of the University of Pennsylvania spent only 0.25% of its budget on community investments, while North Shore University Hospital spent 8.84%.
The discrepancy between tax benefits and community investment has led to questions about the nonprofit designation of these hospitals. According to the Government Accountability Office (GAO), it is challenging for the IRS to verify community benefits due to ambiguous standards and a lack of transparency in reporting. As a result, there have been concerns about potential noncompliance with nonprofit hospital standards, with evidence suggesting that some hospitals may have had no community benefit spending in certain years.
To address these issues, policymakers have suggested encouraging nonprofit hospitals to invest in expanding access to affordable housing and improving accountability for meeting community benefit obligations. Clarifying ambiguous community benefit standards in the US tax code and strengthening monitoring and enforcement of compliance can help ensure that nonprofit hospitals are providing meaningful benefits to the communities they serve.
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Frequently asked questions
No. Nonprofit hospitals in the US received $37.4 billion in tax benefits in 2021, according to a study.
The study analyzed financial data from nearly 3,000 US nonprofit hospitals.
The study found that tax benefits were larger than previously estimated, varied widely from state to state, and were mostly state- and local-level benefits.
The study highlights the need to examine the benefits derived by nonprofit hospitals from their status. It also raises questions about the justification for favorable tax treatment of nonprofit hospitals if they do not provide sufficient charitable care.
