A new report prepared by the American Hospital Association (AHA) analyzes the community benefits provided by tax-exempt hospitals as reported on Schedule H of their 2020 Forms 990 (for tax years beginning in 2020). The report finds that tax-exempt hospitals provide a broad range of programs benefitting the health of the communities they serve. Community benefits include charity care, Medicaid underpayments, community health improvement services, health professions education, research, subsidized health services, bad debt expense attributable to charity care, Medicare shortfall, contributions to community groups to provide community benefit and community-building activities.

Key findings

Tax-exempt hospitals and health systems reported the following for their 2020 tax years:

• Community benefit expense averaged 15.5% of their total annual expenses
• Financial assistance, unreimbursed Medicaid and other unreimbursed costs from other means-tested programs averaged 6.9% of their total annual expenses
• The estimated bad debt expense attributable to financial assistance on Schedule H submissions averaged 0.3% of total expenses (reported by 43% of Schedule H filers)
• Medicare reimbursement shortfalls occurred (reported by 70% of Schedule H filers)

The report relies on 2020 IRS Form 990, Schedule H responses from tax-exempt hospitals and health systems, the most recent year that Form 990 data are fully available.

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. For instance, the Majority Staff of the US Senate's Health, Labor, Education and Pensions Committee, chaired by Bernie Sanders (I-VT), released a report on October 10, 2023, criticizing the largest non-profit hospitals in the United States for not providing sufficient community benefit and calling for tighter regulation by Congress and the IRS. Accordingly, tax-exempt hospitals should continue to focus on completely and accurately reporting and explaining the benefits they provide to their communities on their Schedule H, which will help to differentiate them from their for-profit counterparts and support their federal tax exemption.

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Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor