Congress wants nonprofit hospitals to prove they’ve earned their exemption. Here’s what’s coming, and how to get ahead of it.
$37B+ Estimated annual value of the nonprofit hospital tax exemption. That’s the deal being audited.
Source: JAMA, 2024
The deal, in brief.
In exchange for the tax break, nonprofit hospitals make a promise: benefit the community through charity care, community health programs, and services that lose money but that patients still need. Currently, 58% of U.S. health systems are operating as nonprofits.
The catch
That promise has never been rigorously measured. Community benefit is reported in broad, self-defined categories that make hospitals hard to evaluate and impossible to compare.
That’s changing
H.R. 9504, the Tax Exempt Hospital Transparency Act, passed the House Ways & Means Committee in July. It doesn’t take anyone’s exemption away. It demands the receipts, and it makes them public and comparable.
One question is coming for every nonprofit system: what did the community get for your tax break?
Congress wants to see receipts
What changes, from proving programs exist to proving they worked.
01 — Today: the programs exist. A financial assistance policy on file, a needs assessment every three years, spending reported in broad self-defined buckets.
02 — The bill: prove programs worked. Show whether dollars followed the stated community needs.
03 — And the numbers compare. Standard definitions, reported hospital by hospital: your system, next to the one across town.
One more thing. The bill orders a federal audit of what the 25 highest-grossing tax-exempt systems would owe if they weren’t exempt. Systems named.
This didn’t start with one bill.
The pressure has been building in statehouses, courts, and watchdog reports for two decades, and senators from both parties keep asking the same question.
- OR — Oregon sets a minimum community benefit spend for every nonprofit hospital in the state.
- IL — Illinois ties the property tax exemption to a dollar-for-dollar charity care test.
- PA — Courts in Pennsylvania and Illinois have stripped exemptions from hospitals that couldn’t prove they operate as charities.
- US — Watchdogs publish an annual list, by name, of systems whose tax breaks exceed what they give back.
Pass or stall, the magnifying glass on the exemption only gets bigger.
What it means for your system
For decades, “nonprofit” was a trust marker, a halo. Increasingly, it’s a claim you’ll be asked to defend. And the exemption question never travels alone.
THE FOLLOW-UPS ARE PREDICTABLE
- The pay question — “And what does your CEO make?” Executive compensation is always a hot topic, especially next to the question of why a system deserves its tax break.
- The spending question — “You spent more on marketing than on charity care?” Ad budgets, sponsorships, and naming deals are public and comparable, and they get weighed against the giving.
- The growth question — “And you’re building where?” Expansion in affluent markets while a safety-net site struggles becomes a story, not a strategy.
Do the work, tell the story — Standardized reporting turns real community investment into public, comparable proof.
Thin numbers — You lose the ability to blur them. Broad self-defined buckets stop working as cover.
A system can be fully compliant and still lose the story
The BPD Healthcare Perspective
Vague community claims are now a risk. Specific ones are an asset.
USED TO BE SAFE — “Committed to our community.” Boilerplate. Next to a published deficit, generic language reads as evidence against you.
NOW THE ASSET — Named investments. Real numbers. What changed. A checkable claim, told specifically enough to hold up under scrutiny.
Three questions for your leadership table:
- Outside-in. What do your community benefit numbers look like to an outsider (a journalist, a researcher, an attorney general) right now?
- The calendar. What are you launching in the next six months (a campaign, a new site, a major announcement) and does it carry your community story visibly?
- The leadership answer. When someone asks your CEO why the system deserves its tax exemption, who has written that answer down, and when was it last pressure-tested?
Where BPD comes in.
We help health systems size the full value they return to their communities through third party-validated economic and community impact analysis, build a story specific enough to hold up under scrutiny, and put it to work across brand, growth, and leadership voice, before the environment asks.
