By Kevin Stone, Heartland Institute
U.S. hospitals receive nearly $40 billion annually in federal and state tax benefits through their nonprofit status, yet are coming up short in meeting their “community benefit standard,” testimony at a House Ways and Means Committee hearing revealed.
Ways and Means chairman Jason Smith recounted key moments from the September 16 hearing in a news release.
“The generous benefits bestowed on tax-exempt hospitals come with an obligation on their part to provide charitable benefits to their communities,” said Smith. “Yet, we have data showing that from 2020 to 2022, over half of such hospitals got more in tax benefits than they invested in their community. In 2020 alone, the tax-exempt benefit was worth an estimated $28 billion, while the amount spent on charity care totaled over $10 billion less.”
Hospitals Define Giving
Hospitals overstate the amount of “community benefit” they provide, the Government Accountability Office (GAO) says, because clear guidance is lacking.
“(The) IRS (Internal Revenue Service) does not have authority to specify activities hospitals must undertake and makes determinations based on facts and circumstances,” stated GAO. “As a result, tax-exempt hospitals have broad latitude to determine the community benefits they provide, but the lack of clarity creates challenges for IRS in administering tax law.”
In 2020, GAO recommended Congress specify what constitutes a “community benefit.”
“As of April 2023, Congress had not enacted such legislation,” stated GAO.
Mission Creep
Witnesses at the September 16 hearing testified hospitals have been straying from their core mission and moving into unrelated activities and initiatives.
“One of the reasons that this imbalance has grown so much is that increasingly hospitals don’t see themselves as just health care providers, or even as hospitals,” said William Hild, executive director of Consumers’ Research. “In the report we put out, one of the common themes across all of the executive C-suites of these hospitals was that they only saw health care as part of their mission—or highlighting other things that they thought were core to their mission that a reasonable person would not consider part of providing health care.
“I think the mission creep of a lot of these hospitals getting into real estate investment, getting into DEI, getting into political activism, naming stadiums, this shows a lack of discipline in making sure that they stay within the health care provision,” said Hild. “I think that’s part of the issue is you have a massive mission creep.”
Social Activism
Hospitals are using tax exemptions, a taxpayer expense, to engage in activism, testified Stanley Goldfarb, M.D., chairman of Do No Harm, a health care policy organization.
“At Massachusetts General Hospital, administrators announced in April 2024 that they would scale back child neglect and abuse reports from mothers who test positive for drugs, because they feared that mandatory reporting was perpetuating what they called ‘structural racism,’” said Goldfarb.
There are other examples, said Goldfarb.
“Duke University Health System, which received over $1 billion in federal funding in fiscal year 2023 alone, was the subject of a federal rights complaint in March of this year for implementing race-based preferences in hiring and medical school admissions while promoting the notion that white males are ‘agents of oppression,” said Goldfarb.
“Corewell Health in Michigan required every employee to sign a pledge in support of DEI or risk termination,” said Goldfarb. “Just two years ago, the Mayo Clinic pledged $100 million for indoctrination sessions about microaggressions and eliminating systemic biases and the supposed dangers of ‘color blindness’ and meritocracy.”
Market Manipulation
Government wrongly uses tax policy to control markets, says Michael Cannon, director of health policy studies at the Cato Institute.
“The culprit behind increasing concentration in the health sector is the reason the health sector is experiencing a bubble: excessive government intervention,” said Cannon. “Social engineering through the tax code, government subsidies, and regulations reward scale and encourage market concentration in health care.
“The purpose of a tax should be to raise revenue at the lowest possible cost,” says Cannon. “Tax policy should not give the government the power to engage in social engineering or to interfere in the activities of private businesses.”
Industry Interests
The definition of community benefit has expanded to serve the hospital industry, not the community, says Linda Gorman, director of the Health Care Policy Center at the Independence Institute.
“The Hill-Burton Act of 1946 defined the community benefit as free care for those who could not pay,” said Gorman. “This grew into providing uncompensated care, which includes care provided at a discount. By 2005, the GAO found that services such as parenting education, fitness, health screening, cash donations to community organizations, coordination of unspecified community events, and hospital facility and other infrastructure improvements were included.”
The expansion of criteria allows hospitals to use the exemption to their advantage, says Gorman.
“The definitional creep has turned community benefit spending into just another slush fund used for the benefit of the well-connected,” said Gorman.
Writedown ‘Charity’
Hospitals have expanded the definition of community benefit to include accounting and billing, says Devon Herrick, a health care economist at the Goodman Institute Health Blog.
“Hospitals claimed community benefits of $33 billion for things like research and education,” said Herrick. “Hospitals even argue that they suffer a Medicaid shortfall that is a community benefit worth $41 million. Some even want to add $26 billion in [patients’] bad debts to the so-called community benefit.
“Some analysists have found for-profit hospitals who pay taxes provide about as many community benefits as the nonprofits,” said Herrick.
Kevin Stone (kevin.s.stone@gmail.com) writes from Arlington, Texas.
