Retired cardiologist says hospitals' quest for profits fuels higher healthcare costs

Four of the 10 hospitals that earned the largest profits from patient care services in 2013 were nonprofit, and the value of the nonprofit hospital tax exemption has grown significantly in recent years. Without action by Congress, nonprofit hospitals' earnings will continue to grow, according to a recent commentary in The American Journal of Medicine by Robert M. Doroghazi, MD.

Dr. Doroghazi, a retired cardiologist and publisher of The Physician Investor, says nonprofit hospitals' earnings began to soar in 1969 when the IRS eliminated charity care as the requirement for tax-exempt status and replaced it with community benefit.

"The less well defined requirements allowed hospitals to substitute programs in community health improvement and determinants of health for direct charity care," wrote Dr. Doroghazi.

Under the new requirements for tax-exempt status, the value of the nonprofit hospital tax exemption increased. A study published in Health Affairs in 2015 estimates tax-exempt hospitals across the nation received a collective $24.6 billion tax break in 2011, up from the congressional Joint Committee on Taxations' $12.6 billion estimate in 2002.

Dr. Doroghazi argues both nonprofit and for-profit hospitals are pushing for higher earnings, which is causing healthcare costs to rise in the U.S.

"I believe the quest for profits between all hospitals, nonprofit and for-profit, has been one of the main drivers causing our healthcare costs to be the highest in the world, far outstripping inflation," he wrote.

To help solve the problem, Dr. Doroghazi says Congress needs to provide a new definition of nonprofit. He recommends a nonprofit hospital be defined as one that has zero profit, "aside from that required to maintain quality operations, prudent reserves and fund future capital needs."

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