Hospital Nonprofit Tax Status: Overview
The majority of hospitals are 501(c)(3) organizations, or what are commonly referred to as nonprofit hospitals. Organizations that meet the requirements for 501(c)(3) status are granted exemptions from several federal taxes in exchange for the crucial services they provide. Ohio law also exempts 501(c)(3) organizations from various state and local taxes. Tax exemptions acknowledge the role charitable institutions play in either reducing government burden or providing community benefit.
The role that hospital nonprofit tax status plays in hospitals’ ability to deliver the vast array of services they provide is of paramount importance. Yet recently, hospital nonprofit tax status has come under attack. Faced with declining revenues, many layers of government have begun looking for ways to generate additional dollars and some policymakers have even begun challenging hospitals’ nonprofit tax status. Passage of federal health reform legislation has added additional requirements that nonprofit hospitals must fulfill to qualify for and retain their tax exemptions, such as conducting a community needs assessment once every three years.
Hospital Nonprofit Tax Status Benefits the Community
The array of community benefits hospitals provide far surpasses their obligations as nonprofit entities. Moreover, the value that comes back to the community far exceeds what hospitals would be able to provide as taxable entities. Each day Northeast Ohio hospitals provide care for which they are not reimbursed, adding up to over $101 million of charity care each year. Hospitals also provide necessary, unprofitable services, such as trauma and burn care units, to benefit the community.
In addition to direct healthcare services, hospital nonprofit tax status allows hospitals to offer extensive programming to support the physical and mental health needs of community members, such as educational lectures, health screenings, and support groups. Research activities, which help spur medical advances, and education, which helps train our next generation of medical professionals, are both examples of activities nonprofit hospitals are more likely than for-profits to be involved in.
Beyond community benefits, the economic impact that local nonprofit hospitals bring to the region should not be forgotten when lawmakers consider nonprofit hospitals’ value. The healthcare sector creates over 167,000 jobs throughout a variety of industries in Northeast Ohio and generates more than $3.7 billion in state and federal tax revenues. Retaining hospital nonprofit tax status enables hospitals to thrive in communities, like Northeast Ohio, that might not otherwise be able to attract and retain outstanding healthcare facilities that serve as an economic anchor.
With lawmakers continuing to mount challenges to hospital nonprofit tax status, The Center for Health Affairs has remained at the forefront of the conversation taking place in Northeast Ohio. From explaining the vast array of community benefits member hospitals provide to expounding on the economic benefits Northeast Ohio hospitals bring to the region, The Center continues to shape public policy in the region. As the leading advocate for Northeast Ohio hospitals, The Center will continue to advocate tirelessly for the preservation of hospital nonprofit tax status as conversations continue across the country and locally.