U.S. Senate Looking to Address Hospitals’ Charity Care and Tax-Exempt Status

By Consumers for Quality Care, on August 30, 2023

A new bipartisan effort, led by Senator Chuck Grassley (R-IA) and Senator Elizabeth Warren (D-MA), is calling for stricter auditing standards into the tax-exempt status and charity care reporting for nonprofit hospital systems, according to Healthcare Dive.

In a pair of letters sent to the Internal Revenue Service (IRS) and to the Treasury Department’s Inspector General, the bipartisan group of Senators is requesting a top-down review of how nonprofit hospital systems report their expenditures, revenue, and more specific data on how much charity care these hospital systems provide. The Senators point to reporting irregularities that end up obscuring the specific amounts of a nonprofit hospital’s charity care. According to the letters, nonprofit hospital systems were exempt from nearly $20 billion in taxes in 2020. Yet the exact amount of charity care provided, and the type of services provided, is nearly impossible to determine. 

The letters come after claims and investigations of nonprofit hospital systems avoiding charity care spending while the medical debt crisis continues to grow, harming consumers. Last fall, an analysis from the Kaiser Family Foundation determined that hospitals spent less than 1.4 percent of their operating expenses on charity and community care. Another study from the Lown Institute this past spring determined that 77 percent of hospitals spent less on charity care than the value of their tax exemptions.

In 2020, the IRS updated the reporting standards for nonprofit hospital systems, yet Senators Grassley and Warren do not believe this was enough, writing, “We are alarmed by reports that despite their tax-exempt status, certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit.’” 

The Senators cited The New York Times’ investigative reporting last year into one of the county’s largest nonprofit hospital chains, Providence Health, which was found to have not provided adequate charity care services for the amount of tax exemptions it had received.

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