Disputing non-profit status

Some non-profit hospitals have garnered a reputation of being greedy and not serving the poor. People may especially feel this way if a hospital uses aggressive collection techniques or sues low-income patients to recover unpaid charges. KFF Health News published an article where a local hospital was converted to a tax-exempt non-profit entity. The loss of local property taxes meant that a nearby school district had to cut expenses. The school district challenged the non-profit status of the hospital and a state court agreed that the hospital should not be considered non-profit, citing "eye-popping" compensation for executives. The article also referenced a study that found that non-profit hospitals provided charity care worth 2.3% of their expenses, while for-profit hospitals provided 3.8%. Understandably, the "American Hospital Association strongly disagrees with the... analyses."

Theoretically, governments offer tax incentives to encourage hospitals to provide more charity care. However, when non-profit hospitals provide less charity care than for-profit hospitals, people might rightfully ask whether the tax incentives are appropriate. Non-profit hospitals might have a number of reasonable responses. For example, if non-profit hospitals tend to be much smaller than for-profit hospitals, their fixed costs might account for a larger percentage of their budget, making it more difficult to provide as much charity care on a percentage basis.

Nevertheless, the tax incentive does raise questions of accountability, especially when the amount of the charity care ends up being less than the value of the tax breaks (which appears true of the industry in 2020, per the article). It might be easier to account for care by not allowing any hospitals to have non-profit status, and instead, have local and state governments directly subsidize hospital operations. Such a scheme would still require accountability, but would making accounting somewhat easier in that governments (and people in general) can more clearly see how much each hospital is being subsidized.