Hospitals and health systems more than earn their tax exemption

Each hospital and health system provides benefits to their communities that far exceed any other sector of health care. What commercial health plan or drug or medical device company has ever responded to a child’s heart attack, car accident, or midnight fever with open doors and compassionate care? But that’s what hospitals do every day.

Some hospitals are exempt from federal and some state and local taxes. Because of this privilege, they diligently report publicly the array of benefits and services they provide to their communities, one of which is financial assistance to those in need. The reports that hospitals file each year with the IRS report and describe these benefits.

Year after year, these benefits add up to hundreds of billions of dollars, including $110 billion in 2019 alone. the most recent year for which comprehensive data is available. And that’s just for the benefits the IRS counts, not the many other programs, services and activities, like medical research and grants to keep burn units and neonatal units open, that aren’t. About half of these total benefits are for financial assistance and the funds needed to make up for the underpayments endemic in the government’s health insurance program for the needy.

These same hospitals also update their community needs assessment every three years, in which they involve the broader community in determining what widespread health problems they need to address, such as maternal health, opioid abuse and childhood asthma. What commercial health plan or drug or medical device company does this?

The highly respected international firm EY looked at how the tax-exempt benefits hospitals provide compare to their federal tax exemptions. And every time, EY confirms what an incredible return it is for taxpayers. Last year’s report showed the spread was 9 to 1—for every $1 in discharges, reporting hospitals provided $9 in community benefit. Unlike a recent analysis by the Kaiser Family Foundation (KFF), which took a much narrower view, EY looks at the full range of community benefits, not just financial aid – a much fairer and more comprehensive way of measuring how much hospitals return. Also, EY doesn’t use fuzzy math when factoring charitable contributions into its calculations. These same funds would likely be donated to perhaps less worthy causes than hospitals, so they should not be considered a loss to the US treasury.

Another notable omission was KFF’s analysis of state tax exemptions—always difficult to quantify given the differences in each state’s tax policies—because it failed to note the growing trend for hospitals and health systems to be required to pay payments in lieu of taxes ( PILTs) to their local authorities, some of which are very substantial. For example, Boston hospitals paid over $20 million in PILT in 2022 alone.

It is a mystery why any analysis would focus only on the benefit of financial aid and seemingly ignore everything else that hospitals do for their communities. Haven’t we learned once again during the pandemic that hospitals are the first to step up to serve their patients and communities? Whether it’s funding the development of tests for COVID-19 after failures by public health agencies, expanding treatment capacity as COVID-19 cases rise, setting up vaccine clinics or launching insurance awareness campaigns of community-wide access to vaccines, hospitals are always there, ready to care. To downplay all the work they do to treat, heal, improve and comfort their communities is a huge disservice to all who rely on our nation’s hospitals and health care systems for care.

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