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To collect comparable data, the IRS has recently developed new rules that hospitals are required to follow when reporting their community benefits. 4, 5 For example, some hospitals historically assessed the value of their charity care at full charges, but it is commonly recognized that few insurers actually pay the full charges. One possible reason is that hospitals have determined their community benefits in different ways. 2, 3 However, there has not been a systematic comparison of the value of the tax exemption to the community benefit for a national sample of hospitals. Policymakers and analysts over the past decade have increasingly voiced concerns that nonprofits were not meeting this standard and there have been numerous high-profile examples of nonprofits being sued over minimal community benefits. There is an expectation that nonprofits provide sufficient community benefit to justify their tax-exempt status. Sara Rosenbaum and colleagues estimated the value of the nonprofit hospital tax exemption to be $24.6 billion in 2011. The value to a nonprofit hospital of being granted 501(c)(3) status by the Internal Revenue Service (IRS) includes both the direct benefits of being exempt from various federal, state, and local taxes and the indirect benefits of receiving charitable donations and issuing tax-exempt bonds. Policymakers should be aware that the tax exemption is a rather blunt instrument, with many nonprofits benefiting greatly from it while providing relatively few community benefits.Īpproximately 60% of community hospitals in the United States are nonprofit hospitals. The incremental community benefit exceeds the tax exemption for only 62% of nonprofits. We find that the value of the tax exemption averages 5.9% of total expenses, while total community benefits average 7.6% of expenses, incremental nonprofit community benefits beyond those provided by for-profits average 5.7% of expenses, and incremental charity alone average 1.7% of expenses. We contrast nonprofit’s total community benefits to what for-profits provide and distinguish between charity and other community benefits. We use 2012 data from the Internal Revenue Service (IRS) Form 990, Centers for Medicare and Medicaid Services (CMS) Hospital Cost Reports, and American Hospital Association’s (AHA) Annual Survey to compare the value of community benefits with the tax exemption. The tax-exempt status of nonprofit hospitals has received increased attention from policymakers interested in examining the value they provide instead of paying taxes.
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