As scrutiny over nonprofit hospitals’ tax-exempt status intensifies, the American Hospital Association is making the case that the value these hospitals provide far exceeds the tax benefits they receive.
In testimony submitted Sept. 16 to the House Ways and Means Committee, the AHA emphasized that nonprofit hospitals provided nearly $150 billion in total benefits to their communities in 2022, a nearly 50% increase since 2017. That spending represented 15.1% of hospitals’ total expenses, according to IRS data.
By comparison, a 2024 analysis from Ernst & Young found that for every $1 of federal tax exemption, nonprofit hospitals delivered $10 in community benefit.
$150B in community benefits — and growing
The bulk of nonprofit hospitals’ spending — about $65 billion in 2022 — supported financial assistance for patients and absorbed underpayments from government programs such as Medicaid and Medicare, according to the AHA. Other key categories include:
- Subsidized services such as burn centers, neonatal units and psychiatric care.
- Health profession education, including training residents and the next generation of caregivers.
- Community health programs, from screenings to preventive care initiatives.
- Research to advance treatment for complex diseases like cancer.
Spending patterns vary by hospital type and location. For example, children’s hospitals devoted 19.6% of expenses to community benefit activities in 2022, while large teaching hospitals invested about 16%. Rural hospitals, often operating under tighter margins, reported about 11%, according to the AHA.
Beyond free care: Hospital programs making a difference
The AHA cautioned against focusing narrowly on charity care as the sole measure of community benefit. Courts have consistently affirmed that nonprofit hospitals meet their charitable obligations through a wide range of activities — from providing access regardless of ability to pay, to investing in research, training and facility improvements.
Studies support this broader view, showing nonprofit hospitals are far more likely to provide unprofitable but essential services, such as hospice and psychiatric care, according to the association.
The AHA highlighted recent hospital initiatives that demonstrate this diversity:
- Indianapolis-based IU Health created a nutrition hub and food lockers to combat food insecurity.
- (Stephenville, Texas-based Texas Health Harris Methodist Hospital launched a rural pulmonary rehabilitation program.
- Sioux Falls, S.D.-based Avera Health opened wellness pantries to address gaps in federal food assistance.
- Columbus (Neb.) Community Hospital developed a maternal safety initiative to improve postpartum care.
Leaders speak out: Intermountain CEO’s perspective
Hospital leaders say greater transparency is needed to clarify what nonprofit status means in practice.
“This is a topic that has been getting more attention across the country,” Intermountain Health CEO Rob Allen told Becker’s in June. “From a transparency perspective, we want to make sure we’re getting information out to the broader community.”
Salt Lake City-based Intermountain reported more than $1.3 billion in community benefit in 2023, including $746 million in direct community benefit and $567 million in additional investments. Mr. Allen said that total was more than double the system’s estimated tax benefit.
He also contrasted the nonprofit model with for-profit peers.
“A for-profit system has a primary responsibility to shareholders, while a nonprofit’s primary responsibility is to the community,” he said. “I think there’s a misperception — that nonprofits don’t pay taxes. We do. But the crux of the issue is that, in exchange for some tax breaks, nonprofits commit to giving back to the community at least the value of those breaks through community benefit.”
Why flexibility in community benefit spending matters
With nearly 40% of hospitals operating at a loss and rising demand for essential but underfunded services, leaders warn that any narrowing of the community benefit definition could undermine hospitals’ ability to serve vulnerable populations.
The AHA argues that community benefit must remain flexible to reflect each hospital’s unique context. “A small rural community in Montana will not have the same needs for support and services as a hospital in Phoenix,” the association noted in its Sept. 16 letter to Congress. As policymakers debate the future of tax exemption, nonprofit hospitals are seeking to define their role not just as providers of care, but as anchors of community health investment.
