Nonprofit hospitals in the U.S. received $37.4 billion in tax benefits in 2021, according to a study from researchers at the Johns Hopkins Bloomberg School of Public Health, Johns Hopkins Carey Business School, and Texas Christian University.
The researchers analyzed the latest available financial data from the nearly 3,000 U.S. nonprofit hospitals and found that tax benefits were larger than had been previously estimated, varied widely from state to state, mostly comprised state- and local-level benefits, and were concentrated among relatively few hospitals.
The study used standard accounting methods and is thought to be the most rigorous investigation to date to address the question of nonprofit hospitals' tax benefits. The researchers say it offers a good template for making future estimates of nonprofits' benefits.
The study appears September 26 in JAMA.
"We generally know what benefits communities derive from nonprofit hospitals—in this study we explored the other side of the equation, concerning the benefits these hospitals derive from their nonprofit status," says Ge Bai, PhD, a professor at the Johns Hopkins Carey Business School, with a joint appointment in the Bloomberg School's Department of Health Policy and Management.
The nonprofit hospital model originated from the free-care, philanthropist-supported "charity hospital" model that largely disappeared in the 20th century. Nonprofit hospitals are expected to provide some charitable care, but their financial support comes less from philanthropy and more from ordinary paying patients and insurers. Consequently, some of their practices, including debt-collection actions against patients, have begun to resemble those of for-profit hospitals. This has sparked an ongoing policy debate about whether the added value to the community of hospital nonprofit—versus for-profit—status is commensurate with the tax benefits that nonprofits enjoy.
In the new study, Bai and her colleagues sought to illuminate the extent of those benefits. The analysis covered the 2,927 U.S. hospitals identified as nonprofits in standard Medicare Cost
Reports—mandatory filings for Medicare-certified hospitals—in 2021, the latest year for which such data are available. Benefits were defined as corporate taxes that would otherwise have been payable under for-profit status (federal and state income tax, state sales tax, property tax, federal unemployment tax), interest expense savings from issuing tax-exempt bonds, and the fair-market value of donations received.
The central finding was that nonprofits in 2021 received a total of $37.4 billion in benefits, including federal income tax benefits ($11.5 billion), sales tax benefits ($9.1 billion), and property tax benefits ($7.8 billion). This is substantially larger than a study published last year that estimated that nonprofit hospitals received about $28 billion in tax benefits in 2020 using a different methodology.
According to the new analysis, about 55 percent of total benefits came from state and local tax benefits.
The findings also revealed that nonprofit tax benefits are unevenly distributed, with dramatic differences between Massachusetts, which has the highest tax benefit per bed ($159,464), and Delaware, which has the lowest ($25,098). Overall, 7.3 percent of nonprofit hospitals—212—accounted for half the total tax benefits.
Compared to prior studies, the authors used methods to estimate tax benefits that were more consistent with current tax law and accounting practices—for example, using hospital asset values rather than patient revenue when estimating what property taxes would have been.
"The methodology we developed here can be used for future tax-benefit estimates, from the national level down to individual nonprofit hospitals," Bai says. "One can imagine that nonprofit hospitals in the future might conduct their own annual estimates and disclose them to inform the public and policymakers."
"Estimation of Tax Benefit of U.S. Nonprofit Hospitals" was co-authored by Elizabeth Plummer, Mariana Socal, and Ge Bai.
The research was supported by the MANA Action Fund.
