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Not-For-Profit Hospitals Make Billions—and Provide Little Charity Care

Not-for-profit hospitals are almost entirely tax exempt, in part because of the expectation they will provide free or low-cost “charity care" to those in need.

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The following article first appeared at Working In These Times , the labor blog of In These Times magazine. For more news and analysis like this, sign up to receive In These Times ' weekly updates .

Not-for-profit hospitals, including some of the country’s biggest and best-known institutions, are almost entirely tax exempt, in part because of the expectation they will provide free or low-cost “charity care" to those in need. But a report released this week by a research arm of  California Nurses Association / National Nurses United found that California not-for-profit hospitals are reaping huge tax benefits while providing minimal charity care.

Many people don’t realize that not-for-profit institutions can accumulate profits. They can; the profit cannot be disbursed to individual owners or stockholders but rather is supposed to be reinvested for the good of the community. With hospitals, that is generally assumed to include the provision of charity care to uninsured or low-income people. But while 11 states, including Texas and Alabama, mandate specific levels of charity care, California and the federal government do not.

As a result, not-for-profit tax breaks for well-known California hospitals–including Cedars Sinai, Kaiser Permanente and Stanford University--dwarf the level of charity care provided. Overall, the 196 hospitals surveyed received $3.3 billion in 2010 state and federal tax exemptions and spent only $1.4 billion on charity care--a gap of $1.8 billion. Three-quarters of the hospitals got more dollars in tax breaks than they spent on charity care. Half spent less than 2.46 percent of their operating expenses on charity care.

The tax breaks hurt financially strapped counties and towns; according to the report, California counties and municipalities lost about $1 billion in tax revenue they would have otherwise collected in 2010. Public budgets suffer when large institutions don’t pay taxes, and budget crunches are often taken out on public workers, as well as those who rely on the services they provide. Counties or cities also end up essentially picking up the tab for health care when impoverished patients can’t pay and hospitals either deny care–diverting the patients elsewhere–or insist on billing. The report notes that California counties and towns paid $450 million in 2010 to for-profit and not-for-profit hospitals for care for people who could not pay their medical bills.  

All of these spillover effects concern National Nurses United, whose mission includes patient advocacy and "accessible, quality healthcare for all." Spokesperson Chuck Idelson told In These Times, “Nurses see what happens to their patients and their communities when these giant corporate hospitals behave more like Lehman Brothers or JP Morgan than a community service. For example, Sutter Health has engaged in widespread slashing of mental health services, women’s services, children’s services–cuts that will make them profits."

The nurses' union proposes California legislation that would force not-for-profit hospitals to beef up their charity care if they want to maintain their tax exemptions. It wants hospitals to spend at least 8 percent of revenues on charity care, echoing a proposal made by the state attorney general in 2006. The nurses are also demanding more transparency in how hospitals report and define their charity care, to exclude the "promotional activities or cost containment (interpreted by many hospitals as cutting services)" that are currently counted. Violations of charity care obligations could be punished by fines and/or the revoking of tax exempt status.

To those who wish to support NNU's efforts, Idelson says, "You can  contact your legislator to insist they pass legislation, and tell the non-profit hospitals to cease their practices of putting profits and executive pay over charity care."

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