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Hospitals can truly benefit communities by going beyond the IRS standard

The “community benefit” standard may hold the key to persuading hospitals to become stronger allies in improving health equity. Rethinking this standard is long overdue and could lead to hospitals making more meaningful contributions to their communities, both as healthcare providers and socioeconomic drivers. 

U.S. nonprofit hospitals are required to maintain their tax-exempt status by benefiting their communities. Though the community benefit standard has undergone regular scrutiny by lawmakers since its formal establishment, scrutiny has not yet fallen on the outcomes of community benefit efforts or even aspirations. 

Instead, the focus is on whether dollar amounts are commensurate with the benefits of tax exemption, which most often includes providing health care services at a reduced cost for low-income individuals. Such efforts, valuable in their own right, do little to improve health at a community level since they prioritize care once people are already quite sick. In fact, the Government Accountability Office acknowledges that a hospital can meet the community benefit standard without directly benefiting its local community.  

In other words, the community benefit standard fails to drive community health improvement. 

Hospitals’ community benefit investments simply do not address factors that affect our health and make us sick. In a now-famous analogy, hospital charity care, the primary form of community benefit that hospitals provide, is akin to pulling drowning individuals out of a rushing river while ignoring the factors pushing people into the river upstream.

Hospitals are large institutions embedded into communities and economies as much as they are health care organizations. They are both health care providers and economic drivers. While most Americans are familiar with the acute medical services hospitals provide, hospitals also often serve as anchor institutions that employ community members and contribute to economies by purchasing large quantities of goods and services from local companies. Community benefit standards still do not acknowledge or encourage hospitals’ efforts to fulfilling this dual role.

After all, most U.S. healthcare dollars are spent in hospitals. We know that investments made to prevent illness are most effective, especially when they address the social determinants of health that are responsible for costly chronic illnesses. Investments to improve the health of local communities have great potential to improve everyone’s health, thereby promoting health equity. Interventions to improve access to care, the most common current form of community benefit, will not move the needle on persistent health inequities. 

New incentives are needed that encourage hospitals to benefit their community beyond the standard provision of patient care. To start, policymakers can and should leverage the community benefit standard. Requiring hospitals to devote a percentage of community benefit dollars to actual community health investments would be one concrete step toward crystallizing the expectation for hospitals to engage their local communities and contribute to improving health equity. 

Requiring that investments benefit the communities in which they are located is also critical. Doing so ensures that localities are receiving true public health benefits to replace any tax revenues that a similarly large business would otherwise provide. The requirement of hospitals to perform community health needs assessments (CHNAs) established by the Affordable Care Act offers a ready-made guide to addressing a community’s most pressing health needs; several states have already taken steps to mandate hospital actions in response to needs that emerge from CHNAs, and such models could be used to guide federal policy changes.  

Holding hospitals accountable for how their community benefit activities advance health equity could ensure that investments are made to improve the health of all community members, including people who are unable to access formal medical services or are otherwise marginalized in their communities. 

Shifting tax incentives for nonprofit hospitals may seem insurmountable, but the community benefit standard can be leveraged to create meaningful changes. All it takes is an acknowledgment that hospitals play multiple and equally critical roles in their communities, which current IRS regulations overlook.

Cory E. Cronin is an associate professor of Health Sciences and Professions (Twitter:@AnchoringHealth) and Berkeley Franz is an associate professor of Community-based Health, Ohio University. Brian Gran is a sociologist and lawyer on the faculty of Case Western Reserve University (Twitter:@ScienceRights).

Tags Healthcare industry nonprofit sector Tax exemptions

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