Wednesday Dec 02

Special Report: Nonprofit Hospitals Believe in Charity for Themselves, Not Their Patients

Our research indicates that the nonprofit tax exemption system enables hospitals to be non-profit in name only, thereby reaping the benefits of tax exemption without sharing these gains with low income families. We argue this is due to the vagueness of relevant laws and leniency of the IRS.

A hospital maintains its non-profit, tax-exempt status by showing it devotes some of its resources to the community, presumably in ways that never yield profits. Weirdly, there is no cap on executive salaries and no floor on required charity for nonprofit hospitals. “Charity care” is healthcare provided to low-income patients for free, or at a steep discount. There are a few ways hospitals navigate the current tax structure to preserve their tax-exemption while giving as little as possible away in charity. As we show below, “charity care” is often diluted to include investments in research and training, or other “community benefits” which rarely materialize as benefits in the community. We found on many tax reports that hospitals are claiming that “uncompensated care” includes bad debt, which is a bill gone unpaid by someone who can’t afford it. This is the opposite of charity care, which is a bill covered by the hospital. We found that hospitals often report charity care as a percent of expenses, rather than as a share of revenue. We argue charity care as a percent of revenue should be the only criterion for determining non-profit status and base our math around this assumption.

To earmark charity as a share of expenses rather than of revenues implies charity care is merely a disbursement of the hospital’s largesse, rather than the raison d’etre of the nonprofit hospital.

We looked at Arkansas, Louisiana, and Texas. In Louisiana, only one hospital devoted more than 1.78% of its revenues to charity care. In Arkansas, only three hospitals were over 2.75%. In Texas, twenty-two of the eighty-four hospitals reviewed were over 4% of charity care to revenue. We recommend: mandatory filing of IRS form 990s, clear guidelines on minimum charity care required to maintain the tax exemption, penalties for reporting bad debt as uncompensated care, standardizing the calculation of charity care as a share of revenues rather than a share of expenses, assuring that “community benefits” actually benefit the community, and increased funding to support the IRS’s enforcement of the obligations that come with being tax-exempt. If implemented, our recommendations would bring us up to the minimum of charity for a society with any compassion for the worse-off. We found that by raising the required percent of charity care to 4%, charity expenditures would increase by $159,120,464.52 in Arkansas, $285,64,955.08 in Louisiana, and $440,1103,634.96 in Texas. If all three states complied with a 5% minimum rate of charity care, then it would add $199,998,692.50 in Arkansas, $372,926,708.35 in Louisiana, and $603,767, 460.45 in Texas.

This paper is the product of cooperation between Local 100 United Labor Unions, the Labor Neighbor Research & Training Center (LNRTC), and ACORN International, plus our tireless team of volunteers. We’ve named this collaboration the Nonprofit Hospital Accountability Project.


If the pandemic proves anything, it’s that we need accessible and affordable hospitals. With mass unemployment, we are being reminded that job-based insurance is great, but it only works when you have a job. Health insurance programs, like the Affordable Care Act, are critical and are life-saving. Until the gaps are filled, we are left with faith, hope, and charity. Unfortunately, there’s a problem with that trinity. Charity depends on the hospital, and many are closing their pocketbooks, when they should be opening them and extending their hands.

It shouldn’t be that way.

Nonprofit hospitals are granted tax exemptions under the Internal Revenue Service 501c3 classification, specifically because they are charitable institutions. We will dive deeper into this, but charitable means charity, no matter how much lipstick is put on that pig with claims about research, training, or so-called community benefits, that are often not reported.

All that is well and good, but the IRS has been notoriously lax for decades in determining whether or not hospitals are really providing charity. There is no set guidance or definition that establishes the level of charity care that might be required to warrant the tax exemption. By default, too many hospitals not only do the minimum, if that, and often are allowed to do less.

The extensive policy and political debate over passage of the Affordable Care Act sought to address this issue in a classic case of intended and unintended consequences, or more likely, doing the right thing for the wrong reason. Senator Charles Grassley (R-IA) has long questioned whether nonprofit, tax exempt hospitals are really providing adequate charity in their communities to justify the exemption. He clearly believes that the tax exemption is unfair competition with private hospitals. Unless, that is, nonprofits are really providing charity care. This was not a new issue for Senator Grassley and his committee, but the debate over passage of the Affordable Care Act opened the door for him to propose an amendment to force some accountability.

The amendment was hardly harsh. Hospitals were given five years after passage of the Act to get their acts together. This was surprising, since nonprofit hospitals were already required to file IRS 990s to justify and maintain their 501c3 status. Nonetheless, there likely was an implicit assumption that most of the nonprofits were doing little charity care, so this was in essence a grace period from 2010 when the Act became effective through 2015, making the filings in 2016 for the 2015 tax year the first time the impact could be fully known.

There were several requirements in the amendment. The IRS was charged with monitoring the compliance and enforcing the consequences. Hospitals were required to visibly post in emergency and other public areas that charity care was available, so that potential patients realized it existed. Hospitals were also required to make this information available on their websites and easily accessible, including by direct distribution to their clients. Hospitals were required to produce a community assessment, ostensibly by involving groups and interested parties within their footprint, in order to establish that they provided a range of community benefits. Without defining “adequacy,” the amendment stated that the penalty for not adequately providing charity care would be withdrawal by the IRS of the hospital’s tax exemption.

Monitoring these developments, Local 100 United Labor Unions, the Labor Neighbor Research & Training Center (LNRTC), and ACORN International came together to form the Nonprofit Hospital Accountability Project. Working with a number of volunteers, we began compiling a database on all of the nonprofit hospitals operating within the three-state footprint of Local 100: Arkansas, Louisiana, and Texas.

