A group of leaders calls for a major overhaul of the IRS community benefits standard


A group of four health leaders are calling for a sweeping review of the terms under which nonprofit hospitals retain their tax-exempt status, arguing that the current terms no longer make sense, for a variety of reasons. Write in the “Avant-garde” section of Health Affairs online (formerly known as Health Business Blog), Sunjay Letchuman, Leonard L. Berry, Ph.D., Michael K. Hole, MD, and Ge Bai Ph.D., argue in “Revise the IRS Nonprofit Hospital Community Benefits Reporting Standard,” posted online April 15, that the current standard for reporting community benefits no longer works.

The authors of the article note that while the Internal Revenue Service continues to rely on the Community Benefits Standard (CBS), a holistically analyzed set of 10 measures, to determine whether nonprofit hospitals individuals benefit the health of the community enough to warrant their tax-exempt status,”[A]Accumulating evidence shows that many not-for-profit hospitals’ investments in community health follow the letter, but not the spirit, of CBS. Indeed,” they write, “a 2021 study showed that for every $100 of total expenditures, nonprofit hospitals spend only $2.30 on charitable care (a key component of benefits for society). community) – significantly less than the $3.80 out of every $100 spent by for-profit hospitals. A 2022 study looked at the cost of Medicaid patient care that is not reimbursed and is therefore borne by the hospital (another key component of community benefit); the researchers found that nonprofit hospitals spend no more than for-profit hospitals ($2.50 out of $100 of total expenditures).”

Considering all of this, the researchers argue, “the tax exemption for nonprofit hospitals imposes an opportunity cost: local property tax dollars that nonprofit hospitals would have paid could have been used to build parks, improve schools, repair roads and provide other services that strengthen public health. Stronger focus on meeting needs identified in a CHNA [community health needs assessment] can improve community health.

Specifically, they recommend maintaining the CBS requirement that hospitals must open emergency departments open to all, regardless of ability to pay, and be required to provide care to all patients who are able to pay. pay, while changing the community health needs assessment to require it to be done. in collaboration with local public health development, other non-profit hospitals and/or appropriate non-governmental organizations in the local area; and also to require hospitals to maintain a written “readily accessible and proactive” financial assistance policy; that the CBS requirement sets billing and collection limits “that limit punitive action”; that any hospital granted tax-exempt status “maintain a board of directors drawn from the community, reflecting the diversity of views and backgrounds”; and that any such hospital “use surplus funds to advance medical training, education, and research that meets the long-term needs of the community.

In the meantime, they recommend dropping the requirement that a hospital “maintain an open medical staffing policy, arguing that such a requirement provides no value to the community; as well as dropping the requirement “to use surplus funds to improve facilities, equipment, and patient care.” And they believe that three additional requirements should be added to the standard: “declare exemption from property tax and estimated sales tax”; measuring and reporting the role of community health interventions in influencing health outcomes”; and “spend at least a portion of CAS-designated surplus funds externally, in particular to address the social determinants of health”.

The authors of the article write, “We believe that the generous tax benefits enjoyed by nonprofit hospitals should be outweighed by what they spend to meet a community’s health needs and advocate for public health. Raising the standard of community benefits can help nonprofit hospitals fulfill their stated mission of promoting the health and well-being of the communities they serve. Adjusting CBS to prioritize the social determinants of health and measurable health outcomes, not just the delivery of health services, can strengthen entire communities so that residents feel the results in tangible ways. Several institutions are effectively implementing this refined approach in real-world practice, and a revised CBS will encourage others to follow their lead,” they write.

Sunjay Letchuman is a senior business student at Texas A&M University, and he will attend Icahn School of Medicine at Mount Sinai in New York in the fall of 2022; Leonard L. Berry, Ph.D., MBA, is Distinguished University Professor of Marketing, Regents Professor, and MB Zale Chair at Mays Business School, Texas A&M University; Michael K. Hole, MD, MBA, is a pediatrician and professor of politics at the University of Texas, Austin, where he directs a social innovation hub; and Ge Bai, Ph.D., CPA, is professor of accounting at Johns Hopkins Carey Business School and professor of health policy and management at Johns Hopkins Bloomberg School of Public Health. She is an expert in health care pricing, policy and management.


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