Nonprofit Hospitals Under IRS Scrutiny
Reports from the IRS study of nonprofit hospitals on how they spend their “community benefit” dollars to maintain tax-exempt status were just released. These reports do not seem to reveal anything we don’t already know -
- the majority of “community benefit dollars” goes to uncompensated care for the uninsured and for community education programs.
- the higher the rate of uninsurance in a population, the higher the rate of “community benefit” spending for uncompensated care.
- critical access hospitals were much less profitable than the larger urban and suburban hospitals.
- hospital revenue margins for the overall group were only 5 percent. About a fifth of the hospitals surveyed were “unprofitable.” (They showed a deficit).
Included in this study was a look at executive compensation. Findings include:
- The average median compensation for the hospitals’ top executive was $490,000 (large population areas) and $377,000 (smaller population areas). The average compensation increased with the revenue size.
- A group of 20 hospitals were examined as the top executive average compensation was $1.4 million. The IRS reports that nearly all examined amounts were within the range of reasonable compensation.
IRS Observations
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The community benefit and reasonable compensation standards have been difficult to administer, per the IRS.
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It has been noted the tax exempt standards need to be revised, but the IRS warns that because of the size, complexity and importance of the nonprofit hospital sector, it will be a tremendous challenge to revamp the exemption standard.
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They blame the varying practices and financial capabilities of the hospitals for the difficulty in changing the exempt standard.
501(c) Files Summary
Basically, the findings of this study reveal problems in our healthcare system exist. This study proposes that the tax exempt system is important and that a rehaul of the system may dramatically affect the way hospitals operate. This study confirms the ongoing debate about healthcare in the United States. It’s probably just as complicated as the tax code. 501(c) Files
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