Do Non-profit Hospitals Actually Suck?

by Jon Scaccia August 5, 2024

Nonprofit hospitals often conjure up images of selfless institutions dedicated to serving their communities. But recent revelations show a darker side, some of which we’ve blogged about before.

These hospitals, which make up 58% of community hospitals, are under scrutiny for not living up to their charitable obligations while enjoying massive tax breaks. Let’s into the recent commentary from Evan Hsiang shedding light on this critical issue and why it matters to us all.

What Are Nonprofit Hospitals Supposed to Do?

Nonprofit hospitals are tax-exempt, meaning they don’t pay federal, state, or local taxes. In return, they are expected to provide community benefits, including free or reduced-cost care to those in need. This agreement, rooted in the IRS rulings from 1956 and 1969, aimed to ensure that nonprofit hospitals support the socioeconomically disadvantaged by offering essential health services.

The Reality: Charity or Profit?

Unfortunately, the reality is far from this noble vision. Some nonprofit hospitals have been found skirting their responsibilities, engaging in aggressive bill collection, and prioritizing profits over patients. A stark example is the nonprofit chain Providence, which spent less than 1% of its revenue on charity care while aggressively collecting payments from poor patients eligible for free care.

In 2021, the combined tax exemption value for nonprofit hospitals was a whopping $28 billion, while the value of the charity care provided was only $16 billion. This discrepancy reveals a systemic issue: the current “community benefit” standard is vague and easily manipulated.

Abuses and Anticompetitive Practices

The ambiguity around what constitutes a community benefit allows some hospitals to exploit the system. For instance, Bon Secours, a nonprofit chain, diverted resources from underserved areas to wealthier communities, even building a luxury apartment complex instead of a nursing school as promised.

Nonprofit hospitals also engage in anticompetitive practices, such as acquiring smaller clinics to reduce competition and increase prices. The Federal Trade Commission (FTC) struggles to regulate these practices due to legal limitations, leaving a significant gap in oversight.

Why Should We Care?

The misuse of nonprofit status can lead to reduced access to care for the most vulnerable populations and increased healthcare costs for everyone. Furthermore, it undermines public trust in the healthcare system.

Potential Solutions

Addressing this issue requires clear and enforceable guidelines. Here are a few proposed solutions:

1. Define Community Benefits Clearly: States should mandate that community investments occur in socioeconomically disadvantaged neighborhoods. This would ensure that the intended beneficiaries receive the necessary support.
2. Set Minimum Charity Care Requirements: Implementing monetary thresholds for charity care, similar to Illinois’ model, could ensure that hospitals provide tangible benefits to their communities.
3. Enhance FTC Oversight: Allowing the FTC to regulate nonprofit hospitals like any other entity could curb anticompetitive practices and promote fair competition.

Join the Conversation

• Have you or someone you know been affected by a nonprofit hospital’s billing practices? Share your story in the comments.
• What do you think is the best way to ensure nonprofit hospitals provide genuine community benefits? Join the discussion on social media using

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