Four in five nonprofit hospitals are spending less on community benefit areas like financial assistance than what they are estimated to receive in tax breaks, according to the latest annual report from the Lown Institute looking at 2021 IRS filings.
The total difference across 2,425 evaluated hospitals, what Lown refers to as the “fair share deficit,” totaled $25.7 billion—enough to wipe 29% of the country’s medical debt, the think tank wrote.
Among the worst offending hospitals, per the report, are New York-Presbyterian with a $274 million fair share deficit, UPMC Presbyterian with a $268 million deficit and NYU Langone with a $222 million deficit. These and the other hospitals that made up the 10 largest deficits each reported at least $100 million in net income during that same year, the group noted.
Across nonprofit health systems, Lown said it found the greatest fair share deficits among Kaiser Permanente (-$1.2 billion), Providence (-$1 billion) and CommonSpirit Health (-$923 million). Lown also highlighted that five of the 10 nonprofit systems with the largest deficits have Catholic affiliations and represent 13% of all hospitals and 15% of the total fair share deficit examined in the group’s study.
“When four out of five nonprofit hospitals do not meet obligations to benefit their community, it’s a sign that regulations and incentives need to be revisited,” Vikas Saini, M.D., president of the Lown Institute, said in a release. “Everyone wants to see their local hospital thrive, but not at the expense of the communities they serve.”
Lown’s latest version of the report expands on last year's analysis by 652 hospitals. Citing earlier Johns Hopkins University research on the monetary value of a nonprofit tax exemption, the group sets a “meaningful community investment” threshold of 5.9% of a hospital’s overall expenditures, meaning that hospitals that reported community spending below the cutoff were considered to have a fair share deficit.
Overall, Lown found that hospitals spent an average of 3.87% of their budget on community investments but noted that “this proportion varied widely” from hospital to hospital.
An accompanying brief from the group specified that 2% of all reported community investment was for programs targeting social determinants of health and that “many hospitals provide insufficient detail in their Schedule H [part of the 990 tax form] on how their community investment was spent.”
The hospital industry has responded to prior iterations of Lown’s report by criticizing the think tank’s judgment of what types of spending do or do not constitute a community benefit investment.
Some of the notable exclusions, per Lown’s methodology, include Medicaid shortfall, training new healthcare professionals and research.
"It’s an open secret that nonprofit hospitals take advantage of lax IRS guidelines when claiming community benefit spending with little to no accountability," Saini told Fierce Healthcare in an email message discussing the methodology choices. "Our report measures only spending that has a direct impact on the health of people in the hospital’s community and excludes spending that may be important but is unrelated to what we are examining.
"For example, at Lown we don’t include things like physician training and NIH-funded research because hospitals get paid to do it," Saini said. "It’s literally not spending."
Medicaid shortfall funds, the group wrote in its report, were excluded “because hospitals are already reimbursed for Medicaid patients by the state," and covering them "does not convey a hospital policy choice.”
In a Tuesday morning blog post, American Hospital Association President and CEO Rick Pollack said this year's report "cherry-picks" certain areas of community benefit and therefor "suffers from the same biases, flaws and shortcomings as its previous reports."
He also said that the report doesn't take state-level policy differences "that can seriously skew the data," and said that the 5.9% threshold is based on data from before the implementation of Affordable Care Act coverage provisions and other circumstances that have "significantly" changed the healthcare landscape.
NYU Langone, one of the hospitals highlighted for having the largest fair share deficit, also contested the report in an emailed statement. It said that its community benefit spending should be 21% of total expense, rather than the report's cited 2.4%, with almost half of that spending covering "the cost of charity and underfunded care for our patients."
Lown’s latest report also outlines hospitals on the other side of the spectrum. Among those with the largest fair share surpluses were the Lakeland Regional Medical Center ($194 million), the Summit Healthcare Regional Medical Center ($159 million), the Nebraska Medical Center ($112 million) and the Hackensack University Medical Center ($96 million), though Lown noted the first two in that group “had unusually high community investment spending in 2021 in relation to previous years.”
Similar names headed the shortlist of nonprofit health systems with large surpluses. Hackensack Meridian Health led the pack by a substantial margin with a $358 million surplus, followed by Nebraska Medicine with $119 million, Christus Health with $108 million and WellStar Health System with $85 million. Lown noted that this top 10 included three Catholic systems.
Still, the overall trend of underspending on community benefits led Lown to reiterate its calls for greater reporting transparency and accountability in an accompanying policy brief.
Among the former were recommendations for more detailed information on financial assistance and debt actions on Schedule H, or to more broadly mimic requirements passed in some states for health systems to report community benefit spending at the facility level.
On accountability, Lown called for minimum thresholds for hospitals’ meaningful community benefit spending, better defined financial assistance eligibility thresholds and “intermediate enforcement measures like financial penalties for hospitals that do not comply with the community benefit standard,” according to the brief.
“Federal regulation of community benefit spending is woefully ineffective and in need of reform,” Saini said. “Though hospitals are required to report their community contributions to the IRS, there is no minimum spend, there are many loopholes and enforcement is practically nonexistent.”
Some of Lown’s calls echo those made by states and federal lawmakers from both sides of the political spectrum.
Last August, for instance, Sens. Elizabeth Warren, D-Massachusetts, Raphael Warnock, D-Georgia, Bill Cassidy, M.D., R-Louisiana, and Chuck Grassley, R-Iowa, penned letters to tax regulators requesting more detailed information on nonprofit hospitals’ reported charity care and community investments.
In October, Senate Health, Education, Labor and Pensions Committee Chairman Bernie Sanders, I-Vermont, released a review of 16 nonprofit health systems’ 2021 financial statements in which his staff pointed to charity care spending below 2% of the systems’ total revenue.
“In 2020, nonprofit hospitals received $28 billion in tax breaks for the purpose of providing affordable health care for low-income Americans,” Sanders said at the time. “And yet, despite these massive tax breaks, most nonprofit hospitals are actually reducing the amount of charity care they provide to low-income families even as CEO pay is soaring. That is absolutely unacceptable.”
AHA's Pollack responded to Sanders’ “tunnel-visioned ‘research’” with a rebuttal, again pointing to hospital spending on patient financial aid and health education programs, which was not included in the senator’s report.
Editor's note: This story has been updated with responses from the American Hospital Association and NYU Langone.