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Tax status changes could threaten nonprofit hospital services

New fiscal barriers created by state and local governments are reducing the ability of nonprofit hospitals to provide needed services, according to the Association for Healthcare Philanthropy.

"Nonprofit hospitals and healthcare organizations are having their tax-exempt status questioned and eliminated by state and local governments seeking any source of additional funds no matter who is hurt in the long run," said AHP President and CEO William C. McGinly.

McGinly said lawmakers in some states are claiming that nonprofit healthcare organizations and hospitals don't provide enough community benefit and are trying to strip hospitals of their tax-exempt status. Other states have attempted to extract funds from nonprofits by eliminating specific tax exemptions and instituting new fees and taxes, he said.

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The rationale behind taking away the tax exemptions derives from lawmakers' unclear understanding of the community benefit, McGinly said.

"Unfortunately, many Americans and their political leaders are uneducated about the definition of community benefit and equate it to charity or indigent care alone," he said.

Sixty percent of all community hospitals operate as nonprofits, and 23 percent of community hospitals are owned by the state or local government.

Greg Pope, vice president of philanthropy for the Saint Thomas Health Services Foundation of Nashville, Tenn., said studies document that nonprofit healthcare organizations deliver significantly more community benefit than their for-profit counterparts.

"Moves to revoke charity status of nonprofit healthcare organizations are shortsighted and would likely result in cutbacks in critical healthcare services that cities and states rely upon nonprofits to provide," said Pope. "Nonprofit hospitals ... have historically played and continue to play a key role in the financing and delivery of healthcare in the United States because they are bound by their missions to 'do good' for the benefit of the communities they serve."

Pope said "charity care" is too narrow a definition of community benefit, and the grounds for tax-exemptions earned by nonprofit health organizations range far beyond care for the indigent.

According to the Alliance for Advancing Nonprofit Health Care, community benefits provided by nonprofit healthcare organizations go beyond charity care and include:

  • Charging no fee or a discounted fee to uninsured, under-insured, low-income or medically indigent patients.
  • Providing unprofitable healthcare services such as trauma care, burn care and outreach to primary care and preventive services.
  • Supporting and participating in community-wide health planning efforts.
  • Providing and supporting medical education and research.
  • Conducting community development projects to improve housing, jobs, the physical environment, child or adolescent education, etc.
  • Making donations to other nonprofit organizations in the community.

The AHP's most recent Report on Giving also suggests that the range of activities supported by charitable giving is broader than narrowly-defined charity care.

Of the $8.6 billion raised by healthcare organizations' development offices and philanthropic foundations in FY 2008, just more than 6 percent were used to support charitable care, whereas 25 percent supported construction and renovation, 20 percent was expended on new equipment purchases and 16 percent was used on general hospital operations.