Arkansas initially was the only state to expand Medicare coverage under the terms of the Act in a hybrid system federally approved by the Center for Medicaid Services. Louisiana did not expand for several years until after Governor John Edwards was elected in 2015. Texas continues not to expand coverage to working poor families and is a leader in the continued political fight to undermine the Act.

The initial premise was simple and straightforward for the Nonprofit Hospital Accountability Project. We believed robust charity care was essential in these communities and that as charitable institutions with tax benefits accordingly, hospitals should be generous in supporting families in their service areas. At the least, we hoped that we could determine where hospitals in the three states stood on charity care in relations to each other. Where data or estimates might exist, we could then compare them to the rest of the country. If they were under-performing, even marginal increases up to clear standards might mean the difference between life and death for many lower income families in this area.

In 2016 and 2017, we attempted to correspond with a number of hospitals in the Houston, Dallas, Little Rock, and New Orleans area, based on our preliminary data analyses. We wanted to meet with hospital representatives to participate in the community benefits assessments required by the Act and its amendments. We wanted to discuss their plans to deliver – and hopefully increase –charity care. Hospitals in the main did not respond to our inquiries. In a few cases, they responded by refusing to meet or claiming that they were moving forward and meeting the requirements of the Act.

We stepped back. This was going to be a harder problem than we had hoped. We would let public support build, and the politics settle down. We would see if Senator Grassley would lead the fight, and whether the IRS could carry the weight. We would regroup and take another shot at this with a clearer understanding of what we were up against.

Our Methodology

We set aside our earlier work, keeping it only as a reference point, and re-examined all of the most recent IRS 990 reports submitted by the hospitals as of 2020. Schedule H in the 990 requires a report of their charity care. We accessed the reports via the Pro Publica website and Guidestar, both reputable sources for collecting 990 information. When we could not locate a 990 for a hospital using those two sources, we would go to the hospital’s own website, because the IRS requires 501c3 organizations to make their 990s public via a website and has done so for years. Once these efforts were exhausted, we would do a Google search and call, if necessary, to the hospital directly, to determine if they were still operating or had closed down, changed their name, or merged with another facility. We collected all of this information on a spread sheet, including gross income, operating expenses, CEO salary information, and of course, the actual amount the hospital had listed as charity care.

This wasn’t easy. Often, we seemed to be engaged in a shell game where we were on the wrong side of hide-and-seek as the information moved back and forth. Unfortunately, there is no “one way” that the IRS seeks the information or has indicated that it will accept the data or sort out different institutions’ handling of the categories.

The biggest problem in reporting is the tendency of too many hospitals to falsely merge the categories of charity with what they call “uncompensated” care. Charity care is care that is provided without a bill being sent to the patient. Period. Uncompensated care is a hodgepodge that includes bad debt, or in other words, a portion of a bill that was unpaid. That’s not charity. The IRS does not count bad debt as a community benefit either, since both nonprofit and for profit facilities incur bad debt. In other cases, some hospitals even attempt to claim on Schedule H that the difference between what their sticker price on procedures might be and the reimbursement rate from Medicare or Medicaid is, saying that that is also uncompensated care. That’s not charity either. In our methodology, charity care is only charity care, not a grab bag of miscellaneous expenses that the hospital is seeking to charge off as charity to justify their tax exemption.

Other hospitals also try to muddy the water around “community benefits” in much the same way. Research, in-house training, and similar expenses are internal benefits for the hospital, not benefits for the community per se, especially when the community is uninvolved in the process. Even direct contributions from the hospital to organizations in the community is as much a marketing and branding expense as anything else and shouldn’t be labeled as a community benefit, any more than a for profit business is able to write off “good will.” None of these expenditures should qualify as charity.

The other statistical anomaly that shows up in many of the external reports analyzing charity care involves the calculations. Some figure the percentage of charity care for particular institutions or the industry as a whole by comparing charity care to other expenditures. We thinkt that is inaccurate. Charity care should be compared to revenues, not expenditures. Charity is an institutional decision about how much income should be devoted to caring for lower income families, not a calculation of how charity rates within the universe of all other expenditures. Such account will invariably reduce the level of charity care to being simply a budgetary matter rather than the raison d’etre justifying the mission of the hospital and warranting the tax exemption as a common good. We calculated all percentages of charity care against total income, believing that is the only appropriate measure.

We are not alone. The formula used by the U. S. Treasury Department in computing the amount of funds that hospitals should receive under the CARES stimulus act in 2020 was similar. They made their determinations based on total revenues of each hospital or chain of hospitals, not their financial needs or the needs of their patient population. In fact, the New York Times noted, that “sixty of the country’s largest hospital chains have received a total of more than $15 billion in emergency funds.”1 Many of these chains are nonprofit and tax exempt. Additionally, as the Times noted:

Twenty large recipients, including Providence [Health Systems], have received a total of more than $5 billion in recent weeks, according to an analysis of federal data by Good Jobs First, a research group. Those hospital chains were already sitting on more than $108 billion in cash, according to regulatory filings and the bond-rating firms S&P Global and Fitch.2

Assets and reserves, as we argue, should also be part of the charity formula, not just expenses.

Discussion of Other Studies of Charity Care

At lot of institutions, academics, trade associations, and medical experts are looking at the question of charity care. That’s a good thing. The fact that so many are looking from different directions and with different metrics, sadly, confuses more than it clarifies.

