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. Recently passed 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.
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 $349 million of free 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 168,000 jobs throughout a variety of industries in Northeast Ohio and generates more than $676 million in state and local 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.