December 1, 2023
Healthcare Systems and Controversial Tax Breaks: Everything You Need to Know
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Just about everyone has an opinion on the healthcare system in the United States. What may Americans don’t realize, however, is that there’s another tangential battle going on when it comes to healthcare facilities themselves.
Property tax breaks – specifically for non-profit hospitals and clinics – are common. In recent months and years, though, many have questioned whether or not these facilities are actually paying their fair share. As a matter of fact, one April 2023 government report notes that many hospitals that are currently tax-exempt have not met required standards for years.
Specifically, Jessica Lucas-Judy, Director of Strategic Issues for the Government Accountability Office (GAO), wrote, “IRS officials told us that the agency had not revoked a hospital’s tax-exempt status for failing to provide sufficient community benefits in the previous 10 years.”
Here, we tell you everything you need to know about this ongoing issue.
The Disparity In Property TaxationEvery year, homeowners like Terry Taylor-Allen and her husband, William, dutifully pay property taxes. The Allens are proud of their bungalow in Charlotte, North Carolina's Dilworth neighborhood. However, as North Carolina Healthcare News shared, a stark contrast unfolds next door, where houses owned by The Charlotte-Mecklenburg Hospital Authority (Atrium Health) enjoy a tax-free status, despite substantial revenue.
This exemplifies a somewhat peculiar fiscal dynamic that exists from coast to coast.
Tax Exemptions For Healthcare GiantsAtrium Health, a healthcare system that boasted $8.9 billion in revenue in 2021 alone, benefits from a property tax exemption due to its status as a hospital authority. It is not alone – this is a tax break given to healthcace facilities throughout the country. This exemption even extends to properties unrelated to medical purposes.
As North Carolina Healthcare News pointed out, a tax-exempt Atrium property in Cornelius, NC houses a PDQ Tenders chicken restaurant. While patrons still pay sales tax on their meals, Atrium doesn’t pay any property taxes for the land the fast food shop sits on.
This narrative is mirrored by Novant Health, a nonprofit hospital that receives tax breaks solely on properties deemed charitable. “If you think about the cumulative total of everything (the hospitals) have taken off the tax rolls over the years, that’s a Godzilla number,” Taylor-Allen, told the news outlet. “Think about all the school needs and how much that money could help low-income people who don’t have health care, housing or food.”
In 2020, non-profit hospitals received an estimated $28 billion in tax breaks. This was an average of $9.4 million per hospital. Many questions have arisen, however, about how much true “non-profit” work these facilities are doing. A report stemming from work done by Senator Bernie Sanders noted that the hospitals in question “spent only an estimated $16 billion on charity care” – that’s a glaring $12 billion difference.
Per North Carolina Health News’s analysis of that state specifically, tax-exempt properties assessed at over $2.4 billion in Mecklenburg County alone. If fully taxed, Atrium and Novant would have ranked as the county's fourth- and fifth-largest property taxpayers in 2022, contributing an additional $23 million to the city and county tax base.
Comprehensive Tax Break Analysis: A National DialogueBeyond property taxes, hospitals nationwide benefit from income tax waivers, state sales-tax refunds, and the ability to raise money through tax-free bonds.
One specific example is the property tax exemption for nonprofit hospitals in New York City, where they are often granted relief from property taxes under Section 420-a of the New York Real Property Tax Law. This exemption is contingent on hospitals meeting certain criteria related to providing community benefits and charity care.
Historical Precedence: The National Origin of Hospital Tax ExemptionsThe historical origin of hospital tax exemptions, dating back over a century, was a nationwide initiative to ensure their service to the poor. The IRS stipulates that charitable hospitals qualify for tax exemption based on their commitment to public interest, community benefits, and a focus on public welfare rather than private interests.
The National Library of Medicine (NLM) points out:
Prior to 1969, the IRS specified that to maintain tax-exempt status, hospitals were required to provide charity care. While facilities were given latitude to define the amount of care required, the obligation was defined under the law. In 1969, however, the IRS replaced this relatively defined obligation with a more ambiguous standard; Revenue Ruling 69-5455 eliminated the obligation to furnish care on an uncompensated basis.
Hospitals across the nation exist in diverse forms – for-profit entities operating like any other corporation, nonprofit entities eligible for property tax exemptions for charitable purposes, and hospital authorities deemed government entities exempt from taxation. This diversity in hospital types is a national phenomenon with implications for the entire healthcare system.
Nonprofit entities, specifically, have faced scrutiny in recent years. The NLM notes that at least 45 class action lawsuits have been filed over the last several years. There are about 2,900 nonprofit hospitals in the United States right now, representing half of all such facilities.
As hospitals evolve into multi-billion-dollar enterprises, concerns about resembling for-profit companies and the need to justify tax-exempt status transcend regional boundaries. The financial heft of hospitals, typified by Atrium's $12.9 billion and Novant's $7.4 billion revenues, raises questions about the adequacy of public benefits, especially in light of substantial CEO compensations and reserves exceeding $800 million each.
Atrium's claim of voluntary payments of millions of dollars, despite being technically exempt from all property taxes, becomes part of a broader narrative about hospitals contributing to communities on a national level.
The debate over tax exemptions extends far beyond state lines, with more than a dozen states considering or passing legislation to define and increase transparency about community benefits provided by tax-exempt hospitals. The bipartisan concern about the balance between tax exemptions and public benefits becomes a national dialogue, reflecting the need for comprehensive reform in the healthcare system.
Hospital Accountability Nationally: The FutureAs hospitals, especially nonprofit entities, face intensifying scrutiny nationwide, the road ahead remains uncertain. The demand for hospitals to provide more substantial community benefits becomes a national imperative, prompting a nuanced dialogue about the future of tax exemptions in the healthcare landscape. The imperative is magnified as the entire nation grapples with issues of medical debt and access to care, emphasizing the need for hospitals to give back as much as they receive on a grand scale.
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