Here’s what we found in this Babel of voices:

• The 20 largest U.S. health systems dedicated 1.4% of their collective operating revenue in fiscal 2016 to charity care—about the same as the previous year. That’s noteworthy considering the significant declines in charity care spending that followed the 2014 implementation of the Affordable Care Act, a law credited with insuring nearly 24 million people through expanded Medicaid eligibility and subsidized commercial plans. Total uncompensated care fell to a 25-year low in 2015 and held steady in 2016, according to the American Hospital Association.3

• Looking at the top 20 hospitals in 2017, nonprofits generated $47.9 billion in income, spent $9.7 billion in charity care to uninsured patients, and another $4.5 billion in charity care to insured patients unable to afford their bills.4

• The same source notes that “Altamonte Springs, Florida-based Adventist, a not-for-profit system with 45 hospital campuses in nine states, is the top nonpublic charity care provider as a percentage of operating revenue [of the top 20 systems]. Adventist provided $316 million in charity care in fiscal 2016, 3.3% of its $9.7 billion in operating revenue.”5

• In one study of nonprofit hospitals, averaged 1.9 percent of total expenditures went to charity care, compared to an average 1.4 percent among for-profit hospitals. However the math is skewed by nonprofit outliers. A third of nonprofit hospitals examined spent less than 0.9 percent on charity care.6

• Could the answer be competition? Likely not, since the correlation between increased competition and reductions in charity care is statistically insignificant.7 Nonprofit hospitals report different amounts of charity care to the Internal Revenue Service and the Centers for Medicare & Medicaid services, with the average hospital reporting 7.6% more to the IRS.8

• Nonprofit hospitals have been found to report bad debt as uncompensated care. The IRS’s failure to prevent this has created the perverse incentive for hospitals to forgo trying to recover debt and to issue medical bills to people they expect will be unable to pay, so that this debt may become charity care.9

• Hospitals in Medicaid expansion states decreased charity care by an average 30% upon Medicaid expansion.10

What is the consensus? Little or none. All hospitals and observers recognize the charity care is required, but there is no agreement on the system, definitions, or delivery. The only clear through line seems to be that despite claims to the contrary, not enough charity is being given by hospitals that are classified as charitable.

What Are Senator Grassley and the IRS Doing About All of this?

It is important to understand that there is significant lag in the reports. The IRS report in 2018 looks at the year 2014 and compares it to earlier reports. The most recent report available, from March 2020, looks at 2016. The IRS in a series of tables tries to get its arms around not only private tax-exempt hospitals, the subject of this report and the trigger for the Grassley amendment, but also all private and public hospitals, as well as data from hospitals submitted to the CMS (Center for Medicare and Medicaid Services) in their cost reports.

Drawing from these reports, here are the year to year comparisons. In both cases, the IRS computes the data based on expenditure percentages, rather than revenue percentages, as we have recommended.

The purpose of the Grassley amendment was to hold nonprofit tax-exempt hospitals’ feet to the fire to do more charity in order to justify their exemption, not less. Unfortunately, the trend line on both of these tables in moving in the wrong direction. On the IRS 990 reports justifying their tax-exempt status, these hospitals have spent almost $6 billion less in charity care. And, remember these percentages are based on a percentage of expense, not revenue, which is even more confounding because the impact of the Affordable Care Act in many cases improved the overall financial situation of hospitals in many areas.

Another headscratcher, as earlier noted, is the difference in nonprofit hospitals’ reporting on their charity care to CMS versus the IRS. A 2012 study by researchers at John Hopkins attempted to sort out the differences, raising even more questions. To quote the executive summary of their report:

We explore whether nonprofit hospitals report similar amounts of charity care to the Internal Revenue Service (IRS) and Centers for Medicare & Medicaid Services (CMS). We use nonprofit hospitals’ financial reports to the IRS and the CMS Medicare costs report for 2011 and 2012. In 2012, hospitals reported spending 7.6% more in charity care to the IRS than to CMS: 2.54% of revenues ($5.74 million per hospital) to the IRS versus 2.36% ($5.16 million) to CMS. While the averages are close, there are wide discrepancies for individual hospitals. For example, despite efforts for standardization, 80% of hospitals reported charity care to the CMS that was 40% greater in absolute value than what they reported to the IRS, and only 10% of hospitals reported charity care to CMS that was within 20% of what they reported to the IRS. Our findings suggest that individual hospitals routinely report different amounts of charity care to the IRS and CMS, yet we find relatively few hospital or market characteristics that may explain these differences.13

In short, the professors find no compelling explanation for the reporting differences, even acknowledging that CMS and the IRS use slightly different forms and definitions. They cannot find the explanation based on market factors, rural versus urban, south versus north.

Thus far we have largely avoided the companion issues involving community benefits, which is a quandary in itself, but may partially explain some of the statistical mishmash and incongruities that seem to appear in nonprofit hospital reporting. Some experts are even asking pointed questions, as earlier noted, about whether or not nonprofit hospitals are finding ways to inflate their charity care levels. In fact, a Modern Healthcare piece, raised these points:

Experts say some not-for-profit hospitals may now be classifying a portion of bills that previously would have been bad debt as charity care, a maneuver that merely entails not pursuing payment on bills. That lets hospitals report more charity care while simultaneously lowering bad debt. A high level of bad debt can hurt a system’s credit rating. “Hospitals are better off not trying to recover any of the debt that they would have tried to recover before and not make a deal,” said Jill Horwitz, a University of California at Los Angeles law professor and associate director of UCLA’s Center for Law and Economics.14

All of this becomes important because policy makers, politicians, and the IRS, are frequently being gas-lighted by hospital executives when confronted about their extremely low levels of actual charity care by trying to redirect attention to the perhaps misnamed category of “community benefits.” Community benefits including everything from bad debt to uncompensated are, hospital personal training and education, and any actual donations made by the hospital. As we have discussed previously, often “uncompensated care” is the large sinkhole category where hospitals attempt to include not just patients that have not paid a bill in full but also the differences between Medicare and Medicaid reimbursement rates and their highly variable and subjective pricing for retail healthcare services.

