The Latest Threat to Nonprofits: Too Much Success

Nonprofit hospitals are enjoying very healthy bottom lines, and lawmakers are taking note.

Riding gains from investment portfolios and enjoying the pricing power that came from a decade of mergers, many nonprofit hospitals have seen earnings soar in recent years. The combined net income of the 50 largest nonprofit hospitals jumped nearly eight-fold to $4.27 billion between 2001 and 2006 … .

As you can imagine, the backlash is well underway. Senator Charles Grassley, a Republican from Iowa, has been very visible in complaining about nonprofit health care’s tax-exempt status and has made noises about legislation to rectify what he sees as unreasonable success at public expense. Other critics and watchdogs cite booming salaries for hospital executives as a reason to re-examine tax issues. And some of the hospitals aren’t doing themselves any favors, reported the Wall Street Journal:

In return for not paying taxes, nonprofit hospitals are supposed to provide a "community benefit," a loosely defined requirement whose most important component is charity care. But many hospitals include other expenses in their community-benefit accounting to the Internal Revenue Service, including unpaid patient bills. Often, hospitals also include the difference between the list prices of treatment they provide and what they are paid by Medicaid and Medicare, the government programs for the poor, disabled and elderly. Excluding those other expenses, many hospitals spend less on charity care than they get in tax breaks, studies by various counties and states show.

Health care is an enormously expensive proposition in this country, and when you throw issues of taxation into the mix, you can really get people’s backs up. It’s incumbent upon the sector to remove its head out of the sand and get out in front of this with creative solutions, collaboration with government, and truer efforts to engage in community relations and charity. The alternative is having legislation forced down its throat by politicians smart enough to recognize an easily digestible populist issue when they see one. | 501(c)

Tags: nonprofit health care, Charles Grassley