Nonprofit Hospitals' Community Benefit Requirements
The majority of hospitals in the United States operate as nonprofit organizations and, as such, are exempt from most federal, state, and local taxes.
What’s the Issue?
This favored tax status is intended to be an acknowledgement of the “community benefit” provided by these institutions.
Public controversy over whether nonprofit hospitals provided community benefits sufficient to justify their favored tax status gave rise to congressional scrutiny during 2005–09 and culminated in the inclusion of new community benefit requirements in the Affordable Care Act (ACA). Not only are these new requirements intended to improve transparency and accountability, but they are also part of a strategy to address the ACA priorities of preventive care and population health through community health improvement activities.
Transformation of the health care system as a result of all of the provisions in the ACA, including increased insurance coverage, new models of health delivery, and new payment systems, is just in the beginning stages. All of these changes have an impact on hospitals and the amount and types of community benefits they provide. Data from new community benefit reporting requirements will allow analyses on types and amounts of community benefit expenditures; the impact of increased insurance coverage on reducing demands for charity care, while increasing costs associated with participating in means-tested government programs; and geographic variations in the types of benefits provided.
As the experience with community benefit policy is assessed, policy makers at all levels of government may wish to evaluate the differences between federal and state community benefit requirements and determine which policies have a positive effect on engaging hospitals in their communities. They may also identify requirements that could be standardized to reduce administrative burdens on hospitals.
The effects of all of these changes will need to be evaluated over time to determine how they affect hospitals’ responsibilities and obligations to their communities.