Tax News Update    Email this document    Print this document  

When read in conjunction with one another, two new reports that look at the community benefit provided by tax-exempt hospitals allow a comparison between foregone tax revenue and the community benefit provided by these hospitals in their 2019 tax years.

AHA report

A June 2022 report prepared by the American Hospital Association (AHA) analyzes the community benefits provided by tax-exempt hospitals as reported on Schedule H of their Forms 990. The report finds that tax-exempthospitals provide a broad range of programs benefitting the health of the communities they serve. Community benefits include charity care, Medicaid underpayments, community health improvement programs, health research and education, subsidized health services, bad-debt expense attributable to charity care, Medicare shortfall, contributions to community groups to provide community benefit, related community benefits, and community-building activities.

Key findings

• Tax-exempt hospitals and health systems reported an average of 13.9% of their total annual expenses as community benefit expense for their tax years beginning in 2019.
• Exempt hospitals and health systems reported an average of 6.4% of their total annual expenses as financial assistance, unreimbursed Medicaid, and other unreimbursed costs from other means-tested programs in their 2019 tax years.
• For their 2019 tax years, 43% of responding exempt hospitals and health systems reported an estimated bad-debt expense attributable to financial assistance on their Schedule H submissions, averaging 0.3% of total expenses.
• Similar to prior years, approximately three-quarters of participating exempt hospitals and health systems reported Medicare reimbursement shortfalls for their 2019 tax years.

The report relies on 2019 IRS Form 990, Schedule H responses from tax-exempt hospitals and health systems, the most recent year of Form 990 data available.

EY QUEST report

A second report prepared by Ernst and Young's Quantitative Economics and Statistics (QUEST) group on behalf of the AHA analyzes the federal revenue foregone due to the tax exemption of general tax-exempt hospitals for their tax years beginning in 2019. The analysis focuses on revenue foregone from the federal corporate income tax, the lower cost of tax-exempt bond financing, and the federal unemployment tax.

Key findings

• Federal revenue foregone due to the tax-exempt status of nonprofit general hospitals in their 2019 tax years was approximately $12.4 billion.
• The community benefit provided by these hospitals in their 2019 tax years was approximately $110.9 billion, nearly nine times more than the federal revenue foregone in their 2019 tax years.
• Approximately $51.1 billion of community benefits provided by these hospitals in their 2019 tax years came from financial assistance, unreimbursed Medicaid, and other unreimbursed costs from means-tested government programs.

Implications

Tax-exempt hospitals continue to be closely scrutinized at the federal, state, and local levels for the amount and type of benefits they provide to their communities. Accordingly, tax-exempt hospitals should continue to focus on completely and accurately reporting and explaining on Schedule H the benefits they provide to their communities.

———————————————