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What the Supreme Court’s ACA Ruling Might Mean for Nonprofit Hospitals

By Jacob Madden

California v. Texas, a pending Supreme Court case that concerns the constitutionality of the Affordable Care Act (ACA)’s individual mandate, could have profound implications for the standards to which nonprofit hospitals are held.

The ACA’s individual mandate requires people to have health insurance or otherwise pay a penalty. While the Court previously upheld the individual mandate as being constitutional under Congress’ taxation power in the 2012 case National Federation of Independent Business v. Sebelius, it may not do so again. For one, the 2017 Trump tax cuts effectively eliminated the individual mandate’s penalty, raising the question of whether the individual mandate is still a valid exercise of Congress’ taxation power. And conservative Judge Amy Coney Barrett’s confirmation, filling the late Justice Ruth Bader Ginsburg’s seat, has significantly changed the composition of the court.

If the Court strikes down the individual mandate, the rest of the ACA could be in jeopardy, depending on the specifics of the ruling. The Court has several options: sever the individual mandate from the ACA and keep the ACA alive, strike down the ACA in part, or strike down the ACA entirely.

The immediate concern, should the Court strike down the ACA entirely, is that tens of millions of Americans likely would lose their health insurance and other protections afforded by the law. Another, albeit lesser known concern, is that we would lose § 501(r).

Fundamentally, § 501(r) makes nonprofit hospitals more accountable to the communities they serve.

26 U.S.C. § 501(r) was passed as part of the ACA in 2010. All nonprofit organizations are governed by 26 U.S.C. § 501(c)(3). Nonprofit organizations must be “organized and operated exclusively for religious, charitable, scientific” or other purposes and cannot have any “part of the net earnings … [go] to the benefit of any private shareholder or individual.” Section 501(r) provides four additional requirements for nonprofit hospitals:

  1. Conduct a community health needs assessment every three years and adopt a strategy to address identified needs.
  2. Establish and publicize a financial assistance policy.
  3. Limit charges for emergency or necessary care for those eligible for financial assistance.
  4. Make reasonable efforts to determine if someone is eligible for financial assistance before pursuing extraordinary collection actions.

According to the American Hospital Association’s 2018 annual survey, nonprofit hospitals, defined as nongovernment not-for-profit community hospitals, make up nearly 48% of our nation’s hospitals. While nonprofit hospitals are legally prohibited from earning a profit, according to a 2016 Health Affairs study, out of the ten most profitable hospitals in the nation, seven are nonprofits. And, as the ultimate perk of their nonprofit status, nonprofit hospitals are tax exempt. This is particularly interesting considering the fact that in 2011, according to another Health Affairs study, the total value of the tax exemption for all nonprofit hospitals was $24.6 billion.

Where is all this money going, then? As part of their tax-exempt status, nonprofit hospitals are required to provide “community benefit.” According to the Internal Revenue Service, this means a hospital has to demonstrate that it provides benefits to the community it serves. This could include, for example, operating an emergency room open to all regardless of ability to pay, using surplus funds (profits) to advance medical training, education, and research, or using surplus funds to improve facilities and equipment. But without a clear definition of what counts as “community benefit,” many have questioned whether nonprofit hospitals are really paying their fair share, or if they are using their “surplus funds” to pay for massive executive salaries and needless facility enhancements.

This is where § 501(r) has changed the game. Nonprofit hospitals have to show how they are benefitting their communities. They have to make it clear when people are eligible for financial assistance. They are prevented from taking immediate action against those struggling to pay for lifesaving care.

Even though the ACA has faced immense opposition since its passage, § 501(r) has received largely bipartisan support. If the Court rules to strike down the ACA, there is no reason Congress cannot and should not reimplement § 501(r). Keeping § 501(r) alive should not be an afterthought. It should be a priority.


Jacob Madden is a second-year student at Yale Law School.

The Petrie-Flom Center Staff

The Petrie-Flom Center staff often posts updates, announcements, and guests posts on behalf of others.

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