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National Data Demonstrates Hospital Community Benefits Exceed Value of Federal Tax Exemption

October 11, 2017

According to a new analysis prepared by Ernst & Young, not-for-profit hospitals’ and health systems’ community benefit activities outweigh the value of their federal tax exemption by a factor of 11 to one.

The analysis, prepared for and released by the American Hospital Association (AHA), shows that for every dollar invested in hospitals and health systems by means of their federal tax exemption, they deliver $11 in benefits back to their communities.

During 2013, the most recent year for which information was available, the estimated value of federal tax revenue foregone due to the tax-exempt status of non-profit hospitals, was $6 billion. In comparison, tax-exempt hospitals provided $67.4 billion in community benefits to their communities.

Tax-exempt hospitals are exempt from most federal, state, and local taxes because of the community benefit provided by these institutions. They report publicly about their community benefit activities, through Internal Revenue Service Form 990s, as well as through community benefit reports.

In Pennsylvania, both not-for-profit and investor-owned hospitals and health systems are helping local governments and community service agencies address health-related challenges from drug abuse and gun violence to obesity and heart disease. Their commitment reaches beyond buildings and campuses to inner-city neighborhoods and remote rural areas.

Hospitals provide free and reduced cost care for the most vulnerable populations, and make up for the gap between Medicare and Medicaid payments and the full costs of delivering care.

But there are many more ways that hospitals deliver community benefits. Most people do not realize the extent of the services hospitals support beyond acute care and emergency services.  They provide shelter, meals, and other supports during natural disasters such as the recent hurricanes. Hospitals host clinics for underserved communities and programs to help individuals manage chronic illnesses. They are educating the next generation of nurses, physicians, and other health care professionals. Many hospitals mentor young persons through school-based initiatives, often introducing low-income students to health care opportunities.

Pennsylvania hospitals, like so many across the country, are establishing partnerships to fight the opioid epidemic and taking mental health services to at-risk individuals. They are implementing programs that address social problems including violence, homelessness, and hunger.

Across Pennsylvania, hospitals are improving health and the quality of life for many citizens. Some hospitals run mobile dental and eye care services for the needy, while others provide remote care for veterans. In efforts to promote wellness, many hospitals operate exercise classes in remote communities or partner to develop bike and walking paths and offer healthy cooking classes. 

The study provides estimates for 2013, the most recent year for which community benefit information is available for non-profit hospitals. The analysis does not account for other non-profit specialty hospitals, such as psychiatric or long-term acute care. The analysis reviewed source materials including IRS Form 990 Schedule H, community benefit reports and Medicare cost reports from nearly 3,000 non-profit general hospitals from across the country.

For additional information about hospitals’ community initiatives, contact Rob Shipp, HAP’s vice president, population health strategies.

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