Sunday, April 6, 2008

Wall Street Journal on Big Nonprofit Hospital Profits

The Wall Street Journal ran a front page story on Friday April 4, 2008 concerning nonprofit hospitals complete with nice tables and interactive video.  Not much new in the report, just more evidence that nonprofit hospitals are "nonprofit" in name only.  One could even argue that tne nondistribution constraint (i.e., the prohibition against private inurement) does nothing to distinguish nonprofit hospitals from for-profit hospitals.  Given the amounts of compensation and other perks paid to those who would otherwise be considered "top hats" in the for-profit world, and the paltry sums devoted to health care for the indigent, it  would even be economically illogical to form a for profit hospital when the nonprofit model looks so similar and can provide the same amount of financial returns -- and the same small amount of charity care -- as for profits.  It would appear the market already knows this, given the fact that most  hospitals in the United States are nonprofit rather than for-profit.  The founders and operators of these large, wealthy institutions surely cannot be oblivious to this fact.  I really would appreciate some feedback from readers in defense of tax exemption for nonprofit hospitals.  The Journal's Health Blog contains some discussion but none of it seems convincing.  I think the only legitimate defenses must those added values that for profits cannot provide.  Thus, increasing the availability of jobs, and contributing to the local economy cannot qualify since every profitable business does those things.  Perhaps the research gains might legitimately stand in defense on tax exemption for nonprofit hospitals but I even have to wonder whether for-profit hospitals do just or nearly as well.  Anyway, here is  an excerpt from the article:

Nonprofit hospitals, originally set up to serve the poor, have transformed themselves into profit machines. And as the money rolls in, the large tax breaks they receive are drawing fire. Riding gains from investment portfolios and enjoying the pricing power that came from a decade of mergers, many nonprofit hospitals have seen earnings soar in recent years. The combined net income of the 50 largest nonprofit hospitals jumped nearly eight-fold to $4.27 billion between 2001 and 2006, according to a Wall Street Journal analysis of data from the American Hospital Directory. AHD, an information-service company, compiles data that hospitals report to the federal government.

The last line of the article states, ""Nonprofit is a misnomer -- it's nontaxable," says Sacred Heart Hospital's Mr. Novak. "When you're making hundreds of millions of dollars a year, how can you call yourself a not-for-profit?"


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"I really would appreciate some feedback from readers in defense of tax exemption for nonprofit hospitals."

You'll find no such feedback here. I teach nonprofit law at Hastings, and both my students and I haven't been able to justify their exempt status.

Posted by: Dave Lacy Kusters | Apr 7, 2008 1:37:09 PM

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