Six Key Moments: Hearing on Tax-Exempt Hospitals and the Community Benefit Standard

WASHINGTON, D.C. - Tax-exempt hospitals are failing to provide the requisite healthcare benefits to their communities on which their tax-exempt status rests, several witnesses warned at a Ways and Means Oversight Subcommittee hearing examining the use of funds by tax-exempt hospitals. Instead, these hospitals - which receive generous tax benefits estimated to be worth $37.4 billion in 2021- spend money on stadium naming rights, real estate investments, green energy initiatives, and political activism.

Hospitals qualify for tax-exempt status based on a demonstration that they provide benefits to a broad range of people in the community, a requirement otherwise known as the community benefit standard. However, current IRS reporting standards fail to produce transparency about the exact nature of the community benefits provided by tax-exempt hospitals and IRS enforcement of the community benefit standard is lacking. This has led to hospitals counting non-health care spending, such as real estate investing, advertising, and politicking initiatives, as meeting the community benefit standard.

IRS Form 990 Hides the Ball on Actual Community Benefit Provided by Hospital

Tax-exempt hospitals are required to report financial assistance and community benefit spending to the IRS using Form 990's Schedule H. However, the form does not always provide insight into the specific activities that hospitals funded to meet the community benefit standard. Instead, the Schedule H merely requires tax-exempt hospitals to report vague and ambiguous information like how much money was spent on "community health improvement services" and "education" without any specific information detailing what services or type of education were provided. The lack of clarity stymies IRS efforts to determine whether hospitals meet the community benefit standard, as required by law.

Rep. David Schweikert (AZ-01): "We've had a running discussion on redesigning the 990 form…so researchers actually have better quality and we as policymakers know what we're talking about. A billboard - should that qualify as a community good? A stadium, or is it dealing with uncompensated care?…The 990 forms, if you've ever sat and read samples of them, let's have a moment of honesty. The IRS is supposed to be auditing these things, like every three or four years, but what would you audit? The quality of the information is just not there."

"Mission Creep": Tax-Exempt Hospitals Not Keeping the Main Thing the Main Thing

Tax-exempt hospitals enjoy favorable tax treatment on the promise that their tax savings will be plowed into caring for needy patients and improving quality of care. For several years now, the value of the tax-exempt benefit has outstripped the amount spent by hospitals on charity care. That imbalance is often due to spending by hospitals unrelated to their mission of caring for patients and providing the highest quality care possible. A witness shared that these spending decisions reflect the prevailing mindset of many hospital executives: the core function of a hospital isn't caring for patients.

Chairman Jason Smith (MO-08): "The generous benefits bestowed on tax-exempt hospitals come with an obligation on their part to provide charitable benefits to their communities. Yet, we have data showing that from 2020 to 2022, over half of such hospitals got more in tax benefits than they invested in their community. In 2020 alone, the tax-exempt benefit was worth an estimated $28 billion while the amount spent on charity care totaled over $10 billion less. What sort of excuses do these tax-exempt hospitals make to justify the massive deficit between the charity care they provide and the tax benefits that they receive? How has this imbalance been able to grow so substantially in recent years? What should be done to flip the equation here?"

William Hild, Executive Director, Consumers' Research: "One of the reasons that this imbalance has grown so much is that increasingly hospitals don't see themselves as just health care providers, or even as hospitals. In the report we put out, one of the common themes across all of the executive C-suites of these hospitals was that they only saw health care as part of their mission - or highlighting other things that they thought were core to their mission that a reasonable person would not consider part of providing health care. I think the mission creep of a lot of these hospitals getting into real estate investment, getting into DEI, getting into political activism, naming stadiums. This shows a lack of discipline in making sure that they stay within the health care provision…I think that's part of the issue is you have a massive mission creep.

"In terms of solutions, one thing we should be looking for is Congress to make hospitals be more explicit and detailed in the community benefits that they're providing, so the taxpayers can know that they're actually providing health care and not off on boondoggles."

Taxpayers Funding DEI at Tax-Exempt Hospitals

Instead of fulfilling their tax-exempt purpose by providing charity care to needy patients, tax-exempt hospitals spend millions on DEI initiatives. The examples are numerous and span hospitals across the country. A witness provided just some of the examples of taxpayer-funded DEI occurring at hospitals.

Dr. Stanley Goldfarb, Chairman, Do No Harm: "At Massachusetts General Hospital, administrators announced in April 2024 that they would scale back child neglect and abuse reports from mothers who test positive for drugs because they feared that mandatory reporting was perpetuating what they called 'structural racism.' Duke University Health System, which received over $1 billion in federal funding in fiscal year 2023 alone, was the subject of a federal rights complaint in March of this year for implementing race-based preferences in hiring and medical school admissions while promoting the notion that white males are 'agents of oppression.' Corewell Health in Michigan required every employee to sign a pledge in support of DEI or risk termination. Just two years ago, the Mayo Clinic pledged $100 million for indoctrination sessions about microaggressions and eliminating systemic biases and the supposed dangers of color, blindness and meritocracy.

