Revise the IRS Nonprofit Hospital Community Benefits Reporting Standard
The Internal Revenue Service (IRS) uses the Community Benefits Standard (CBS), a set of 10 metrics analyzed holistically, to assess whether nonprofit hospitals benefit community health enough to justify their tax-exempt status. Nonprofit hospitals risk losing their tax exemption if they are assessed as underinvesting in improving community health. This exemption from federal, state and local property taxes amounts to approximately $25 billion annually.
However, accumulating proof shows that many not-for-profit hospitals’ investments in community health meet the letter, but not the spirit, of the CBS. Indeed, a 2021 study showed that for every $100 of total expenditures, nonprofit hospitals spend only $2.30 on charitable care (a key component of community benefits), considerably less than the $3.80 on every $100 spent by for-profit hospitals. A 2022 study examined the cost of Medicaid patient care that is not reimbursed and therefore borne by the hospital (another key element of community benefit); the researchers found that nonprofit hospitals spend no more than for-profit hospitals ($2.50 out of $100 of total spending).
Given the well documented role of social determinants in promoting health and health equity, focusing CBS components more specifically on these social determinants has the potential to measurably improve community health outcomes. Indeed, the development of a fairer and more socially focused federal standard could help guide and eventually unify the mosaic of spending policies on community health – and thus better respect the spirit of the CBS.
To that end, we are proposing a set of revisions to the CBS, specifically which standards to retain, which to modify or delete, and which new ones to add. The substance of our proposal derives from our assessment of deficits in the SCS literature, our in-depth interviews with nonprofit hospital administrators whose community investments exceed the monetary value of their tax exemption (as measured by the Lown Institute), and the personal experience of one of us (MKH) in creating successful community initiatives.
Standards to respect
Ooperate an emergency service open to all, regardless of ability to pay.
The Emergency Medical Treatment and Work Act 1986 requires all emergency services to stabilize and treat all patients regardless of their ability to pay, thereby meeting the emergency care needs of communities . Removing this CBS standard would encourage some nonprofit hospitals to eliminate their emergency departments.
Provide care to all patients able to pay, including those who do so through Medicare and Medicaid.
Without this legal guarantee, patients insured by the State would risk not being treated.
Set a fee limit.
Patients eligible for financial assistance should not be charged more for a medical service than insured patients. This existing CBS standard is essential.
Standards to be modified
(With proposed changes in italics)
Conduct a Community Health Needs Assessment (CHNA) in conjunction with the public health department, other nonprofit hospitals, and/or appropriate nongovernmental organizations within the county or affected area of need.
By emphasizing collaboration, this shift should reinforce hospitals’ focus on coordination and impact in meeting community needs.
Maintain a written financial aid policy easily accessible and proactive.
Financial aid information should be easily accessible, in person and online, with two clicks from a main web page. Financial advisors and navigators within the emergency department – and in a busy area of the hospital – should design their communications and outreach activities to ensure patients are aware of available resources.
Set billing and collection limits that restrict punitive action.
Current law only protects against “extraordinary collection actions,” which still invite unfair collections, such as wage garnishment. Collection actions against patients should not take place until their eligibility for financial assistance has been assessed.
Maintain a community-based board of directorsreflecting the diversity of perspectives and backgrounds.
The current standard is too general to achieve truly community-focused advice. For example, council members may reside in the community, but if their socioeconomic status is relatively homogeneous, they may not have diverse viewpoints.
Use surplus funds to advance medical training, education and research that align with the long-term needs of the community.
This amendment would direct community investments related to research and education towards the specific needs of the community. For a rural nonprofit hospital, for example, using funds to advance training and research in primary care, rather than subspecialties, is likely to benefit the community more.
Standards to be deleted
Maintain an open medical personnel policy.
Maintaining an open or closed model is an organizational strategy decision that is not directly related to community investment and therefore adds no real value to CBS.
Use surplus funds to improve facilities, equipment and patient care.
Over time, each hospital must inevitably improve its facilities and equipment to maintain its accreditation, but this standard does not specify the type of patient population that should benefit from such investments. For example, a hospital might build a new facility in an affluent suburban neighborhood to meet the current standard. This standard is therefore superfluous.
New standards to add
Report estimated property and sales tax exemption.
The value of these tax exemptions constitute major components of the overall tax benefits received by nonprofit hospitals – and therefore can provide a benchmark for stakeholders and the public to assess the adequacy of the community benefits provided. The estimation process is relatively transparent and insensitive to manipulation.
Measure and report the role of community health interventions in influencing health outcomes.
The CHNA implementation plan must be executed and documented. By measuring and reporting changes in health outcomes over time, this standard would provide IRS documentation of the effectiveness of various interventions.
Spend at least a portion of CAS-designated surplus funds externally, particularly to address the social determinants of health.
Data consistently show that investments in the social determinants of health can have the greatest impact on health outcomes. Partnering with community organizations, social service providers, schools, and others can help address poverty, homelessness, and other factors of ill health.
Progress in real-world practice
The tax exemption for nonprofit hospitals imposes an opportunity cost: local property tax money that nonprofit hospitals would have paid could have been used to build parks, improve schools, repair roads and provide other services that enhance public health. A greater focus on meeting the needs identified in an EBSC can improve community health.
We believe that the generous tax benefits received by nonprofit hospitals should be outweighed by what they spend to meet a community’s health needs and advocate for public health. Raising the standard of community benefits can help nonprofit hospitals fulfill their stated mission of promoting the health and well-being of the communities they serve.
Adjusting CBS to prioritize the social determinants of health and measurable health outcomes, not just the delivery of health services, can strengthen entire communities so that residents feel the results in tangible ways. Several institutions are effectively implementing this refined approach in real-world practice, and a revised CBS will encourage others to follow their example.
Ge Bai has received support from the Episcopal Health Foundation, the Commonwealth Fund and Arnold Ventures. The authors thank Carol Paret and Deborah Gordon of Memorial Hermann Health System, Paula Morgen and Julie Chikowski of ThedaCare, Kate Walsh and Dr. Thea James of Boston Medical Center, Matt Ditmanson and Angela Dejene of Sanford Health, and Ingrid Taylor of Seton Healthcare Family for the valuable information they shared during the interviews. Ge Bai is a visiting scholar at the Congressional Budget Office. Nothing in this article represents the opinion of the Congressional Budget Office.