The Affordable Care Act doesn’t actually encourage this kind of mess, but neither does it make clear what is acceptable, and to the degree that the IRS is the regulating and enforcement agency for the tax exemption, hospitals are able to slip through the cracks easily, while lower income and desperate patients are left to pay the real price. Senator Chuck Grassley, “in a September 2017 op-ed in STAT News…said the IRS has reviewed the tax exempt status of 968 hospitals and referred 363 for further examination, as was required under the 2009 law that enhanced community benefit reporting, ‘For the provisions to have the positive effects that Congress intended, hospitals need to know that consequences exist for failing to comply.’”15

Do they really? In 2017, the IRS referred more than one-third (37.5%) of the hospitals for a closer inspection. In fact, the IRS in 2017 only revoked the tax-exempt status for two hospitals. One, not because of the level of expenditure on charity care, but because they didn’t fully implement and publicize the required community needs assessment,16 and the other because it was flying a false flag and was actually operated by a for-profit company.17 The report from the IRS to Senator Grassley for 2019, indicated that the IRS reviewed 832 hospitals that year and referred 207 for further compliance examination or 24.9%. The details on the compliance review were covered in a letter from the Treasury Department’s Internal Revenue Service Commissioner Charles Rettig that we acquired through a FOIA request. Unfortunately, further detail on the actual bottom line of the IRS work and whether or not specific hospitals had been cited or lost their exemptions was redacted in the letter we received.18

Answering the question of what kind of oversight Senator Grassley and his committee have continued to exercise of his amendment and determining how the IRS has followed the dictates of that amendment turned out to be a more difficult and less transparent process than we would have imagined. Even getting copies of the annual report the IRS is supposed to submit on their review of charity spending was complicated. The IRS, in developing a compliance plan, also decided to review approximately one-third of all nonprofit hospitals annually, as is obvious from their reporting to the Senator.19 We find that unfortunate, and, frankly, believe that it undermines the intent of the Grassley amendment, but let’s look at what they have reported first.

Is Enough Charity Care Being Done and Can More be Done?

A study released in 2020 by authors from the Johns Hopkins Business School and the Johns Hopkins Bloomberg School of Public Health looked at the richest nonprofit hospitals. Professor Ge Bai, the lead author, posed the question in an interesting fashion, saying “I don’t think we should say that hospitals with the best finances provided the least charity care. Instead, we can say that hospitals with the best finances provided disproportionally low charity care.”20 Additionally, reporter Lisa Rapaport paraphrased the report’s conclusion writing, “The study results suggest that many hospitals may be a financial position to provide more care, the researchers conclude in JAMA Internal Medicine.”21

The lack of charity, as well as the fact that many nonprofit hospitals among the largest in the United States are sitting on vast financial reserves, has also not escaped notice during the health care crisis triggered by the Covid-19 pandemic. “Twenty large hospital chains, including [nonprofit] Providence,22 have received a total of more than $5 billion in recent weeks, according to an analysis of federal data by Good Jobs First, a research group. Those hospital chains were already sitting on more than $108 billion in cash, according to regulatory filings and the bond-rating firms S&P Global and Fitch.23 Almost an embarrassment of riches, it would seem. Furthermore, “charity care spending among the country’s 20 largest health systems was flat between 2015 and 2016 following years of decline…”24 In fact, Health Affairs reported that based on Medicare cost reports that, “Seven of the 10 hospitals in the U.S. with the biggest surpluses from patient-care service in 2013 were not-for-profits…”25

Perhaps worse, the IRS annual reports reveal, as do other in-depth studies of hospitals, that there is relatively little difference between charity care given by for-profits that lack the tax exemption, and nonprofit hospitals that enjoy the tax exemption from the IRS expressly because of their charity. A deeply researched study by University of California, San Francisco researchers found that there was on marginal difference in California for example.

Based on an analysis of the spending of two hundred and sixty-four hospitals between 2011 and 2013, the report in Health Affairs found that nonprofit hospitals — which are required to provide “community benefits” such as uncompensated care and public health outreach in exchange for their tax exemption — dedicated an average of 1.9 percent of their total operating expenditures to charity care, compared with an average of 1.4 percent among for-profit hospitals. However, those averages reflected the higher figures of a handful of hospitals; about a third of the nonprofit hospitals and 40 percent of the for-profit hospitals in the study spent less than 0.9 percent on charity care. Some groups, including nurses unions, have long argued that nonprofit hospitals’ tax benefits more often support exorbitant executive salaries than community benefits.26

We are still left with the question of why such a paltry level of charity care? Some hospital executive plead competition. They aren’t able to do more because doing so would put them at a disadvantage with other hospitals in their market. It is an interesting, though implausible, rationale, but seems not to hold water. Christopher Garmon in a paper published by the Bureau of Economics of the Federal Trade Commission found the opposite. He writes,

Despite the pervasive belief that competition impedes a hospital’s ability to offer services to the uninsured and under-insured, I find no statistically significant evidence that increased competition leads to reductions in charity care. In fact, I find some evidence that reduced competition leads to higher prices for uninsured patients.27

The contradictions in the practices of nonprofit hospitals in providing care show up as well when 340B institutions are added in the mix, as we look for clues to explain this paradox. The 340B program is a federal program passed by Congress as part of a larger public health measure in 1992 and signed into law by President George H. W. Bush. The Department of Health & Human Services on their current website, defines the program this way:

The 340B Program provides discounts on outpatient drugs to certain safety net health providers, including Title X agencies. The program’s intent is to allow safety net providers to increase patient services with the savings realized from participation in the 340B program. Providers typically save 25-50% on outpatient drug costs through participation in the program. These savings can be used to reduce the price of pharmaceuticals for patients, expand services offered to patients, or provide services to more patients.28

Make no mistake, this is a program specifically designed to benefit lower income families as patients of health services who are not able to financially cover the retail cost of pharmaceuticals required for their health. 340B hospitals are the “disproportionate share hospitals,” defined as hospitals serving a disproportionate share of lower income patients, often in the gap not covered historically by Medicaid. An eligible provider is always a nonprofit in one form or another.

