On Wednesday, the House Ways and Means Committee Subcommittee on Oversight held a hearing to discuss the tax-exempt status of non-profit hospitals. The Subcommittee examined whether reforms and accountability are necessary to ensure these hospitals provide the appropriate level of charitable care and community benefits commensurate with the tax benefits they receive each year.

Non-Profit Hospitals Have a Vital Role to Play in Both Care Delivery and Preventing Abuse of Taxpayer Funds

Non-profit hospitals account for almost 60 percent of hospitals in the United States and are a backbone of rural communities nationwide. Ways and Means Committee Chairman Jason Smith (MO-08) highlighted the pivotal role these facilities play in rural communities, but raised his concerns with studies showing that the level of community benefit they are currently providing, including charity care, may be insufficient compared to the value of their tax exemption.

Chairman Smith: “Recent studies and articles have raised concerns, however, that the level of community benefit, which includes charity care, provided by tax exempt hospitals has been inadequate compared to the value of their tax exemption. Additionally, numerous news reports highlight aggressive billing practices, executive compensation in the millions of dollars, and abuses in the 340B program. The level of executive compensation is particularly alarming. The top 10 non-profit hospital CEOs average more than $7 million annually. Some as high as $14 million. This further questions whether these facilities are living up to their mission statements.”

The Estimated Value of Tax Exemption is High But Taxpayers Are In the Dark About the True Value of Tax Exemption at the Individual Hospital Level

An independent analysis estimates that the tax-exempt status of non-profit hospitals was worth about $28 billion in 2020, over $14 billion of which was the estimated value of federal tax-exempt status. Oversight Subcommittee Chairman David Schweikert (AZ-01) pointed out that lax oversight means taxpayers have no way of knowing the true value of tax exemption at the individual hospital level.

Rep. Schweikert: “Here’s the value as you were looking at non-profits, here’s the value of those levels of tax benefit. Over here is what you saw going out in charity care community benefits…What is that differential in your research? What’s the gap?”

Dr. Bai: “There’s no way to know at the hospital level – how much is the taxpayer subsidy? Now, our friends have already estimated, but that is at the national level, and that’s based on a lot of assumptions at the individual hospital…How much is the income tax that they would have paid, if they had been for profit? There is no way to know.”

Charity Care at Non-Profit Hospitals Remains Stagnant While Tax Breaks Claimed by Non-Profit Hospitals Are Increasing

The value of tax exemption claimed by non-profit hospitals has increased, growing from about $19 billion in 2011 to about $28 billion in 2020—representing a 45 percent increase. In response to a question from Rep. Brian Fitzpatrick (PA-01), a witness confirmed more taxpayer dollars do not appear to mean a higher proportion of spending by non-profit hospitals going toward community benefit. She stated that the share of hospital expenses going towards community benefit has remained stagnant.

Rep. Fitzpatrick: “In my home state of Pennsylvania, we do not have a public hospital system. In 2021, uncompensated care in Pennsylvania approached $900 million, an increase of just under 5 percent from 2020…Ms. Hatton, in your estimation, how, if at all, has the amount of community benefit provided by tax exempt hospitals changed over the years?”

Ms. Hatton: “The amount of community benefit since we’ve been measuring it for Schedule H has remained quite steady between 11 and 14 percent of hospital expenses. And again, about half of that has been for financial assistance, Medicaid under payments and other means-tested programs.”

Non-Profit Hospitals Throwing Up Roadblocks to Financial Assistance for Patients

There have been concerning reports of some non-profit hospitals who are making it difficult for eligible patients to get financial assistance and some who are engaging in aggressive billing practices. Rep. Greg Steube (FL-17) exposed how some of these hospitals are exploiting vulnerable patients to turn a profit.

Congressman Steube: “We are increasingly hearing about how some non-profit hospitals are making it difficult for eligible patients to get financial assistance or delaying checking patient’s eligibility for financial assistance, and are sometimes engaging in aggressive billing and debt collection practices. Are you familiar with these practices? And if so, can you elaborate on the practices you have seen from some hospitals?”

Dr. Bai: “What we have seen is that hospitals have 100 percent discretion in designing those eligibility criteria. To start with…you can make the policy very generous, so many people would have been qualified to receive charity care…but…many hospitals did not do that. And, beyond that, as you already mentioned, they are trying to make the charity care policy very obscure. The patient, under stress, would not be able to find the policy, so they will lose the opportunity to apply for it. After that, once they incur that, the hospital will go into very aggressive techniques to go after them to garnish wages…This is really against their charitable mission and not consistent with their purported mission statement.”