The Lown Institute calculated “Fair Share Spending” for 2,425 private nonprofit hospitals by comparing each hospital’s spending on financial assistance and community investment to the estimated value of its tax exemption. This year’s report contains 652 more hospitals than last year. Among the hospitals and systems included this year but not last year are Providence, Kaiser Permanente, Mass General Brigham, Hackensack Meridian, Cleveland Clinic, and the Mayo Clinic.

Hospitals that dedicated at least 5.9 percent of overall expenditures to financial assistance 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. Hospital expenses were retrieved from hospitals’ IRS Form 990. For hospitals filing with universities where Schedule E was submitted, financial reports or CMS cost report information was used to calculate expenses and net income.

Spending on community investment was retrieved from hospitals’ IRS Schedule H Form 990. For group filings, hospital expenses and community investment spending were prorated across hospitals based on their share of financial assistance among hospitals filing under the same tax ID, based on CMS cost reports.

For spending on community investment, we include the following categories reported on IRS Schedule H, as they are most likely to have a direct and meaningful impact on community health:

• Financial assistance, free or discounted care provided to eligible patients;
• Community health improvement services such as uncompensated Covid-19 testing and protective equipment, community health education classes, and immunizations;
• Subsidized health services, such as free clinics, addiction treatment, and other services provided at a loss to the hospital;
• Cash and in-kind contributions for community benefit, including grants to community groups and other nonprofits;
• Community building activities, which are activities that address the social drivers of health, such as affordable housing, community support, and environmental initiatives.

Excluded categories

The IRS allows hospitals to report on Schedule H certain categories of spending that are important and generally valuable, but do not have a direct and meaningful impact on communities. Those categories are also susceptible to double- or triple-dipping, meaning hospitals may choose to claim those expenses in multiple circumstances. For these reasons, we exclude the categories of research, training, and Medicaid shortfall.

Note that the precedent for excluding research, training, and Medicaid shortfall from an accounting of hospital community benefit spending has already been set: Massachusetts (pdf) also excludes those categories in reporting requirements.

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 financial assistance spending reflects the amount patients would pay absent of hospital policy, Medicaid shortfall does not convey a hospital policy choice. Hospitals use their Medicaid shortfall to justify disproportionate share payments, higher prices for privately insured patients, and 340B payments, as well as claiming it as a community benefit, despite the fact that nonprofit hospitals have similar unreimbursed Medicaid costs as for-profit hospitals.

Hospital spending on health professions education and research were not included because these investments do not have a direct impact on community health needs. Hospital trainees help 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.

To learn more about the reasoning behind our decisions to include and exclude certain categories of spending, see our op-ed in STAT.