Each eligible hospital must be owned by a state or local government, be a public or nonprofit hospital that is formally delegated governmental powers by a state or local government, or be a nonprofit hospital under contract with a state or local government to provide services to low income patients….29

An excellent report by the Alliance for Integrity and Reform leaves little doubt that there is a huge discount in service and charity in these hospitals. The nuggets of wisdom cropping up in the report are disturbing when it comes to charity care:

• The amount of average charity care per hospital across [Medicaid] expansion states dropped by 30 percent from $2.8 million to $1.9 million…31

• About one-fourth of 340B hospitals provide charity care representing no greater than 1 percent of their total patient costs….32

• Despite the intention of the 340B program, charity care represents a large share of patient costs for relative few 340B hospitals.33

• “For more than two-thirds of 340B hospitals, charity care as a percent of hospital costs is less than the national average of 3.3% for all hospitals.”34

• Nearly “one-fifth of 340B hospitals provide 80% of all charity care delivered by 340B hospitals, even though these hospitals account for less than half of all 340B hospital beds.”35

• “The 340B program has grown from $9 billion in discounted sales in 2012 to $24.3 billion in discounted sales in 2017 – an over 250 percent increase. Growing evidence has found that despite the exponential growth of the 340B program, hospitals are not reinvesting the savings into increased care for vulnerable patient populations. In fact this analysis confirms the average amount of charity care provided by 340B hospitals has declined since 2011, with nearly two out of three 340B hospitals consistently providing below average rates of charity care.”36

President George H. W. Bush couldn’t be happy about the way the program has been pretzeled away from its intention. In general, from these various studies, news reports, and highly informed sources, Senator Chuck Grassley should not be happy, nor should President Barack Obama when reviewing this outcome of the Affordable Care Act.

Looking More Closely at Charity Care in Three States: Arkansas, Louisiana and Texas

ACORN has a long history in Arkansas, Louisiana, and Texas. The organization was founded in Arkansas in 1970. As the organization began to expand, its first offices were opened in Dallas and Fort Worth in 1975 and in Houston in 1976, which is also when ACORN began work in Louisiana. In the first year of enrollment under the Affordable Care Act, Local 100 United Labor Unions was a subcontracted navigator for the Affordable Care Act in all three of these states from its offices in Little Rock, Dallas, Houston, Baton Rouge, Shreveport, and New Orleans. Staff and leaders were trained in the enrollment process and the ins-and-outs of coverage under the Act, including with great interest in Grassley Amendment. The headquarters for ACORN and Local 100 are in New Orleans, as is the primary office for our partner, the Labor Neighbor Research & Training Center.

All three of these states are in the top tier of states with low-income populations that stood to benefit from the expansion of Medicaid coverage under the Act, with vast numbers of underserved without access to employment-based health insurance or existing Medicaid and Medicare coverage. All three of these states approached the passage of the Act with caution, if not resistance.

Arkansas was an initial expansion state based on hybrid model approved under a special allowance by the Center for Medicaid and Medicare Services (CMS). Even though expanding, it would be fair to say the state had one foot in, and one foot out. After the initial enrollment process, navigation and any advertising by the state to encourage increased participation was discouraged by acts of the legislature. In recent years, draconian steps have been taken to disqualify recipients and make the burdens of enrollment more difficult based on work requirements.

During the final years of Governor Bobby Jindal’s term, there was no expansion via the ACA in Louisiana. Upon the election of a new governor, Democrat John Bel Edwards in 2016, one of his priorities was expanding Medicaid, and that has been the case in recent years. Texas on the other hand continues to be one of the twenty-odd states that has still resisted any expansion of Medicaid under the Act.

Three different cases, but undoubtedly, three states that we knew well. Furthermore, these were states that with or without expansion under the ACA, would all benefit hugely by increased charity care, regardless of the political decisions that might be made. The confluence of these factors led the partners to establish the Nonprofit Hospital Accountability Project.37

The first task was to devise a spreadsheet and recruit volunteers and interns to assist in reviewing all available IRS 990s for all nonprofit hospitals in the three states.38 What we found was shocking. Nonprofit hospitals that seemed to take seriously their mission to provide charity care befitting their tax benefits were largely the exception rather than the rule.

In Louisiana, only one hospital devoted more than 1.78% of its revenues to charity care. The outlier was the Shreveport Shriners Hospital. In Arkansas, only three hospitals were over 2.75% with the exceptions being St. Bernard’s Medical Center in Jonesboro and the Baptist Hospitals in Little Rock and Helena. In Texas, twenty-two of the eighty-four hospitals reviewed were over 4% of charity care to revenue or a bit more than a quarter (26.2%) with almost half (45.4% or 10 of the 22 over 4%) between 4% and 5% expenditure on charity care. [see pie charts below]

Some reports indicate that the average care of all hospitals, both nonprofit and for profit, is 3.3%.39 Others indicate that hospitals claim an average of 5% of operating revenue, a significant subset of actual revenue.40 For the purposes of our research and this report, we have looked at bare minimum standards in the absence of clear guidance from the IRS or policy from the industry in order to measure the impact of low levels of direct charity at either 4% or 5% in order to determine what impact such standards would deliver to lower income families.

