IRS reviews the tax-exempt status of Hospitals

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The Internal Revenue Service (IRS) has intensified its scrutiny of nonprofit hospitals' community benefits, responding to growing pressure from Congress, media outlets, and regulatory bodies. Key concerns include the adequacy of care provided to low-income patients, the overall community benefits offered, and aggressive debt collection practices. Several hospitals have been specifically highlighted in recent reports.

At the state level, similar issues have emerged as hospitals seek property tax exemptions, prompting legislative efforts aimed at clarifying definitions of community benefit and charity care.

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A recent report by the Committee for a Responsible Federal Budget highlighted the scale of tax exemptions granted to nonprofit hospitals. According to the report, 58% of the nation's 5,129 community general hospitals are nonprofit entities, collectively receiving approximately $28 billion in tax exemptions in 2020. The report argues that these hospitals are not meeting their community benefit obligations and recommends stricter enforcement or reduced tax benefits.

The Lown Institute released a report in March 2024 finding that 77% of 1,773 nonprofit hospitals assessed spent less on charity care and community investment than the value of their tax breaks, indicating a perceived shortfall in meeting community benefit obligations. The American Hospital Association has strongly criticized both reports.

Media coverage has drawn attention to the burden of medical debt on Americans, questioning the justification for tax breaks granted to nonprofit hospitals. Additionally, the House Ways & Means Committee held a hearing on April 26, 2023, focusing on tax-exempt hospitals and community benefit standards.

A bipartisan group of Senators addressed concerns over rising medical debt and the need for greater oversight of nonprofit hospitals. The White House emphasized IRS audits in a June 11, 2024, fact sheet, stating that these efforts aim to ensure nonprofit hospitals fulfill their community benefit requirements.

Despite increasing scrutiny surrounding financial assistance and community benefits, tax law does not specify exact amounts required. Therefore, while the IRS is tasked with enforcing regulations, it may not fully address broader public policy concerns or criticisms related to hospitals' practices.