Are nonprofit hospitals holding up their end of the tax-free bargain?

Are nonprofit hospitals holding up their end of the tax-free bargain?
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Tax exemptions are estimated to save nonprofit hospitals over $24 billion annually. In return, the hospitals are expected to invest these would-be tax dollars into caring for underserved patients (“charity care”) and improving the health of their communities. In order to maintain their nonprofit status, Congress requires hospitals to rigorously examine communities with a formal Community Health Needs Assessment (CHNA) and document how they are addressing those needs with an implementation strategy. Rather than making these responsibilities central to their mission, our recent work suggests many hospitals are simply checking the CHNA box on their IRS forms and mailing them in.

This is unfortunate, because we need hospitals now more than ever. The events of the past year have illuminated two major deficits in the American health care system: Insufficient progress towards health equity and chronic underinvestment in public health.

The lack of public health infrastructure (i.e. siloed agencies, data collection and exchange challenges, under trained workforce) stems from a substantial decrease in federal support over the past 40 years. In many towns and cities, the local hospital serves as the most important public health resource. During the COVID pandemic, hospitals not only cared for the sickest patients, but also filled gaps in public health infrastructure by leading COVID testing and vaccination efforts.

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We recently reviewed 500 nonprofit hospitals to see if they were holding up their end of the bargain. We found that 16 percent didn’t have publicly available CHNAs and 25 percent didn’t have an implementation strategy. Of the available CHNAs, 25 percent of hospitals aren’t posting resources available to invest in community health and over 40 percent aren’t describing how they are evaluating their community health improvement efforts. Among the hospitals that reported implementation strategies, fewer than half were rated as high quality. 

Given the billions of dollars in tax breaks that hospitals receive, this substandard transparency calls into question how diligently nonprofit hospitals are partnering with and striving to improve their communities’ health and well being.

Federal policymakers must act to ensure that taxpayers are getting a reasonable return on their investment. Here is what they can do to implement stronger standards for hospital transparency and accountability.

First, health equity should be central to hospitals’ community needs assessment and implementation strategy processes. The IRS should require hospitals to report how their investments have improved community health — particularly for marginalized groups — and account for how their actions impacted health disparities in the area.

Next, to promote transparency, policymakers should establish an online CHNA rating system. Medicare has star ratings for things like hospital readmission, patient experience, and safety; restaurants have cleanliness ratings from local departments of health. Why not adopt a similar system which incorporates input from community stakeholders and holds hospitals accountable for addressing their health needs?

Finally, to achieve greater hospital accountability, the federal government should develop a community health investment standard that ensures hospitals’ tax benefits are justified. Policymakers can learn from The Lown Institute’s Hospital Index. The publicly available index provides an analysis of over 3,000 hospitals nationwide and compares their tax benefits against their community benefit spending. Using such a system, the government could determine which hospitals are paying their fair share in community health investments and base tax incentives and penalties accordingly.

To be sure, during a public health emergency a hospital’s focus should be providing life-saving treatment, not navigating through administrative burdens. And of course, running a hospital is challenging and many are financially strained. In fact, over 130 have closed in the past decade in rural areas alone. Yet at the same time, many nonprofit hospitals are quite stable financially, benefiting from years of consolidation and enhanced negotiating power, with generous CEO salaries and hefty growth in assets. 

If hospitals expect to maintain their tax-exempt status, it's time they start delivering on their commitments to the public.

Leo Lopez III, MD, MHS is the senior director for Equity and Evaluation at NYC Health + Hospitals and a clinical assistant professor in the Department of Population Health at NYU Grossman School of Medicine.

Cary Gross, MD, is a professor of Medicine (general medicine) and Epidemiology at the Yale School of Medicine and director of the National Clinician Scholars Program at Yale. 

The opinions expressed in this piece are solely the authors and don't reflect the views of NYC Health + Hospitals, the NYU Grossman School of Medicine or the Yale School of Medicine.