As the chart below details, the impact of more direct charity care to patient families in the service areas would be huge. In Arkansas, if all hospitals doing less than 4% moved up to that level, it would add $159,120,464.52. If all of them below 5% moved to that level, it would add almost $200 million ($199,998,692.50). In Louisiana, moving the bottom charity tier to the minimum of 4% would add $285,64,955.08 and at 5% as the minimum for those institutions, the level of charity would rise by $372,926,708.35. The same trend exists in Texas, except the numbers are larger. If all hospitals giving below 4% moved up to that mark then the total charity expenditure for the state would move up $440,1103,634.96, and if they moved up to a slightly more generous but still subpar 5%, then they would add $603,767, 460.45 in charity expenditures.

Cumulatively, we are talking about real money here! Total charity care in all three states is $1,634,317,224 on these reports. With a minimum of 4% from the less generous hospitals, the total jumps $884,866,054.56, almost one billion dollars, to a total of $2,519,183,278.56. With a minimum of 5% from the lower tier hospitals in each state it would add way more than one-billion dollars ($1,176,632,861.30) and mean that almost three-billion ($2,810,951,085.30) was going into charity care in the state.

An infusion of healthcare resources at this level in each of these states and in this region would be the difference between life and death for many individuals and solvency versus penury for many families.

The Affordable Care Act Paradox

Is Texas really more generous than Arkansas and Louisiana to its lower income patients? The numbers seem to say that, but there is a huge paradox at work.

First, as we have reported, Texas is the only one of these states that lacked the political will and wisdom to expand Medicaid coverage under the Affordable Care Act. Leaving lower income families desperate for health care and finding themselves in emergency rooms, Texas hospitals in many cases had no choice but to offer charity care if the sick, infirm, and penniless were at their door. Throughout the country, hospitals in non-expansion states have higher charity care averages, whether for profit or nonprofit. Many are still not doing enough, but regardless they were forced to do more.

Secondly, and paradoxically, hospitals throughout the country as a whole have greeted the Affordable Care Act’s passage by reducing their charity care expenditures. Hospitals in some states have argued that expansion of the Act meant fewer requests for charity,41 but that is as likely to me less outreach and interest in making the offer of charity to patients or the community. This is true for nonprofits, despite the expressed intention of additional review and accountability embodied in the Grassley amendment with its implicit threat to their tax status if they were not charitable as required by the exemption. As a whole, nonprofits have met this requirement with impunity by doing less and fearing little.

Does It Matter?

According to the Healthcare Cost and Utilization Project (HCUP), the average cost of a hospital stay is $10,700.42 According to the figures from, the average hospital stay for surgeries for a patient costs $15,734.43 Either way, Dr. David Belk parses the figures in his book44 and website45 and finds from hospital cost reports that hospitals bill 3.5 times what they receive in payments. If that is the case, then on the bottom line hospitals expect to recover $4495.42 on what they bill on the higher number calculated. Another $1,176,632,861.30 in charity care in these three states would mean that even at this national average a minimum of 261,740 could receive hospital care and walk away without a bill from the hospital. Overall, the expenditure of $2.8+ billion in charity care in Texas, Arkansas, and Louisiana would mean that 625,292 people would receive care. If the lower figure is correct at $10,700 on an average stay, then the payment rate would be $3057 on average another 384,898 patients would receive charity care. At the total of $2.8+ billion in cumulative charity care, almost one-million (919,513) would receive the benefit.

Are there more people who need charity care?

Absolutely! In the pandemic, we are now reading daily that the death count consists of two variables: those that die of Covid-19 and those that die because they do not get care for fear of going to the hospital and do so too late.

Additionally, we know that there are huge numbers of lower-waged workers, many of whom we have now come to understand are “essential”: who work for employers in service, retail, and healthcare jobs where the huge gaps in the ACA have left millions of workers in a gap that political deadlocks have not addressed. They work for employers who are required to offer insurance, but there is no cap on deductibles under the Act and 9% of gross pay is allowed for the monthly premium. Plans can be offered so that employers qualify, but workers quickly realize that when they are making $10, $12, or $15 an hour that they can’t afford the insurance premiums, deductibles, or copays. One our partners (Local 100 United Labor Unions) has contracts with a national company with over 250 workers in Louisiana, and not a single person takes the company offered insurance. In Local 100 healthcare facilities throughout Louisiana, less than a handful of workers of the thousands they represent pay for healthcare in these circumstances, and because of these minimal company requirements, these workers are not eligible to receive the benefits available in the marketplace. These are working people, supporting families, many of them as single women, and being able to go to the hospital, when necessary, without fear of worse financial straits, would be, quite literally, a lifesaver.

Are Nonprofits Being Managed as Charities?

Nonprofit hospitals, no matter what their tax status, are big businesses. The larger ones boast billions in revenue. Even the smaller ones are often among the largest enterprises and employers in their communities. Healthcare from the time of the fight and then passage of the Affordable Care Act to the current Covid-19 pandemic dominates the news. Executives are dealing with whipsawing reimbursement rates, policy and programmatic priorities set externally, and, more recently, difficult market conditions, as more lucrative, non-emergency surgeries and patient fear curtailed revenue in the face of the virus. The confluence of these pressures on hospital management might easily sidetrack them into believing they were managing a standard business where surviving and thriving were the only priorities. This kind of mission drift might lead many of them to believe that they are managing business, rather than charities.

Certainly, as we examined the 139 hospitals in the three-state area where we were able to obtain data from the IRS 990s, our research team, particularly the volunteers and interns, were often shocked at the size of the pay envelopes, compared to what they might have expected. In fact, of the 139 hospitals we were able to examine, 34 of them simply didn’t list any information on salary. One of those in fairness listed a $450 salary for a good reverend at the Christus Mother Frances Hospital in Winnsboro, Texas, but for the rest they simply didn’t fill in the form as having any executive employees at all. Not filling out the form hardly seems responsive. This would seem to be another area where IRS activity is required.

