A report from financial firm Ernst and Young, commissioned by the American Hospital Association, shows that the federal revenue forgone due to tax-exempt nonprofit hospitals is far outweighed by the community benefit these facilities deliver.
Ernst and Young used estimates from 2013, which is the most recent year for which the information was available from the hospitals. The estimates are based Medicare hospital cost reports for roughly 3,000 nonprofit general hospitals. The reports were not audited financial reports, but were filed with the federal government.
The report results showed that in 2013, the estimated tax revenue forgone thanks to the tax-exempt hospitals' status totaled $6 billion. However, those hospitals contributed an estimated $67.4 billion to their community's health, 11 times more than the tax revenue forgone.
Four items included in the total benefit were: financial assistance and means tested government programs and other benefits; community building activities; medicare shortfall; bad debt attributable to charity care.
Of the $67.4 billion of community benefits, $34.7 billion was comprised of financial assistance, unreimbursed Medicaid, and other unreimbursed costs from means-tested government programs, and the remaining $32.6 billion reflected all other community benefits provided.
Tax-exempt, nonprofit hospitals have come under greater scrutiny in the last 1-2 years, as their operations can skew from being entirely nonprofit to a hybrid of nonprofit and profitable activities as they look for ways to bring revenue in and form beneficial partnerships. A new precedent was set, and many hospital leaders were set on edge, when the IRS revoked a hospital's tax-exempt status in August.
The move likely sent a chill down the collective spine of many organizations, who rely on the status to keep from paying sizeable tax bills, and opening gaps in already-problematic budgets. The report, at a minimum, shows a sizeable community contribution by these hospitals, who often serve the under or uninsured and other disadvantaged or high-risk populations while simultaneously struggling with low reimbursement rates from the programs that cover them.