Beyond the Bottom Line: Assessing Charity Care, Community Benefits, and Tax Exemptions in Nonprofit Hospitals

This study aimed to compare the value of tax exemptions and community benefits across various nonprofit hospitals and show how hospital and geographical characteristics can explain the values. Data from 2017 to 2021 Internal Revenue Service Form 990s were used to evaluate 17 types of community benefits in nonprofit hospitals and assess six categories of tax benefits. Descriptive analyses compared charity care, community benefits, and estimated tax exemptions among nonprofit hospitals while considering variations in teaching status, location (rurality), and US region. Additionally, random effect regression analyses, both unadjusted and adjusted, explored the connection between the community benefit-to-expense ratio and a range of hospital and geographical features. Between 2017 and 2021, nonprofit hospitals allocated, on average, 8.8% of their total expenses to 17 types of community benefits, with 1.8% of their expenses dedicated to charity care; 5.2% benefited from tax exemptions. There were significant disparities among nonprofit hospitals, as 24.0% received more tax benefits than they spent on community benefits, and 81.0% received more than their charity care expenditures. The characteristics and location of nonprofit hospitals influenced the provision and composition of community benefits. Teaching hospitals allocated a higher percentage of total community benefits compared to nonteaching hospitals (9.2% vs. 8.6%). The top three categories in teaching hospitals were Medicaid shortfall, charity care, and unreimbursed education, whereas nonteaching hospitals focused more on charity care and subsidized health services, in addition to Medicaid shortfall. Furthermore, the location of a nonprofit hospital impacted the distribution of community benefits. Rural hospitals prioritized Medicaid shortfall, subsidized health services, and charity care, while urban hospitals concentrated more on Medicaid shortfall, charity care, and subsidized health service (in that order). The regression results showed that system affiliation and location in the Southern region of the United States were positive predictors of charity care spending at nonprofits. Lack of transparency and explicit requirements from federal agencies and states for what is necessary to receive tax benefits results in wide variations in community benefits spending by nonprofit hospitals. Some receive more in tax benefits than they provide in community benefits, and three-quarters of all nonprofit hospitals receive more in tax benefits than they provide in charity care. Developing a more explicit definition of community benefits can make all nonprofit hospitals more accountable.