On the other hand, 32 hospitals (see chart) paid their key executive over one-million dollars annually. In fact, those 32 made enough that they brought their fellow executives, the other 73, up to the point that the average salary package in the three states was $972,646. The total compensation for all the executives, totals $102,127,904. All of these reports were the latest available from public filings, mostly 2017. In the way of the world, we can be sure these numbers have increased, and the average pay package is certainly over the one million mark now.

We are not saying that everyone should be like the CEO of the Shriners’ Hospital in Shreveport making $50,000 in pay while assuring his institution provides more than 30% of its revenue in charity. At the same time, it is hard to cheer executives that are paid more by their hospital than their hospital provides in charity. That’s not mission drift, that’s a shipwreck. Six of the millionaire executives didn’t even file schedule H to indicate that their institution provided any charity. Another couple in Crowley and New Orleans were paid more than their hospital provided in charity, while the head of Ochsner Community Hospitals, the flagship healthcare institution in southern Louisiana was almost a push, making a little more than $4.6 million and providing hardly $400,000 more ($4,986,966) in charity.

There’s little question that executives are managing to the bottom line, but on the whole, it is difficult to be certain that they are managing nonprofits for charitable purposes given the mismatch of revenues to direct charitable healthcare provision.

Conclusion and Recommendations

The Nonprofit Hospital Accountability Project analyzed hospital reports submitted most recently to the IRS by each hospital on Form 990, mostly 2017 and 2018 data. All 990s are required to be posted on a website by each tax-exempt organization, yet for many hospitals we
could not get the data, because they did not report on their own or any other websites. All of our calculations may be understated because of institutional failures to report. Even hospitals that reported often did so in haphazard fashion, failing to complete Schedule H on their charity care or information of chief executive salaries and benefits or other categories, raising questions about the accuracy of the reporting and seriousness assigned by either the institution or the government to this obligation.

The lack of guidance by the IRS and Congress on acceptable minimum standards for charity is deplorable and unacceptable, making a mockery of any accountability. Hospitals are therefore encouraged to game the reporting requirements, shifting costs between categories that are ill defined and unsupervised by regulations. In a blatant lobbying exercise, an American Hospital Association contracted with the consultancy Ernst & Young in the wake of the passage of the Affordable Care Act and its Grassley amendment and attempted to lump together charity care and uncompensated care to argue that hospitals were providing more value in community benefits than their federal tax-exemption accorded the institutions themselves.46 No independent researchers credit the study, and many instead point out that the difference between what private institutions provide in charity care is only marginally worse than that provided by charitable hospitals. Similarly, compensation is competitive for executives whether for profit or nonprofit, seemingly because both are running these healthcare institutions as pure-and-simple businesses without distinguishing their differences in mission.

Everything involved in bringing increased accountability, as advanced by Senator Grassley, is mired in the inability to separate apples and oranges in either the data or the research, while the IRS seems to be administering its obligations perfunctorily at best. The industry complicates and abets this lack of transparency and unaccountability. How else can we explain the fact that charity has decreased since the passage of the Affordable Care Act, and decreased abysmally where Medicaid was expanded?

Our project pulled the charity benefit figures from the reporting and accessible 990s at 4 and 5%, not because we propose that standard for the IRS or regulators, but because the impact of even such a relatively small level of actual charity expenditures would have such a dramatic impact in the study area, involving nearly a billion dollar and a million patients who need care. There are hospitals that run well and give good care that are providing, if we are to believe their reports, 30 and 40% of their revenue to charity care. We believe all nonprofit hospitals should follow their lead. More practically, we believe the threshold for hospitals maintaining their tax-exempt status should be in the range of 10 to 20%, not because we think that is adequate, but because we believe that might be more politically practicable. If nonprofit hospitals are not willing or able to be charitable, then there is an avenue for them which some have already taken by selling themselves to private hospitals. We do not advocate that course, but we find continuing to allow nonprofit hospitals to be the same as for profit hospitals, just wearing sheep’s clothing, is also unacceptable.

In short, we believe the data argue for the following:

• Mandatory filing of IRS form 990s with penalties for not filing and not completing the forms.

• Clear IRS guidelines on base levels of charity care required to maintain the tax exemption.

• Penalties, including loss of exemption, for claiming uncompensated care based on the failure of lower-income families to pay the difference between the subjective and variable individual hospital sticker prices versus federal reimbursement rates and in the alternative eliminating the community benefits category as insurance of exemption because of its ease of manipulation.

• Clarifying the standard of measuring charity care against revenues rather than against expenses, which makes no sense.

• Full and rigorous enforcement by the IRS of all aspects of the Grassley amendment including involvement of the community, stakeholders, and others in creating the implementation of community benefits as charity.

• Aggressive Congressional oversight of the IRS and supplemental funding to the Service to review, enforce, and gain compliance with the Act.

• Congressional action on defining standards of charity care for nonprofits (and for profits) if the IRS fails to act.

Hospitals and their essential workers have been critical in pandemic time. The stimulus bills helped cover the gaps as their care priorities changed to meet the crisis. There is a recognition that hospitals and care practices must be examined based on the lessons learned. This call for reexamination is the perfect opportunity to also review and implement the changes that are necessary to provide charity care for lower income families, the families that are the reason nonprofit hospitals exist.


