Opinion Page: Nonprofit Hospitals That Make Profits Should Pay Taxes

From Stat, April 14, 2024

As diligent taxpayers breathe a sigh of relief that the hassle of filing their tax forms is over for another year, the Internal Revenue Service continues to let most U.S. hospitals pay nothing in federal taxes. It’s time for Congress to take a hard look at the IRS’s hand in health care.

The agency uses a vague “community benefit” standard to liberally grant tax-exempt status to so-called nonprofit hospitals even as many of them are financially taking advantage of sick Americans with inflated medical bills. Several of my Johns Hopkins colleagues and I published a study in the Journal of the American Medical Association showing that some nonprofit hospitals sue and garnish the wages of low-income patients who can’t afford to pay their medical bills. Where’s the community benefit in that? Nonprofit hospitals are supposed to be compassionate and merciful, not predatory and ruthless.

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Many tax-exempt hospitals argue that they provide millions of dollars in free care. But here’s what’s really going on: Much of what they call free care is emergency care that hospitals are required to provide by law (the 1986 Emergency Medical Treatment and Labor Act requires hospitals to care for anyone who walks in with an emergent condition). But after the care has been provided, patients are often hounded for payment, often at an artificially inflated price. Hospitals then report the difference between their high sticker price and what they actually collect after shaking down a patient as charity care.

But that’s not charity. In a twist of irony, a 2021 study published in Health Affairs found that for-profit hospitals provided 65% more charity care than nonprofit ones.

Hospitals leaders across the nation have told me that they need to avoid federal taxes in order to survive. But the way taxes work, businesses are taxed only on their profits. Some hospitals hide their profits in cost-shift accounting and loan refinancing, even engaging in aggressive real estate and venture capital investing. According to public tax records, Cedars Sinai in Beverly Hills had an income surplus of $750 million in 2022 and paid no federal taxes. Memorial Sloan Kettering Cancer Center in New York had $400 million and also paid no federal taxes. The top three hospital administrators there made nearly $20 million in salaries.

Momentum to stop this gaming of the system is growing. In August, a bipartisan group of U.S. senators including Bill Cassidy and Elizabeth Warren demanded more transparency from the IRS on the issue after a General Accountability Office report found that the agency “did not have a well-documented process” to ensure that hospitals met tax-exempt criteria. 

In October, Bernie Sanders, the chair of the Senate Health, Education, Labor and Pensions committee stressed the need to address the problem. “Many nonprofit hospital systems across the country are failing to provide low-income Americans with the affordable medical care required by their nonprofit status — despite receiving billions in tax benefits and providing exorbitant compensation packages to their senior executives,” he said in a statement.  

In another sign that government officials are getting fed up with hospitals paying no taxes, in 2023 a Pennsylvania judge revoked a hospital’s property tax exemption. This action came after the Pottstown school district sued the hospital, arguing that its special tax treatment resulted in $900,000 less revenue for the school each year.

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For an interesting and compelling longer argument along the same lines see Edward A. Zelinsky’s 2022 article entitled “The Commerciality of Non-Profit Hospitals Requires Them to Be Taxed: Bringing the Debate to a Conclusion”

darryll k. jones