A study by the Lown Institute puts the spotlight on the value of nonprofits' community contributions.
Eighty percent of nonprofit hospitals are spending less on community support than what they're receiving in estimated tax breaks, according to a report by the Lown Institute.
The analysis by the think tank questions the value nonprofits are providing to their community while receiving tax breaks under federal, state, and local laws with the expectation that they'll pay it forward through financial aid and wellness programs.
Using 2021 IRS data for 2,425 nonprofit hospitals across the country, researchers found that more than 1,900 operators pay less than their "fair share." The combined fair share deficits of nonprofits totaled $25.7 billion, or enough to erase 29% of the country's medical debt, the report stated.
Only five states had a majority of hospitals with a fair share surplus: Delaware, Montana, Maryland, Texas, and Utah. Meanwhile, Michigan, West Virginia, Louisiana, Washington, and Rhode Island had 97% or more hospitals with a fair share deficit.
On average, hospitals spent 3.87% of their budget on charity care, but the proportion varied widely depending on the hospital.
Among the biggest offenders of skimping on community spending were Catholic health systems, which made up five of the top 10 systems with the greatest fair share deficits: Providence (-$1 billion), CommonSpirit (-$923 million), Trinity (-$784 million), Ascension (-$614 million), and Bon Secours Mercy (-$488 million).
Some of the hospitals the report highlighted for having significant fair share surpluses were Atlanta-based Grady Memorial Hospital, which had a fair share surplus for the third year in a row ($71 million), Chicago-based Mount Sinai Hospital ($67 million), and Los Angeles-based Martin Luther King Jr. Community Hospital ($14 million).
The Lown Institute also published a policy brief alongside the report to recommend changes for improving fair spending, including minimum thresholds for community spending and enforcement actions for noncompliance.
"Federal regulation of community benefit spending is woefully ineffective and in need of reform," Vikas Saini, president of the Lown Institute, said in the release. "Though hospitals are required to report their community contributions to the IRS, there is no minimum spend, there are many loopholes, and enforcement is practically nonexistent."
In response to the report, American Hospital Association president and CEO Rick Pollack released a statement saying the analysis "cherry-picks categories of community benefit and ignores other areas of great importance" and "suffers from the same biases, flaws and shortcomings as its previous reports."
The Lown Institute's findings don't fully take into account aspects like underpayments from Medicaid and Medicare, or Medicaid expansion, according to the AHA.
Nevertheless, nonprofit hospital leaders must focus on meeting charity goals to ensure the sustainability of not only their community, but of their own organization.
Michael Slubowski, president and CEO of Trinity Health, told HealthLeaders last year: "We're being very proactive in making sure that people realize that we are living out our charitable purpose, and for us being a faith-based health system, it's endemic to our mission."
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
More than 1,900 nonprofit hospitals (80%) receive more in tax breaks than they give back to the community, analysis by the Lown Institute found.
The American Hospital Association believes the report 'cherry-picks' and doesn’t paint an accurate picture of nonprofits' contributions.
Decision-makers at nonprofits must ensure they're meeting charity spend thresholds to achieve their mission and build up their communities.