What Tax-Exempt Hospitals Owe Their Communities
Consider the tax-exempt hospital.
Traditionally, these hospitals have offered free or subsidized medical treatment for poor patients. Over the past half-century, however, as the federal government has taken to paying for health care -- via Medicare, Medicaid and, now, the Affordable Care Act -- policy makers have tried to steer the nation’s 2,900 tax-exempt hospitals away from charity medical treatment for individuals and toward the kinds of preventive public-health services that are believed to lower health-care costs generally: community blood-pressure and mammography screening, clinics for weight loss and smoking cessation, and so on.
To push this shift, the Internal Revenue Service has required tax-exempt hospitals to report annually on the community benefits they provide. Now, under the Affordable Care Act, they also have to formally assess, every three years, the health needs of their communities and adopt strategies to meet those needs. The idea is to hold the hospitals accountable for the estimated $13 billion in federal, state and local tax breaks they receive.
It’s too soon to tell whether the latest reporting requirement will accomplish the shift policy makers are looking for. What is known is that hospitals have a long way to go to live up to their mandate.
According to a study published last week in the New England Journal of Medicine, only 5 percent of the money that tax-exempt hospitals spent on behalf of their communities in fiscal year 2009 went to public-health programs. The lion’s share went to free and subsidized patient care.
For the new self-assessments to move hospitals toward a greater commitment to public health, community groups, news reporters and local policy makers must be able to access them easily. The New England Journal study found that hospitals in states with strong requirements for community-benefit reporting spent significantly more than those in states without such rules. To this end, hospitals should be required to file their community-needs assessments, as well as their spending reports to the IRS, electronically, so they can be instantly available to all online.
Hanging over the heads of hospitals administrators is the threat that authorities might one day take away their tax-exempt status. Policy makers at all levels have been alarmed to see seven-figure salaries for executives at nonprofit hospitals. Last month, the city of Pittsburgh filed suit to strip the renowned University of Pittsburgh Medical Center of its exemption from city payroll taxes, worth $16 million a year. Pittsburgh charges that the hospital has spent too much on executive compensation (Jeffrey Romoff, the president and chief executive officer, earned almost $6 million in 2010) and too little on activities for the community.
If hospitals are to continue to be excused from paying taxes, they should serve their communities in return -- in ways that provide maximum benefit to those communities.
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