How Nonprofit Hospitals Fail to Meet Tax-Exempt Status Charity Requirements, as Highlighted by Sanders

In a scathing report released on Tuesday, Sen. Bernie Sanders (I-Vt.), chair of the Senate Committee on Health, Education, Labor and Pensions (HELP), criticized nonprofit hospitals for charging patients exorbitant fees despite their obligation to provide medical care for free or at reduced costs.

In his report, Sanders highlighted the case of a Memphis woman in 2007 who received a bill of $12,019 for a procedure, which she couldn’t afford to pay at the time. The bill accumulated interest, went to collections, and ultimately left the woman with a staggering debt of over $33,000.

Sanders lamented the prevalence of such stories, stating that they are “far too common.”

“Nearly half of American hospitals are non-profits, which grants them a significant benefit: exemption from federal, state, and local taxes,” he noted.

“In exchange for these tax benefits, non-profit hospitals are required by the federal government to serve the public interest by offering a range of community benefits, including provision of free or significantly discounted medical care to low-income individuals — commonly known as ‘charity care.'”

While federal law allows hospitals to establish their own criteria and policies for charity care, resulting in variations in eligibility for financial assistance, a report by the KFF revealed that hospitals reported $28 billion in charity care costs in 2019.

In 2020, charity care costs accounted for an average of 2.6 percent of operating expenses. Nonprofit hospitals must provide some degree of charity care or other community benefits in order to maintain their tax-exempt status. However, some hospitals allocated only 0.1 percent or less of their operating costs to charity care.

The Vermont senator criticized hospitals for making information about their charity care programs difficult to access, while compensating their top executives generously. He referred to studies suggesting that many nonprofit hospitals spend less on charity care than they receive in tax benefits.

Sanders called on Congress and the IRS to hold nonprofit hospitals accountable for delivering “accessible healthcare in their communities.” He urged Congress to ensure that these hospitals offer charity care that is “commensurate” with the level of tax breaks they receive and to establish “enforceable standards” for hospital financial assistance programs.

The American Hospital Association (AHA) released a press release on Tuesday, without specifically referencing Sanders’s report. In the statement, the AHA cited a new analysis it conducted, asserting that “tax-exempt hospitals provided more than $129 billion in total benefits to their communities in 2020 alone.”

“Hospitals are committed to ensuring that everyone has access to care, regardless of their ability to pay, while also addressing the most pressing health issues in their communities, particularly among medically underserved, low-income, and minority populations,” the AHA stated.

“As part of this commitment, hospitals strive to provide regular access to care for low-income patients through programs like Medicaid, which help facilitate essential routine and preventative care for overall health and well-being.”