Hospitals and Tax-Exempt Status

There is often little functional difference between hospitals operated as tax-exempt, charitable organizations and those operated as for-profit endeavors (noting here the incredulity that some friends from other countries express at the U.S.’s reliance on the latter). The distinction between the two categories depends, in large part, on the “community benefit standard,” a test that ostensibly imposes on tax-exempt hospitals a requirement to treat low-income patients and generally promote community health.

But the community benefit standard doesn’t impose minimum spending requirements or impose many formal requirements on what health care must be provided. This, combined with the fact that all hospitals are obligated under U.S. law to provide emergency treatment to those in need, means that the difference between for-profit hospitals and non-profit hospitals can be hard to parse.

This past Wednesday the House held a hearing where a representative from the GAO and an accounting professor specializing in public health discussed described the shortcomings in the process by which tax-exemption for nonprofit hospitals is awarded and maintained. The GAO had recommended in a previous report that Congress articulate more precisely the activities tax-exempt hospitals should engage in to adequately benefit their communities, but (unsurprisingly) Congress has not acted.

A more complete summary of Wednesday’s hearing is here.

Manoj