This project could not have been done without the work of our volunteer army in collecting and analyzing the data from hospital 990s. Special credit goes to interns in the pandemic summer of 2020: Raine Richman and Denisse Descamps from Tulane University in New Orleans, Lily Siegel from Tufts in Boston, and Wendy King, a New Orleans-based Tulane retiree, who working together brought the project over the finish line. Additional thanks go to the early crew of interns and volunteers who helped get the project started in 2016: Chloe Ferrara and Allison Blum from Tulane University and Galen Teschner-Weaver, Arta Tahiraj, and Mira Amin from the University of Ottawa in Canada, as well as Michael Gallagher, a Boston-based SEIU retiree who helped spur it along, and Terese Bouey, an AFL-CIO retiree from the Washington, DC area who developed and populated the initial spreadsheet. David Graber of Local 100 United Labor Unions helped pull together the executive summary and Sabine Frid-Bernards, our communications director, made it presentable. All of these people have our gratitude.

WADE RATHKE is the Chief Organizer of ACORN International, Founder and Chief Organizer of ACORN (1970-2008), and Founder and Chief Organizer of Local 100, United Labor Unions (ULU).

 End Notes

1. New York Times, June 8, 2020. html “...hospitals — including publicly traded juggernauts like HCA and Tenet Healthcare, elite nonprofits like the Mayo Clinic, and regional chains with thousands of beds and billions in cash — are collectively sitting on tens of billions of dollars of cash reserves that are supposed to help them weather an unanticipated storm. And together, they awarded the five highest-paid officials at each chain about $874 million in the most recent year for which they have disclosed their finances. At least 36 of those hospital chains have laid off, furloughed or reduced the pay of employees as they try to save money during the pandemic.”

2. New York Times, May 25, 2020.

3. “Charity Care Spending Flat Among Top Hospitals,” Tara Bannow, Modern Healthcare, https://www.
NEWS/180109941/charity-care-spending-flat-amongtop- hospitals

4. “Nonprofit hospitals with healthiest finances offer little charity care,” Lisa Rapaport, Health News, February 17, 2020, /article/us-healthhospitals-charity/nonprofit-hospitals-with-healthiestfinances-offer-little-charity -care-idUSKBN20B1WS

5. Ibid.

6. “Nonprofit Hospitals Spend No More on Charity Care than For-Profits,” August 6, 2015. https://philanthrophynewsdigest.or/news/nonprofithospitals-spend-no-more-on-charity-care-than-forprofits.

7. “Hospital Competition and Charity Care,” Christopher Garmon, Working Paper No. 285, October 2006, Bureau of Economics, Federal Trade Commission, Washington, DC.

8. “Measuring Nonprofit Hospitals’ Provision of Charity Care Using IRS and CMS Data,” Darryl J. Gaskin, Bradley Herring, Hossein Zare, and Gerald Anderson, Foundation of American Healthcare Executives, Volume 54, Number 5, September/October, 2019.

9. Op cit, Bannow.

10. “Left Behind: An Analysis of Charity Care Provided by Hospitals Enrolled in the 340B Discount Program,” Alliance for Integrity and Reform, November 2019.

11. Data taken from Treasury Reports to Ways & Means Committee dated March 2018, March 2019, and March 2020 for the years detailed.

12. Ibid.

13. Gaskin, Darrell J, Herring, Bradley, Zare, Hossein, and Garrard, Anderson, “Measuring Nonprofit Hospitals’ Provision of Charity Care Using IRS and CMS Data,” Journal of Healthcare Management, Foundation of the American College of Healthcare Executives, Volume 64, Number 5 • September/October 2019.

14. Bannow, Tara, “Charity Care Spending Flat Among Top Hospitals,” Modern Healthcare, January 6, 2018.

15. Ibid.



18. Letter from IRS Commissioner Charles Rettig to Senator Charles Grassley, April 11, 2019.

19. Rettig to Grassley, ibid.

20. Rapaport, Lisa. “Nonprofit hospitals with healthiest finances offer little charity care,” Health News,, February 17, 2020.

21. Ibid.

22. Providence Health & Services, based in Seattle, is a non-profit health system with facilities in five states: Alaska, Washington, Montana, Oregon and California. Providence Health includes 26 hospitals as well as non-acute facilities, physicians clinics, a liberal arts university and a high school. Source:

23. Jesse Drucker, Jessica Silver-Greenberg and Sarah Kliff, “Wealthiest Hospitals Got Billions in Bailout for Struggling Health Providers,” New York Times, May 25, 2020.

24. Bannnow, op.cit.

25. Harris, Meyer, “Not-for-profits dominate top-10 list of hospitals with biggest surpluses,” Health Affairs, May 2, 2016.

26. “Nonprofit Hospitals Spend No More on Charity Care than For-Profits,” Philanthropy News Digest,” August 6, 2015.

27. Garmon, Christopher, Working Paper No. 285, Bureau of Economics, Federal Trade Commission, Washington, D.C., October 2006.



30. “Left Behind: An Analysis of Charity Care by Hospitals Enrolled in the 340B Discount Program, “Alliance for Integrity and Reform, November, 2019.

31. Op cit.,

32. Ibid.

33. Ibid.

34. Op cit., AIR340B Report.

35. Ibid.

36. Ibid.

37. ACORN International, Labor Neighbor Research &
Training Center, and Local 100 United Labor Unions.

38. See Acknowledgements at the end of this report.

39. Op cit., AIR340B Report.

40. St. Louis Area Business Health Coalition, though may include uncompensated care in that number.



44. David Belk, M.D. and Paul Belk, PhD, The Great American Healthcare Scam: How Kickbacks, Collusion and Propaganda Have Exploded Healthcare Costs in the United States, Kindle Edition, 2020

45. www.truecostofhealthcare.org46. uncompensated-hospital-care-cost-fact-sheetjanuary-2019.

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