Friday, May 24, 2019

The Cost of Nonprofit Hospital Tax Exemption and The Value of Community Benefits in 2016 -- Lies and Statistics?

Lies +Damn+Lies +and+Statistics.

Ernst and Young conducted a study and prepared a report regarding tax-exempt hospitals.  The study estimates that hospital tax exemption cost us $9 billion in 2016 while providing community benefit worth $95 billion for a net gain to the public of $84 billion.  An earlier 2017 study contains similar conclusions regarding the cost and community benefits in 2013.  Here is the press release announcing the May 2019 findings: 

EY was commissioned by the American Hospital Association to analyze the federal revenue forgone due to the tax exemption of non-profit hospitals as well as the community benefits they provide. This study presents estimates for 2016, the most recent year for which community benefit information is available for non-profit hospitals based on Medicare hospital cost reports for approximately 3,000 non-profit general hospitals. The analysis does not account for other non-profit specialty hospitals, such as psychiatric or long-term acute care.

In 2016, the estimated tax revenue forgone due to the tax exempt status of non-profit hospitals is $9.0 billion. In comparison, the benefit tax-exempt hospitals provided to their communities, as reported on the Form 990 Schedule H, is estimated to be $95 billion, 11 times greater than the value of tax revenue forgone.

The analysis does not include the deductibility of charitable contributions to non-profit hospitals. If deductions to non-profit hospitals were no longer deductible but charitable donation provisions were otherwise unchanged, donors would likely shift their donations to other tax-exempt entities, including both those affiliated and unaffiliated with hospitals, resulting in a negligible net federal revenue impact.

The analysis does incorporate an estimate of the current state and local revenue forgone due to tax exemption. If federal tax exemption were restricted, the assumption is that state and local tax exemptions would also be restricted, thereby increasing state and local taxes on non-profit hospitals. As a result, a hospital’s federal corporate taxable income would be reduced by an amount equal to the increase in state and local taxes.

I don't think I would characterize the study as an "independent assessment."  The value of the community benefit is derived from figures provided by the hospitals and they aren't  exactly disinterested in the study's outcome.  I'm not saying they are lies, I'm just saying . . .

Darryll K. Jones

https://lawprofessors.typepad.com/nonprofit/2019/05/the-cost-of-nonprofit-hospital-tax-exemption-and-the-value-of-community-benefits-in-2016-lies-and-st.html

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From page 2 of the report:
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Four items are included in tax-exempt hospitals’ total benefit to communities reported on form Schedule H:
• Financial assistance and means tested government programs and other benefits (Part I, line 7k of the Form 990 Schedule H)
• Community building activities (Part II of the Form 990 Schedule H)
• Medicare shortfall (Part III, line 7 of the Form 990 Schedule H)
• Bad debt attributable to charity care (Part III, line 3 of the Form 990 Schedule H).

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There are at least two key issues with the report. First, there is a big difference between "community benefit" and the popular understanding of charity care; i.e., care provided to indigent or, in this case, medically indigent, people. Second, for-profit and government (county, hospital district, etc.) hospitals also provide community benefit, though that community benefit is not measured using the Form 990 Schedule H.

Many hospitals include marketing and patient recruitment activities in their community benefit calculations. The free blood pressure and cardiac screenings at the sporting goods store just before hunting season is a classic example.

I agree with Lord Beaconsfield's quote here.

Posted by: Michael L. Wyland | May 25, 2019 3:31:31 PM

The numbers the hospitals provide are a systematic deception. All of their costs are based on their charge master rates. E.g., if they write off services as collectible, the amount they write off is the amount on their charge master which is a rate that no one ever pays. Disraeli was too kind.

Posted by: Walter Sobchak | Jun 19, 2019 7:17:57 PM

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