JAMA Study Estimates Tax Exemptions Are Worth $37.4 billion to Nonprofit Hospitals
Last week the AHA reported that tax exempt hospitals receive $13.2 billion in federal tax benefits while providing $129 billion in community benefits. I took them to task for claiming what seems an inflated ROI. I complained that AHA should respond in a more reasoned fashion to independent academic studies asserting that exempt hospitals generate far less community benefit than AHA’s paid study asserts. That same day, but after press time, a study in the Journal of the American Medical Association concluded that tax exempt hospitals receive $37.4 billion in tax benefits. The interesting part is that the JAMA study estimates the federal tax benefits at only $11.5 billion. The latest study covers more years than the AHA study and does not attempt to measure the value of community benefits provided by exempt hospitals. But it’s the type of study that AHA would benefit from if it bothered to seriously engage the debate about nonprofit hospitals. Rather than act like a propaganda machine. Anyway, here is the summary:
Importance Nonprofit hospitals are under increasing scrutiny to justify the generous tax benefit they receive due to their tax-exempt status. Quantifying the value of the tax benefit they receive at the federal, state, and local levels is critical for designing informed public health policies and ensuring nonprofit hospitals’ taxpayer accountability.
Objective To estimate the financial benefit that nonprofit hospitals derive from their tax-exempt status and assess how the benefit is distributed across state and local communities.
Design, Setting, and Participants Using methodologies and measures consistent with current tax law and practice and data from 2021 Medicare Cost Reports, this study calculated the total financial benefit from nonprofit hospitals’ tax-exempt status for all US nonprofit hospitals with the required Cost Reports data.
Main Outcomes and Measures Nonprofit hospitals’ total tax benefit, which equals the sum of federal and state income tax, sales tax, property tax, the fair market value of charitable contributions from donors, savings from tax exemptions on issued bonds, and federal unemployment tax.
Results A total of 2927 US nonprofit hospitals received a $37.4 billion total tax benefit in 2021 from federal income tax ($11.5 billion; 31%), sales tax ($9.1 billion; 24%), property tax ($7.8 billion; 21%), state income tax ($3.7 billion; 10%), charitable contributions ($3.2 billion; 8%), bond financing ($2.1 billion; 6%), and federal unemployment tax ($200 million; <1%). Tax benefit varied substantially across states, from $25 098 (Delaware) to $159 464 (Massachusetts) per hospital bed and from $19 (Alabama) to $275 (Massachusetts) per capita. Tax benefit was highly concentrated, with 7% (n = 212) of hospitals accounting for half of the total amount.
Conclusion and Relevance This study highlights the wide variation of nonprofit hospitals’ tax benefit across states, its high concentration among a small number of hospitals, and the primary role played by state and local taxes. Policy efforts to strengthen nonprofit hospitals’ taxpayer accountability are likely to be more effective when pursued at the local level. The detailed standardized estimation road map can be used by various stakeholders to estimate tax benefit for external valuation and reporting purposes, updated as laws change, and improved upon as better data sources become available.
darryll k. jones