Lawmakers Examining Nonprofit Hospitals' Tax Breaks

Nonprofit hospitals will lobby Congress to keep hands off their charitable status – which grants large tax exemptions, costing the government revenue – as lawmakers plan a health care overhaul, the New York Times reports. The leading senators of the Senate Finance Committee, Max Baucus, D-Mont., and Charles Grassley, R-Iowa, are considering a requirement that hospitals must provide a set amount of free care to benefit from the tax perks.

“A formulaic, one-size-fits-all charity care standard will hamstring hospitals’ efforts to respond to the unique needs of their communities,” according to an American Hospital Association bulletin described in the Times (Pear, 6/1).

An in-depth review by the Boston Globe found that the value of tax breaks to Massachusetts General Hospital and other private nonprofit hospitals "far exceeds the amount the state's leading hospitals spend on free care for the poor and other community benefits," and adds: "What's more, hospital spending on free care is declining because of the state's 2006 healthcare reforms."

Medicine has become big business since hospitals like Mass. General were founded to care for the poor in the 19th century, increasing the value of exemptions. More recently, public programs like the Children's Health Insurance Program and Medicaid have vastly expanded coverage. The ten biggest hospitals in the state benefited from $638 million in tax breaks and state discounts in 2007, but reported only $374 million in "community benefits" provided that year, the Globe found.

"[A]s nonprofit hospitals have been increasingly run like businesses, the successful ones have adopted practices similar to those of for-profit companies, aggressively expanding into the markets of other hospitals and using their clout to charge higher prices for their services," the Globe reports. And, against the backdrop Washington's reform debate, Grassley "believes federal regulations may be needed to ensure that nonprofit hospitals are required to do more charity work than their profit-making peers," the Globe says. In the meantime, Massachusetts officials are eyeing the millions of dollars in lost tax revenue (Allen and Bombardieri, 5/31).

This is part of Kaiser Health News' Daily Report - a summary of health policy coverage from major news organizations. The full summary of the day's news can be found here and you can sign up for e-mail subscriptions to the Daily Report here. In addition, our staff of reporters and correspondents file original stories each day, which you can find on our home page.