Nonprofit Hospitals Aren't Acting Like Nonprofits. Congress Should Ask Why.

In September, Whaley testified before the House Ways and Means Subcommittee, raising concerns about the nonprofit hospital tax exemption. This exemption allows hospitals to forgo profits and reinvest in their communities while avoiding federal, state, and local taxes. However, the data paints a different picture. The Internal Revenue Service requires these hospitals to primarily benefit their communities, but research suggests that community benefit spending falls short of the value of those tax exemptions by over $25 billion per year.

This is not a minor discrepancy; it represents a $25 billion gap between what Americans were promised and what they are actually receiving.

Recently, the House Ways and Means Committee introduced the Tax-Exempt Hospital Transparency Act. This legislation would require nonprofit hospitals to disclose more detailed information about how they spend the public's money. The bill calls for facility-level financial data, figures on financial assistance applications and approvals, community health investments, quality spending, advertising budgets, service line financials, and 340B drug discount program data for larger hospitals. Rep. Greg Murphy, the bill's lead sponsor, emphasized that these are basic requirements.

Recent evidence suggests that nonprofit hospitals do not operate significantly differently from for-profit hospitals and, in some cases, perform worse. Nonprofit hospitals have a lower charity care payer mix at 2% compared to 3.2% at for-profit hospitals. Additionally, hospital consolidation has led to a 220% increase in commercial prices since 2000, three times the rate of overall inflation.

Commercially insured patients now pay about 250% of what Medicare pays for the same care, and operating margins for commercially insured patients at system-affiliated hospitals exceed 40%.

Furthermore, the 10 largest health systems hold over $310 billion in total financial assets, and CEO pay at nonprofit hospitals has risen steadily since 2009. Some have invested in private equity vehicles and sponsored sports stadiums or film production studios. Notably, nonprofit health systems hold $300 billion in securities investments. While these may be sound business decisions, they are difficult to reconcile with a charitable mission.

The 340B drug discount program, originally designed to help safety-net providers, now accounts for nearly $44 billion in drug purchases, a 600% increase since 2010. Research indicates that 340B hospitals charge prices nearly 300% of the average sale price for physician-administered drugs, with profit margins approaching 700%. Originally intended to lower costs for vulnerable patients, much of this benefit seems to accrue to the hospitals.

These findings raise questions about the true purpose of the tax exemption. A $37 billion annual public subsidy should come with accountability, but current reporting requirements only allow large, interstate health systems to file a single aggregate community benefit disclosure. This makes it impossible to evaluate a hospital's performance in one city using a system-level filing that spans multiple states.

The proposed legislation aims to close this gap by requiring hospitals to document, at the facility level, how they are meeting their obligations to justify their tax-exempt status. If nonprofit hospitals are fulfilling their community mission, transparency should vindicate them. If not, Congress and the public will have the necessary information to take appropriate action.