According to a new report prepared by the American Hospital Association (AHA), tax-exempt hospitals provided a broad range of programs during the 2022 tax year benefitting the health of the communities they serve.

Tax-exempt hospitals must report the community benefit they provide on Form 990, Schedule H. Community benefit includes charity care, Medicaid underpayments, community health improvement programs, research, health professions education, 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

• In the five years preceding 2022, the aggregate community benefit expense of tax-exempt hospitals increased nearly 50% to $149 billion in total benefits provided to communities in 2022.
• Tax-exempt hospitals and health systems reported an average of 15.1% of their total 2022 tax year expenses as community benefit expenses.
• Tax-exempt hospitals and health systems reported an average of $65 billion (about 6.6% of their total annual expenses) as financial assistance, unreimbursed Medicaid, and other unreimbursed costs from other means-tested programs in the 2022 tax year.
• For the 2022 tax year, 38.5% of responding tax-exempt hospitals and health systems reported an estimated amount of bad debt expense attributable to financial assistance on their Schedule H submissions, averaging 0.2% of total expenses.
• 73.6% of participating tax-exempt hospitals and health systems reported Medicare reimbursement shortfalls for the 2022 tax year.

The report relies on 2022 IRS Form 990, Schedule H reporting from tax-exempt hospitals and health systems, the most recent year of full Form 990 data 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. 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. In preparation for continued community benefit scrutiny, tax-exempt hospitals should consider determining the value of their tax exemption and/or benchmarking their community spending against that of their peers.