Nonprofit Hospitals:

Better Standards Needed for Tax Exemption

T-HRD-91-43: Published: Jul 10, 1991. Publicly Released: Jul 10, 1991.

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GAO discussed nonprofit hospitals' provision of charitable services to the indigent population of their communities. GAO found that: (1) the link between nonprofit hospitals' tax-exempt status and their provision of charitable activities for the poor or underserved is weak; (2) poor people without public or private health insurance gain access to nonemergency hospital services only if the hospital is willing to admit them with little expectation of payment; (3) of the nonprofit hospitals reviewed in five states, government-owned hospitals provided a disproportionate amount of the uncompensated care, and the burden of such care was not distributed equally among the nonprofit hospitals; (4) nonprofit hospitals that had the highest rates of uncompensated care served more Medicaid patients and had lower profit margins; (5) about 57 percent of the nonprofit hospitals provided care that had lower value than the value of their potential tax liability; (6) hospitals lacked proactive policies regarding the indigent population, causing problems in delivering services to them and creating gaps in services for entire communities; (7) the admissions policies of nonprofit hospitals limited the majority of charity care to that initiated in the emergency room; and (8) since the Internal Revenue Service has no requirements relating hospitals' tax-exempt status to charitable services provided, some hospitals can and do take measures to avoid serving the indigent population.

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