Health reform comes with new rules for nonprofit hospitals

When I first started covering health care, I thought that a nonprofit hospital was one that didn’t make any money. It took longer than I should probably admit to come to understand that nonprofit/nonprofit status isn’t about making money. It’s mostly about paying taxes.

As this excellent recent story by M.B. Pell in The Atlanta Journal- Constitution shows, nonprofits may or may not have a healthy bottom line. They may or may not pay their top executives a lot of money. They may or may not provide really good care.

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Joanne KenenJoanne Kenen is AHCJ’s health reform topic leader. She is writing blog posts, tip sheets, articles and gathering resources to help our members cover the complex implementation of health reform. If you have questions or suggestions for future resources on the topic, please send them to

What they don’t do is pay taxes. Nonprofits are supposed to be mission-driven. In exchange for serving their community, they get the tax exemption.

One little-known element of the health care reform law – which I highlighted in my first tip sheet on the anniversary of the law’s passage – sets new rules for nonprofits. They are required to assess community needs, and inform patients of charity policies. Some lawmakers, notably Sen. Chuck Grassley, an Iowa Republican, want tougher rules and oversight. The goal is to make sure they are providing enough service to the community to justify the tax break.

States, which make their own determination on who is exempt, may follow suit; in fact, Illinois just denied property tax exemptions to three hospitals.

As a report from the Hastings Center said, “A 2007 Internal Revenue Service report stated that about half of nonprofit hospitals spent 3 percent or less of revenues on charity care. Nowadays, hospitals are bringing in large amounts of money, paying their CEOs record amounts of compensation, and engaging in aggressive debt recovery actions.” Many of the hospitals use “sticker” prices to value their charity care, even though that’s not what the hospital gets from most patients.

In Georgia, the hospitals get millions in tax breaks. Nationally, the latest number I saw was $13 billion for federal taxes, and that doesn’t count state and local tax breaks. Pell explains:

Residents pay more in taxes because these hospitals are exempt. In exchange, taxpayer-subsidized hospitals are expected to provide charitable services – “a community benefit.”

But Georgia, like 35 other states, has no specific requirements hospitals must meet to justify these tax breaks.

And an Atlanta Journal-Constitution analysis of hospital data reveals that some not-for-profit hospitals provide less in community benefits – specifically, charity health care for the poor – than the tax-paying, for-profit hospitals they compete with.

It’s not all black and white; the article notes complexities such as a hospital that doesn’t provide much free care – but does heavily subsidize some local community clinics. And Georgia has instituted a “bed” tax on nonprofits and for profits alike to help generate some more money for Medicaid, which has been strapped during the nation’s economic crisis. Overall, it’s a good read and a roadmap for enterprise reporting in other communities. Pell wrote an article about how he did his reporting for AHCJ that spells out a number of tips for reporters.

That tip sheet has further resources, including advice on deciphering hospital financial records from this presentation from The Philadelphia Inquirer‘s Karl Stark. If you are interested in the topic and are still daunted by the data, see if you can find a reliable local advocacy group who can help you sort them out, or a health care finance professor in your state who may be able to help you out.

If you Google, you will find stories about highly paid executives at nonprofit hospitals – that’s a good part of the story, and one that readers/listeners/viewers can grasp, but it’s not the whole story. Nancy Kane, a professor at Harvard School of Public Health, (who explained a lot of this to me some years ago) wrote on this topic a lot for a while, but when I did a quick check, most of the work I found was several years old. Here are some current resources to help reporters check into the nonprofit hospitals in their areas:


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