The Lown Institute calculated “fair share spending” for 275 private nonprofit hospital systems by comparing each system’s spending on charity care and community investment to the estimated value of its tax exemption.

Hospitals that dedicated at least 5.9 percent of overall expenditures to charity care and meaningful community investment were considered to have spent their fair share. The 5.9 percent threshold is based on established research into the valuation of the nonprofit tax exemption.

Spending on charity care and community investment was retrieved from hospitals’ IRS Schedule H Form 990. For spending on community investment, we include a subset of community benefit categories reported to the IRS that provide a direct benefit to community health:

• Subsidized health services, such as free clinics, addiction treatment, and other services provided at a loss to the hospital;
• Community health improvement activities such as health fairs, community health education classes, immunizations, interpreter services;
• Contributions to community groups;
• Community building activities, which are activities that address the social determinants of health, such as affordable housing, food assistance, and environmental initiatives.

Excluded categories

The IRS categories of Medicaid shortfall, health professions education, and research were not included. Health policy experts have argued that these categories do not constitute direct benefits for community health. 

Medicaid shortfall was not included because hospitals are already reimbursed for Medicaid patients by the state. Hospitals offer discounted rates for most insured patients, yet these are not considered community benefits; it is unclear why discounts for Medicaid patients should be an exception. While charity care spending reflects the amount patients would pay absent of hospital policy, Medicaid shortfall does not convey a hospital policy choice. 

Hospital spending on health professions education and research were not included because these investments do not have a direct impact on the health of its community. The labor hospital trainees provide helps hospitals provide patient care, but their work is not targeted toward particularly underserved patients or specialties. Additionally, hospitals are already reimbursed for trainees. Many hospitals do not report on Form 990 the indirect medical education (IME) payments they receive from Medicare for training residents, even though these payments are often greater than the cost of inpatient care. While research funding is a public good, it is unlikely that a hospital’s self-funded research has a direct impact on the health of the surrounding community.