Nonprofit Hospitals: “Some of the Biggest Businesses in the U.S.”

By Consumers for Quality Care, on August 6, 2024

Nonprofit hospitals are increasingly taking advantage of their tax status, according to recent op-ed by Elisabeth Rosenthal in The Washington Post. In addition to failing to provide adequate charity care, many nonprofit hospitals are investing their resources in for-profit businesses, keeping them under the hospital’s nonprofit umbrella, thereby shielding them from taxes that they’d otherwise owe.

Carnegie Mellon University Professor Martin Gaynor calls nonprofit hospitals “some of the biggest businesses in the U.S. – nonprofits in name only.” Some of the largestnonprofit hospital systems were found to own high-end wellness spas, athletic training facilities, venture capital firms, and even for-profit hospitals overseas.

Decades ago, nonprofit hospitals were originally established to care for those who could not afford costly medical care. In exchange for providing charity care and community benefits, these hospitals were made exempt from taxes they would have owed otherwise. But now, as more Americans have become insured and health care has become more expensive, nonprofit hospitals have shifted their focus from providing charity care to bringing in large profits.

This shift has been a gradual one. As Ms. Rosenthal writes, it started with nonprofit hospitals’ “pursuing economies of scale, like joint purchasing of linens and surgical supplies.” It continued with these hospitals’ growing by merging and acquiring one another. It’s culminating now in a new era in which nonprofit hospitals act like Fortune 500 companies, padding their bottom lines with investments in for-profit businesses and paying their executives multi-million-dollar salaries.

Despite their financial largesse, nonprofit hospitals are skimping when it comes to charity care. In recent years, most private nonprofit hospitals in America spent less on charity care and community investments than they received in tax breaks. Studies also show that nonprofit hospitals spend no more on charity care than for-profit hospitals of the same size.

Historically, few in power have been willing to reform nonprofit hospital systems, which are sometimes perceived as important local job-creators. But now, scrutiny on the industry is increasing. Last year a Pennsylvania judge ordered a nonprofit hospital system to pay property taxes as a result of “eye popping” executive salaries and excessive fees charged to consumers. In 2020, the Government Accountability Office (GAO) recommended that the Internal Revenue Service (IRS) increase its oversight on charity care administered by nonprofits, and in 2023, the GAO called on Congress to enact specific guidelines for how much charity care nonprofits should administer.

CQC urges all hospitals, especially nonprofit hospitals, to keep their end of the bargain by better serving their communities and by delivering care for patients when they need it most.