Nonprofit hospitals pocketing the cash rather than providing more charity care

A report published in Health Affairs from Rice University researchers found that, on average, nonprofit hospitals grew their cash reserves amid increasing profits between 2012-2019, but did not increase the amount of charity care they provided. Nonprofit hospitals are exempt from paying most federal and state taxes, and can issue tax-exempt bonds and receive tax-deductible contributions from donors — with the expectation that they will direct proceeds toward community benefit.

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“The increase in cash reserves between 2012 and 2019 is quite striking when compared to the absence of an increase in charity care for nonprofit hospitals,” says Vivian Ho, one of the authors of the study, in a statement. “Annual operating profits rose from $43 million to $58.6 million over this seven-year period. Charity care barely budged, yet cash reserves rose from $133.3 million to $224.3 million.”

The authors acknowledge that hospitals must maintain large cash reserves to weather financial crises, but they also often borrow on their reserves to build facilities in new locations that are often in wealthier areas to expand their market share.

The report notes that using proceeds to boost cash reserves rather than increase charity care has important policy implications and calls into question the justification for nonprofit hospitals’ tax-exempt status.

“There are several actions that policymakers could take to insure that nonprofit hospitals fulfill their obligations to their communities,” says Derek Jenkins, one of the authors, in a statement. “There should be more careful auditing of community benefits provided by hospitals, minimum requirements for community benefit spending, increased hospital price transparency and mandatory representation of external advocates for patient access and affordability on hospital boards.”