Non-Profit Hospitals Up Community Benefits to $130B

October 11, 2023 - A new analysis released by the American Hospital Association (AHA) shows increasing levels of community benefits provided by non-profit hospitals.

Non-profit hospitals delivered nearly $130 billion in total benefits to their communities in 2020, the most recent year AHA and Ernst & Young (EY) LLP had comprehensive data available. Those benefits included $57 billion in financial assistance during the pandemic, making up almost 7 percent of non-profit hospitals’ total expenses that year.

AHA’s analysis comes on the heels of Senator Bernie Sanders’ report on major non-profit hospital systems, which revealed a decrease in charity care to low-income patients despite $28 billion in tax breaks in 2020. Nearly half of US hospitals are exempt from taxes as non-profit organizations, receiving an average of $9.4 million in federal, state, and local tax benefits, the report found. Yet, 12 out of the 16 non-profit health systems analyzed for the report dedicated less than 2 percent of their total revenue to charity care, including three of the country’s five largest non-profit hospital chains.

AHA slammed Sanders’ report examining non-profit hospital systems, calling it “plain wrong” for not fully accounting for the range of community benefits these hospitals provide, like patient financial aid, health education programs, and housing assistance. What’s more, their own analysis found a substantial increase in community benefits of $20 billion during one of the worst public health crises in recent history.

“This report reaffirms that hospitals and health systems play an unparalleled role within the health care sector, serving as vital pillars in promoting the health and well-being of their communities,” Rick Pollack, AHA president and CEO, said in a statement. “Particularly commendable is the manner in which hospitals responded to the challenges posed by the pandemic, intensifying their commitment to delivering essential care, services and programs necessary to confront this historic crisis.”

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Hospital financial performance is starting to stabilize after a shaky couple of years throughout the pandemic. However, expenses are still significantly higher compared to pre-pandemic times, while margins are still razor thin.

Non-profit hospitals still dedicated 15.5 percent of their total expenses in 2020 to community benefits, AHA reported using data from the Internal Revenue Service (IRS). Community benefits notably included more than financial assistance, such as costs absorbed by non-profit hospitals due to insufficient Medicare and Medicaid reimbursement rates and bad debt expenses attributable to financial aid.

In 2020, 70 percent of participating hospitals and health systems reported having Medicare shortfalls because of non-negotiable reimbursement rates that fail to cover the actual costs of treating beneficiaries. Non-profit hospitals must treat all patients regardless of their ability to pay or health insurance status in order to receive tax breaks.

AHA said absorbing the costs of payment shortfalls is a community benefit because federal policy states that a hospital serving patients with government health insurance indicates that the hospital operates to promote community health.

In addition, non-profit hospitals offered programs and activities to improve community health, underwrite medical research and health professions education, and subsidize high-cost health services, AHA stated. Combined with expenditures for financial assistance and unreimbursed costs from Medicaid and means-tested government programs, these activities amounted to 11.3 percent of non-profit hospital expenses in 2020.

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However, major non-profit hospital systems make information on charity care programs like the ones described by the AHA difficult for patients to access, leaving many unaware they qualify for assistance or discounted care, Sanders wrote.

Additionally, Sanders’ report for the Senate Health, Education, Labor, and Pensions (HELP) Committee stated these hospital systems “aggressively try to collect from charity care patients through practices that verge on extraordinary collection practices banned under the Patient Protection and Affordable Care Act” based on a 2022 KFF study. The study showed that $2.7 billion of bad debt from non-profit hospitals in 2019 came from patients eligible for charity care but did not receive it.

States have recently taken steps to hold non-profit hospitals accountable for charity care. For example, Texas requires non-profit hospitals to spend at least 5 percent of their net revenues on community benefits. Oregon requires non-profit hospitals to provide discounted care to patients with incomes under 400 percent of the federal poverty line and free care to patients making under 200 percent of the poverty line.

Lawmakers are calling for more federal action to ensure tax-exempt hospitals provide community benefits.

“Hospitals are committed to ensuring access to care is available to all who need it, regardless of ability to pay, while also working to address the greatest health challenges within specific communities, particularly medically underserved, low-income and minority populations,” AHA said in the statement. “As part of that commitment, hospitals strive to assure low-income patients have regular access to care through programs like Medicaid, which helps provide the routine and preventative care so important for health and wellness.”