Nonprofit Hospitals:

Better Standards Needed for Tax Exemption

HRD-90-84: Published: May 30, 1990. Publicly Released: Jun 29, 1990.

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Mark V. Nadel
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Pursuant to a congressional request, GAO assessed the role of nonprofit hospitals in providing: (1) acute medical care to indigents; and (2) other community services, such as health education and screening.

GAO found that: (1) nonprofit hospitals provided a lower percentage of their states' uncompensated care than the percentage of hospital care they provided in the state; (2) uncompensated care expenses were not distributed proportionately throughout the nonprofit sector, but were concentrated in large teaching hospitals in cities; (3) the nonprofit hospitals with the lowest uncompensated care rates had better financial results than other nonprofit hospitals, while those with the highest uncompensated care rates had the poorest financial results; (4) hospitals whose potential tax liability exceeded their uncompensated care expenses had proportionately higher net incomes than other hospitals in their states; (5) between 43 and 71 percent of the nonprofit hospitals in the five states GAO examined provided less charity care than estimates indicated; (6) some hospitals' goals did not focus on the health needs of the poor or underserved in their community; (7) physician staffing and charity admissions policies discouraged indigent admissions except in emergency cases; and (8) nonprofit hospitals were more likely than investor-owned hospitals to offer community services, but were equally likely to charge patients for them and more likely to recover their costs.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: H.R. 1374 and H.R. 790 were introduced to establish standards of charity care for tax-exempt hospitals. The bills are still pending. IRS has taken a more aggressive stance in monitoring tax-exempt hospitals, but the legislation GAO recommended has not been enacted.

    Matter: Currently, there are no requirements relating hospitals' charitable activities for the poor to tax-exempt status. If Congress wishes to encourage nonprofit hospitals to provide charity care to the poor and underserved and other community services, it should consider revising the criteria for tax exemption. Criteria for exemption could be directly linked to a certain level of: (1) care provided to Medicaid patients; (2) free care provided to the poor; or (3) efforts to improve the health status of underserved portions of the community.


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