This analysis builds on previous research to calculate fair share spending—the difference between hospitals’ meaningful community investment and the value of their tax exemptions—in twenty states. We used three years of data to provide a more comprehensive picture and even out year-to-year income fluctuations.

We include all hospitals in 20 states with both IRS Form 990 and CMS cost report data available from 2020-2022. We removed hospitals that closed, converted to for-profit, or were removed from Care Compare as of September 2024; however, there may be updates since then for which we have not accounted. We do not include certain hospitals that are publicly-owned and do not file a 990, nor do we include certain children’s or cancer hospitals without cost report data, which may underestimate the fair share deficit.

Community investment categories

We include the following IRS categories of community benefit most likely to have a direct and meaningful impact on community health, which we refer to as meaningful community investment: 

Financial assistance – Free and discounted care provided to patients eligible for financial assistance under the hospital’s policy. Reported as the cost to the hospital (not charges). Bad debt is not included.

Subsidized health services – Clinical services that meet an identified community need and are provided despite a loss to the hospital. Examples include primary care clinics, addiction treatment, and neonatal care.

Community health improvement services – Programs provided by the hospital for the purpose of improving health. Examples include health fairs, free immunizations, and interpreter services. Includes the operating costs of community benefit programs.

Cash and in-kind contributions – Contributions made to other nonprofits to improve health. Contributions to affiliated medical schools or physician groups and other hospitals in this study were excluded. 

Community building activities – Programs that address the social drivers of health, such as housing, community advocacy, and environmental initiatives, as reported on Schedule H Part II. Although this category is not always considered a community benefit, we include it because addressing the social drivers of health is critical for improving long-term community health. 

Excluded categories of community benefit

Medicaid shortfall is the gap between hospitals’ costs for serving Medicaid beneficiaries and payments received for these patients. While Medicaid shortfall represents nearly half of reported community benefit spending, researchers have expressed concerns about including it as a community benefit:

1. Hospital losses on Medicaid patients is not funding that goes into the community to improve health. It is an accounting measure, not direct spending.  
2. Hospitals with costs of care far higher than Medicaid payment rates will have a greater shortfall, regardless of the number of Medicaid patients served. 
3. States set their Medicaid rates at a level believed to be sufficient to cover hospital costs. If the IRS does not consider discounts for other insurers to be community benefits, it’s unclear why Medicaid should be different.
4. Most hospitals already make up for Medicaid shortfalls by charging private insurers above the cost of care and receiving other benefits such as 340b payments.

Health professions education and research were not included because it is not clear that these investments have a direct impact on community health. Only about one-quarter of resident physicians report practicing in underserved areas after their training and only 35% go on to practice primary care. Additionally, hospitals are already reimbursed for trainees through medical education payments they receive from Medicare, not all of which are reported on Form 990. While research funding is a public good, it is unlikely that a hospital’s research has a direct impact on community health.

Tax exemption value

Our calculation of hospital tax exemption value draws from six previous analyses and includes the following categories:

Federal corporate income tax – Federal corporate income tax rate (21%) applied to net income from hospital cost reports, adjusted for prior year losses and other taxes paid

State corporate income tax – State-specific corporate tax rate applied to net income from hospital cost reports, adjusted for prior year losses and other taxes paid

State & local sales tax – State and local tax rates applied to supply expenses from American Hospitals Association survey

Property tax – Local property tax rates applied to real property values from local assessment portals and value of equipment/inventory from cost reports 

Tax-exempt bonds – Difference between corporate and nonprofit bond interest rates, applied to outstanding bond liabilities from Form 990

Tax-exempt charitable donations – Value of tax-exempt donations from Form 990, excluding government grants and in-kind donations, multiplied by the estimated marginal tax rate of donors

Federal unemployment tax exemption – Federal unemployment tax rate applied to the first $7,000 of full time employee total 

See Appendix for more methodology details.