Majority of Nonprofit Health Systems Don't Pay Their Tax Breaks Forward

The Lown Institute found that nearly 83% of health systems spent less on charity than the value of their tax breaks, resulting in an $18.4 billion total 'fair share deficit.'

Several of the biggest nonprofit health systems in the country are also among the primary offenders in the failure to invest significant tax breaks into charitable contributions, according to a new study by the Lown Institute.

The healthcare think tank found $18.4 billion in total unrealized community investment between the systems, which could have instead been allocated for housing, food, and furthering health equity.

Using the Lown Institute Hospitals Index, the study compared more than 1,800 hospitals across 275 nonprofit hospital systems to calculate "fair share spending"—how much each system spent on charity in relation to the value of its tax exemption. The data was pulled from hospital tax filings from the fiscal year ending 2019, the most recent year available for most hospitals.

Of the 275 nonprofit systems examined, 227 spent less on charity than the value of their tax breaks. Community investment in the study included community health improvement activities, contributions to community groups, community building activities, and subsidized healthcare services.

When the Lown Institute conducted the study for the first time last year, it found that of the 2,391 nonprofit hospitals studied, 72% had a fair share deficit totaling $17 billion.

Several of the hospitals that had the largest fair share deficits from last year are also part of the systems that appear on this year's list.

Biggest offenders

The 10 systems with the largest deficits accounted for $5.6 billion of the total fair share deficit (30%).

According to the study, many of these systems also received hundreds of millions from the 2020 CARES Act—meant to provide financial relief during the COVID-19 pandemic—and ended the year with excessive revenue.

The total fair share deficit was concentrated in certain regions, with seven states accounting for over $1 billion—California, Massachusetts, Pennsylvania, Ohio, Illinois, New York, and Michigan.

*Used FYE 2018 data

When reached for comment, Providence Saint Joseph Health said in a statement: "The Lown report paints an incomplete picture of the Providence family of organizations' community investments. The methodology used falls short by failing to account for all forms of community benefit, including the unpaid costs of Medicaid and other means-tested government programs.

"For example, uncompensated care as a portion of community benefit is considerable and without it, the numbers in the report are incomplete. Providence organizations serve a large proportion of patients who rely on government programs for health insurance or are uninsured. In 2019, Providence organizations provided $816M in uncompensated costs of Medicaid, alone.

"In 2019, our total community benefit investments totaled $1.5B. Included was free or low-cost care (charity care) and the costs of uncompensated care for government-funded programs, along with proactive investments such as community health improvement programs and services and subsidized health services."

The American Hospital Association (AHA) released their own statement criticizing the Lown Institute's report and defending hospitals' use of financial resources.

"The Lown Institute’s latest report on hospital community benefits is an obvious example of relying on pre-conceived notions and faulty methodology to draw inaccurate conclusions," the AHA stated. "The report cherry-picks categories of community investment while simply ignoring others, such as researching life-saving treatments and cures and training and educating the next generation of caregivers. It overlooks many of the essential contributions hospitals make to their communities that are critically important, especially during the pandemic."

Best performers

Hospitals that were considered to have paid their fair share committed at least 5.9% of their overall expenditures to charity and community investment.

While there are systems that do their part by putting money back into the community, the discrepancy between the systems' fair share surplus and fair share deficits is significant.

"Would half a billion in taxpayer dollars be better spent by directly funding addiction, food insecurity, or homelessness efforts?" Dr. Vikas Saini, president of the Lown Institute, said in a statement. "We should all be asking those types of questions given the vastness of these sums and the significant public health crises many communities are facing."

The full 2022 Lown Institute Hospitals Index, with rankings across more than 50 metrics, is expected to be released in late June.