"Similar DEI pledges, training mandates and equity bureaucracies exist at Memorial Health in Illinois, Baton Rouge General Hospital, Maine Health, Kaiser Permanente and Providence Health System, just to name a few. This politically charged approach to health care management is built on the false premise that our medical institutions are mired in bigotry. America's doctors, nurses and other health care professionals are not racist, sexist or homophobic. Rather they work tirelessly everyday out of love for the common humanity they see in all their patients."

Vague Laws Opens the Door to "Indoctrination" as Health Care

Hospitals count activities unrelated to health care toward meeting the community benefit standard, and can do so because of vague legal requirements. Perplexingly, hospitals fund ideological DEI activities and claim this spending helps meet the community benefit standard. This happens even though the community benefit standard is based on the principle that the hospital benefits a broad class of people and operates to serve the public, rather than private, interest. Instead of providing this community benefit, one witness shared how hospitals instead subject employees to hospital-funded "indoctrination" sessions that count for continuing education credit.

Rep. Beth Van Duyne (TX-24): "The community benefit standard is an important piece in determining whether a hospital qualifies for nonprofit status. It requires hospitals to demonstrate that they provide benefits to the broader community and operate to serve a public, rather than a private, interest. However, in recent years, the standard has come under scrutiny and with critics arguing that it is too vaguely defined and too easily met by certain hospitals. Is this true? If so, how are the nonprofit hospitals taking advantage of the vague language in the statute?"

Dr. Stanley Goldfarb, Chairman, Do No Harm: "I would say that this idea of exactly what's a community benefit is very vague, and our organization has looked into this and have tutored me on this issue very well. I think the point is that hospitals really need to think very hard about the things that they waste their money on. And our point of view is that creating these DEI enterprises has been a huge problem.

"Let me read a testimony by a nurse at the Mayo Clinic, 'I participated in an event. It was a two-day event in early August. Mayo's two day Rise for Equity event, which offered in-person and virtual attendance for continuing education credit. It was designed for professionals, including many people in the hospital, administrators, doctors, hiring managers. The goal was to advance and direct policy programs and institutional initiatives across the medical landscape towards health equity.' She said, 'I encountered nothing but indoctrination. I was told in no uncertain terms that racial and social justice is a known public health threat. I learned tips for recognizing and addressing microaggressions. I was told systemic biases in physical space and that such ideas as meritocracy and colorblindness are myths.'"

Mega Hospital Systems Benefit Most from Weak Reporting Requirements

The current structure of the Schedule H form is particularly beneficial to large hospital chains since they do not have to disaggregate benefits provided by individual facilities. A healthcare expert testified that Congress should tighten the reporting requirements in the Form 990 and Schedule H so communities can understand what benefits are being provided by their local hospital.

Rep. Rudy Yakym (IN-02): "In addition to certain legal requirements and the community benefits standard, I understand that tax-exempt hospitals are also required to file Form 990s for IRS review. This form requires nonprofit hospitals to report a lot of generic information about employees, revenue, assets, tax compliance, but tax-exempt hospitals are also required to include what is called Schedule H, which is used to collect information on activities and policies of hospitals, as well as community benefits provided by the hospital during that specific tax year. Are the current reporting requirements for nonprofit hospitals sufficient to ensure that nonprofit hospitals are providing real community benefits and operating within their tax exempt status?"

Dr. Christopher Whaley, PhD, health care expert: "…In regards to Schedule H, I don't think the current requirements are adequate. For example, many hospitals are parts of large conglomerates and mega systems, which often report a Schedule H at the system level, which does not allow for auditors, researchers and policy makers to understand community benefit reporting at the individual hospital level…In addition to reporting schedule H's for individual hospitals, the current requirements for Schedule H reporting are often quite vague, and additional reporting requirements for Schedule H in detail on individual line-item spending for Schedule H could allow for a more further detailed auditing and accounting of community benefit spending."

Studies: Tax-Exempt Status is Payday for Hospitals

Multiple studies demonstrate a single, concerning fact: tax-exempt hospitals provide less charity care and community investment than the estimated value of their tax breaks. One study found that between 2020 and 2022, the gap between the two totaled $11.5 billion per year. Less than half of tax-exempt hospitals gave back to communities in excess of their tax breaks. Another study found 80 percent of evaluated tax-exempt hospitals spent less on benefits to the community than the value of their tax breaks.

Rep. Aaron Bean (FL-04): "Data from more than 2,400 nonprofit hospitals, using 2021 IRS data, showed staggering results, finding that 80 percent of evaluated tax-exempt hospitals spent less on financial assistance and community investment than the estimated value of their tax breaks. The study says they [hospitals] went on to spend money on DEI, green energy initiatives, amassing real estate portfolios and advertising, and spending money to put their name on stadiums. What does that data tell you?"

William Hild, Executive Director, Consumers' Research: "It tells me that some of these hospitals are betraying the fundamental agreement that they made when they took their tax-exempt status. The whole concept of providing that is that instead of profits going to shareholders or executives, they will be reinvested back into health care."