The wide range of charity care and community benefits spending and the value of tax exemptions have raised many arguments about the lack of specificity on community benefits definitions and requirements established by federal, state and local governments, as well as professional organizations.
Section 501(c)(3) of the Internal Revenue Service code specifies that nonprofit organizations must be organized and operated exclusively to promote charitable, religious educational, or scientific purposes and offers exemptions from federal, state and local property taxes. The Health Insurance Portability and Accountability Act requires nonprofit hospitals “to provide information on the activities and policies of, and community benefits provided by, its hospital facilities and other non-hospital healthcare facilities that they operated during the tax year.”
The IRS Form 990 (Schedule H) requires nonprofit hospitals to provide data on up to 17 different types of community benefits. For simplicity in this report, we combined these community-building activities in the following manner: charity care, other means-tested, unfunded research, community benefit contributions, community benefit services, subsidized health services, Medicaid shortfall, unreimbursed education and building activities.
The IRS does not specify the minimum level of community benefits a hospital must provide to maintain its tax-exempt status. The Centers for Medicare & Medicaid Services requires hospitals to report data on three types of uncompensated care: charity care, non-Medicare bad debt and non-reimbursable Medicare bad debt. CMS does not require hospitals to report all Form 990 components of community benefits.
The IRS and CMS have slightly different definitions of charity care, so a hospital may provide data specifying two different amounts of charity care. There are no systematic differences between the two sources in the magnitude of those contributions across all hospitals. While the results between the two sources can differ for individual hospitals, the differences tend to be minor.
In addition to the two federal agencies, states have developed categories of community benefits. Illinois, Nevada, Oregon, Rhode Island, Pennsylvania, Texas and Utah require nonprofit hospitals to provide a certain minimum level of charity care or community benefits. However, no states connect this minimum contribution to a hospital maintaining its tax exemption.
Federal and state tax laws do not specify the level of charity care a hospital must provide to maintain its tax-exempt status. Instead, specific federal requirements mandate that nonprofit hospitals submit certain data. Some states require minimum levels of charity care or certain community benefits, but these requirements are independent of tax exemption legislation.
Questions about the relationship between tax exemption, community benefit and charity care are not new. These issues have long been reported in the literature, with widely different definitions, datasets and time frames.
But few studies have measured tax exemptions, community benefits and charity care using comprehensive data to estimate the value of tax exemptions compared to the value of charity care and community benefits—while looking at the variation among teaching and nonteaching, urban and rural areas—with a common dataset and a common methodology. IRS Form 990 data can be applied to estimate the value of tax exemptions compared to the value of charity care and community benefits in nonprofit hospitals.
In this article, we describe the distribution of community benefits across various categories of nonprofit hospitals using data from 2017 to 2021. In calculating six taxes applicable to nonprofit hospitals, we present the values of community benefits and tax exemptions based on factors such as teaching status, rurality and U.S. region.
Furthermore, our comprehensive literature review identifies the most relevant strategies for enhancing the accountability of nonprofit hospitals. Lastly, we examine the characteristics of nonprofit hospitals that offer more charity care or community benefits compared to the value of their tax exemptions.
Our work identifies the components of community benefits that represent the largest spending, which can help federal and state policymakers codify components that should be included in a definition of community benefits.
Editor’s Note: This content has been excerpted from “Beyond the Bottom Line: Assessing Charity Care, Community Benefits, and Tax Exemptions in Nonprofit Hospitals,” Journal of Healthcare Management, vol. 69, no. 6, by Hossein Zare, PhD, Gerard Anderson, PhD. It has been edited down for length.
The full article received the 2026 Edgar C. Hayhow Award, and the authors will be recognized during the Congress on Healthcare Leadership. Register today.