Lawmakers can ensure that nonprofit hospitals benefit communities, Brown scholar tells Congress

WASHINGTON, D.C. [Brown University] - More than half of U.S. hospitals are nonprofit organizations, and the total financial value of nonprofit tax exemptions exceeds $37 billion per year nationally. In return for this exemption, the IRS requires that nonprofit hospitals operate with a primary focus of serving the community. But that's not always the case in reality, said Brown University public health researcher Christopher Whaley.

In testimony offered before Congress on Tuesday, Sept. 16, Whaley presented his research quantifying the financial value of nonprofit hospital tax exemptions, analyzing hospital use of tax-exempt bond financing and investment income, and examining how those financial advantages influence hospital pricing behavior and community benefit spending. He also shared policy reforms suggestions that could help ensure that tax benefits translate into measurable health care benefits for patients and communities.

Whaley was among of a panel of experts who testified in a hearing titled "Hearing on Virtue Signaling vs. Vital Services: Where Tax-Exempt Hospitals are Spending Your Tax Dollars," organized by the Oversight Subcommittee of the U.S. House Committee on Ways and Means. The associate professor of health care policy, who is affiliated with the Center for Advancing Health Policy through Research at Brown's School of Public Health, was invited to testify given his research on ways to reduce health care costs.

According to Whaley, while nonprofit hospitals provide community benefit spending, some reports estimate that the tax exemption exceeds community benefit spending by more than $25 billion per year. Research shows little difference in the quality of care and the level of charity care provided by tax-exempt hospitals compared to for-profit hospitals. Yet the substantial financial advantage of tax-exempt hospitals has led to concerns that quality should be higher, Whaley said.

"If community investment is not larger and quality is not superior, where are the extra dollars from these financial advantages going?" Whaley asked during the hearing. "I am concerned that the financial resources may be used in ways that do not directly improve patient care, including increased executive compensation, investment vehicles and accounts which collectively exceed $1.5 trillion in value in marketing, including sponsoring stadiums and sports teams."

Whaley noted bipartisan efforts to increase oversight of tax-exempt hospitals and to further regulate their financial assistance and debt collection practices.

He suggested additional policy reforms, including Congressionally defined standards for financial assistance and benefits to the community health sector (to ensure that tax-exempt hospitals fulfill their charitable missions); policies that prevent harmful consolidation in both the provider and insurance systems (to more broadly ensure that U.S. health care markets deliver high-quality and affordable care); and transparency around pricing policies, hospital benefits and rebates (to ensure those dollars directly benefit patients).

During both his testimony and a lengthy Q&A session, Whaley reiterated the importance of access to high-quality, affordable health care for Americans regardless of geographic region or income, and praised hospitals for delivering life-saving care and improving community health. He also acknowledged the economic impact of hospitals, which are the largest employers in many areas of the country. Yet with health care prices surging, he urged Congress to take a closer look at nonprofit hospitals.

"Congress can help ensure that the substantial tax benefits nonprofit hospitals receive translate into tangible improvements for patients and communities," Whaley said.