Of the 4,926 community hospitals in the United States, the majority, about 58 percent (2,870) are not-for-profit. About 21 percent (1,053) are for-profit, and the remainder are owned by state and local governments. Hospitals serve communities by caring for the sick, but they’re also often billion dollar enterprises and tension between the mission and business model of nonprofit hospitals is growing.
Nonprofit hospitals are expected to benefit their community in exchange for their tax-exempt status. Hospitals have most commonly fulfilled this obligation by providing uncompensated care, or charity care. However, this has historically been poorly regulated. A 2013 study found that on average nonprofit hospitals spent 7.5 percent of their operating expenses on community benefit activities, and 85 percent of that was charity care. However, there was major variation in the amount allocated to community benefit, ranging from 1 percent to 20 percent.
The Affordable Care Act introduced new community benefit reporting requirements for nonprofit hospitals in an effort to bring more clarity and accountability to the amount and quality of “community benefits” delivered in exchange for 501(c)3 tax exemption. The value of the nonprofit tax exemptions for hospitals is significant: it was estimated at almost $25 billion in 2011. For states and municipalities in particular, the foregone tax revenue is nontrivial, especially as their taxes bases were squeezed by the burst of the housing bubble in 2008. It should be little surprise, then, that municipalities have started to scrutinize the tax exemptions for nonprofit hospitals.