Nonprofit hospitals lifted by $28B in tax exemptions: KFF

Tax exemptions for nonprofit hospitals amounted to $27.6 billion in value for 2020, according to new data from the Kaiser Family Foundation

Federal tax exemptions in 2020 made up $14.5 billion and state and local tax-exemptions amounted to $13.2 billion. Combined, the $27.6 billion represents 43 percent of net income earned by nonprofit hospitals in 2020, the foundation found.

Nonprofit hospitals may see renewed or heightened scrutiny of their tax-exempt status due in part to how much the value of tax-exemption has grown in recent years. The foundation's analysis shows the value of tax exemption grew from about $20 billion in 2011 to about $27.6 billion in 2020 — a 41 percent increase.

"The rising value of tax exemption means that federal, state, and local governments have been forgoing increasing amounts of revenue over time to provide tax benefits to nonprofit hospitals, crowding out other uses of those funds," KFF analysts wrote. "This has raised questions about whether nonprofit facilities provide sufficient benefit to their communities to justify this tax benefit."

The $27.6 billion in estimated value of tax exemption exceeded nonprofit hospitals' total estimated charity care costs of $16 billion in 2020, although KFF points out that charity care makes up one portion of nonprofit hospitals' community benefits.

2020 was a standout year with the largest single-year increase — $4 billion — to the value of nonprofit hospitals' tax-exemption. KFF analysts note that while COVID-19 caused disruptions that lowered net income from patient care, government relief funds and increased charitable contributions and investment income "more than offset those losses" and increased net income increased the value of not having to pay federal and state income taxes.  

"Even when setting aside the strong financial performance of nonprofit hospitals in 2020 as a potential outlier, total net income among nonprofit facilities increased from $19.4 billion in 2011 to $47.0 billion in 2019, a 143 percent increase, before jumping to $64.5 billion in 2020," the analysts wrote. "Although we are not able to directly observe the value of the real estate owned by hospitals, the estimated value of exemption from local property taxes — which is based on our analysis of property taxes paid by for-profit hospitals — increased by 29 percent from 2011 to 2019. Finally, the supply expenses in our analysis increased by 44 percent and charitable contributions increased by 49 percent from 2011 to 2019."

Melinda Hatton, general counsel for the the American Hospital Association, shared the following statement with Becker's in response to the KFF analysis: 

"A more comprehensive report by the international firm EY has consistently found that the value of hospitals' federal tax exemption was far outstripped by the community benefits provided. In the most recent analysis, the value was 9 to 1: for every one dollar in tax exemption hospitals provided nine dollars of community benefit. 

"A narrow reading of community benefit limited to financial assistance misses the important work hospitals do to close the pervasive gaps between federal reimbursements for care and the actual cost of care as well as the many other benefits hospitals provide directly to their communities. Whether it is public health activities, such as clinics and testing, training for the next generation of caregivers or efforts to prevent illness, including wellness education or more hand-on efforts to improve living conditions, hospitals continually give back to the communities they serve."

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