December 15, 2008
The Rich and the Poor of Nonprofit Hospitals
Many of the intellectuall fights in the nonprofit sector arise at the intersection of charity avenue and profit street -- aka, nonprofit hospitals and big university, respectively. Sometimes, the fights are resolved on the basis of an unfortunate or inaccurate caricature. The phrase, "nonprofit hospital," for example, conjures up images of pristine, well-lighted, luxurious waiting rooms, sorrounding the offices of very well-paid hospital executives, who direct the provision of services by equally well paid physicians who, in turn, are backed by a pack of collection agency hounds who will pick the bones of any poor patient who dares present herself without health insurance. But a Wall Street Journal article last week effectively depicts both the rich and poor amongst nonprofit hospitals:
While a number of nonprofit hospitals have grown into profit machines in recent years, some, like Mount Sinai, have stuck to their charitable mission but struggled financially. These institutions are usually located in inner cities and not anchored to big nonprofit systems, nor can they rely on government support the way county or state hospitals can. In return for exemption from local, state and federal taxes, nonprofit hospitals are expected to provide benefits to their community, including charity care for the poor. Surplus revenues are supposed to be channeled back into operations. Mount Sinai has teetered between a small net income and annual losses as high as $15 million over the past five years. While some large nonprofit hospitals have amassed billions of dollars in reserves, Mount Sinai's days of cash on hand -- a common gauge of a hospital's solvency -- is sometimes measured in hours. Mount Sinai's struggles reflect in part a paucity of government incentives for nonprofit hospitals to operate in inner cities. Earlier this decade, Illinois introduced a subsidy program to offset losses hospitals incur from accepting Medicaid, the government health-insurance plan for the poor, which often doesn't cover costs. Because of the way it is designed, the program makes higher payments to one of Chicago's richest nonprofit hospitals, University of Chicago Hospitals, than it does to Mount Sinai.
The article points out an interesting irony, perhaps present in other parts of the tax code, and no doubt documented in tax exemption scholarship. More than a few articles criticize tax exemption as both an inefficient and inequitable means of acquiring public goods (I am too lazy to find them now and, besides, I have exams that I should be grading instead). The irony is that the wealthiest charities receive the biggest tax subsidies under the present system. As anecdotal evidence, the article notes that Mount Sinai received lower payments than the University of Chicago Hospitals. No doubt, much important research happens at UC Hospitals, but that research is no more important than present day care for the poor amongst us right now.
My overall point, though, is that it is difficult to articulate a one size fits all rule of tax exemption, particularly with respect to a sector (such as the nonprofit world) that is comprised of both the rich and the poor.
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