Nonprofit Hospitals Fail to Fulfill Community Health Investments

UPDATED 07/13/2021

Nonprofit hospitals failed to follow through on community health charity commitments, resulting in $17 billion in unrealized investments, according to the Lown Hospitals Index 2021 Community Benefit report. An estimated 72 percent of private nonprofit hospitals had fair share deficits, implying that they spent less on community health investments than they received in tax breaks.

The Internal Revenue Service (IRS) uses a community benefit standard to assess a nonprofit hospital’s charitable contributions and how it is organized to best serve its community. To qualify for significant tax breaks, a hospital must “Demonstrate that it provides benefits to a class of persons that is broad enough to benefit the community and operate to serve a public rather than a private interest,” the IRS says.

The IRS evaluates if a hospital’s emergency room is open to all, if it maintains a board of directors consisting of community members, and if it maintains an open medical staff policy. In addition, hospitals must provide care to Medicare and Medicaid patients and use extra funds to improve facilities, patient care, education, and research.

Researchers collected data from 2018 IRS 990 forms and hospital cost reports filed with CMS for over 3,600 public, nonprofit, and for-profit hospitals. Next, they assessed the hospitals based on Medicare revenue and things like charitable investments in health clinics, food security, and housing to calculate a community benefit score.

Cleveland Clinic had the largest fair share deficit, at -$261 million, meaning they spent the least on community investments compared to their tax exemptions. The clinic spent 1.4 percent of its total expenses on community investments.

New York-Presbyterian Hospital, UCSF Medical Center, Massachusetts General Hospital, and University of Michigan Health System rounded out the top five hospitals with the largest fair share deficits. The top ten hospitals with the largest deficits account for upwards of 10 percent of the nation’s total fair share deficit.

Paradise Valley Hospital in National City, California was named the top hospital in the US regarding investments in community health and caring for vulnerable patients.

Elmhurst Hospital Center, Queens Hospital Center, Metropolitan Hospital Center, and Woodhull Medical & Mental Health Center along with Paradise Valley Hospital account for the top five ranked community benefit hospitals. Four of the top five hospitals with the highest community benefit scores are in New York.  

The report also noted that public hospitals were well-represented on the list of top hospitals for community benefit investments, despite their responsibility to care for patients unable to pay for medical care. In addition, performance varied significantly even within the same region.

For example, Massachusetts General Hospital had a fair share deficit of $179 million, while Boston Medical Center had a fair share surplus of $11 million. The two healthcare providers care for similar patient populations and have comparable tax rates, which does not explain the performance gap.

“Hospitals say they want to be great community partners, and the ones at the top of our list have followed through,” Vikas Saini, MD, president of the Lown Institute, said in the press release.

“With the pandemic shining a light on health inequity in America, we need more hospitals to give back as much as they take in tax breaks.”

UPDATE: The American Hospital Association’s (AHA) president and CEO, Rick Pollack, released a statement on AHA’s blog saying that the Lown Institute report fell short in its analysis of community benefit investments.

“By cherry-picking categories of community investment while ignoring others, such as researching life-saving treatments and cures and training and educating the next generation of caregivers, the report overlooks many essential contributions hospitals make to their communities that are critically important, especially during the pandemic,” Pollack wrote.

The statement cited a 2020 AHA report that found that tax-exempt hospitals contributed $100 billion in community benefits in 2017. In addition to monetary support, many hospitals have programs that assist the community with accessing food, educational programs, transportation, and health screenings.

“In fact, many of the hospitals that Lown claims fall short on providing community benefits cared for an enormous number of COVID-19 patients and stepped up to meet other community needs because they were in the hardest hit ‘hot spot’ communities during the height of the pandemic,” Pollack continued.