August 9, 2023

Cassidy, Colleagues Probe Potential Abuse Of Tax-Exempt Status By Nonprofit Hospitals

WASHINGTON –U.S. Senators Bill Cassidy, M.D. (R-LA), Elizabeth Warren (D-MA), Chuck Grassley (R-IA), and Raphael Warnock (D-GA) requested the Treasury Inspector General for Tax Administration (TIGTA) and the Internal Revenue Service (IRS) evaluate nonprofit hospitals’ compliance with their tax-exempt requirements and a full examination of existing oversight authorities, following reports that some nonprofit hospitals are taking advantage of their tax-exempt status in ways that restrict care or drive up costs for patients.

“We are alarmed by reports that despite their tax-exempt status, certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit’ and engaging in practices that are not in the best interest of the patient,” wrote the senators. “These practices – along with lax federal oversight – have allowed some nonprofit hospitals to avoid providing essential care in the community for those who need it most.”  

“This practice of withholding care leaves patients with few options, especially those living in rural areas,” continued the senators. “These examples raise serious concerns that nonprofit hospitals may not be fulfilling their required obligation to provide reduced or free care to their most vulnerable patients.”

More than half of the approximately 5,000 community hospitals in the United States operate as private, nonprofit organizations. Under IRS rules, nonprofit hospitals may qualify for tax exemptions on the basis of providing charity care and community benefits. One study estimated that these exemptions were worth $28 billion in 2020. However, recent reporting has revealed that some nonprofit hospitals have been engaging in practices that are not in the best interest of their patients, including wage garnishment and home foreclosures to force payments by low-income patients,, and even the denial of medical care. One study of over 1,700 nonprofit hospitals found that 77 percent spent less on charity care and community investment than the estimated value of their tax breaks.

In 2020, the Government Accountability Office (GAO) reported that vague language in existing tax laws challenges the IRS’s ability to conduct oversight of nonprofit hospitals. The report included specific recommendations to the IRS to increase transparency and ensure nonprofit hospitals are meeting their community obligations. Several of the recommendations remain outstanding.

Read the full letter here