The Charity That Isn't
When a hospital incorporates as a nonprofit, it enters into an implicit contract with the public. In exchange for exemption from federal, state, and local taxes — exemptions that, in aggregate, the Lown Institute estimates are worth approximately $28 billion annually — the institution agrees to provide community benefit: charity care for those who cannot pay, services that address local health needs, and a mission oriented toward public welfare rather than private profit.
It is a reasonable bargain. Healthcare is not a luxury. The communities that host these institutions, and the governments that forgo the tax revenue they would otherwise collect, are entitled to expect something real in return.
What they are getting, in far too many cases, is a very sophisticated performance of charity — one that generates enormous wealth for health system executives, produces operating surpluses that rival for-profit competitors, and leaves low-income patients with billing practices aggressive enough to make a payday lender blush.
What the Numbers Actually Show
The Lown Institute's Hospital Index, which tracks the gap between the value of tax exemptions received and the value of charity care and community investment provided, found that a majority of nonprofit hospitals analyzed were taking more in tax breaks than they were returning in community benefit. The top 275 hospitals with the largest gap between exemptions and community benefit collectively received more than $14 billion in tax advantages while providing far less in return.
To be precise about what that means: these institutions are net extractors of public value. They take from the communities that host them — through foregone tax revenue — more than they give back. The charitable designation that justifies their preferred tax status is, in these cases, a legal fiction maintained by a regulatory framework so permissive it barely qualifies as oversight.
The IRS requires nonprofit hospitals to complete Schedule H on their Form 990 filings, reporting community benefit expenditures. But the definition of "community benefit" under current rules is extraordinarily elastic. It can include the cost of treating Medicare and Medicaid patients at below-cost reimbursement rates — a financial loss that would exist regardless of nonprofit status. It can include medical education costs, research expenditures, and even the unpaid portion of bad debt from patients who were billed aggressively and then simply could not pay. The accounting, in short, allows hospitals to count activities that serve their own institutional interests as charitable contributions to the public.
The Executive Compensation Problem
If the charity care numbers are troubling, the executive compensation figures are clarifying. According to data compiled by Axios and the American Organization for Nursing Leadership, the CEOs of major nonprofit hospital systems routinely earn between $3 million and $10 million annually in total compensation. CommonSpirit Health, one of the largest nonprofit health systems in the country, paid its CEO more than $10 million in a recent reporting year. Kaiser Permanente's CEO earned over $16 million.
These are not aberrations. They are the market rate for running what are, in operational terms, enormous corporations — corporations that happen to be structured as nonprofits and therefore pay no federal income tax on their surpluses.
The argument that nonprofit hospitals must offer competitive executive salaries to attract talent is not entirely without merit. But it sits in profound tension with the premise that these institutions exist to serve the public rather than to generate wealth. You cannot simultaneously claim the moral and legal status of a charity and operate the compensation structure of a Fortune 500 company. The contradiction is not incidental. It is the business model.
Billing the People You're Supposed to Help
Perhaps the most viscerally unjust dimension of this system is what it does to low-income patients — the precise population that the nonprofit designation was designed to protect.
A 2022 investigation by KFF Health News found that nonprofit hospitals across the country were suing patients for unpaid medical bills, garnishing wages, and placing liens on homes — often against individuals who would have qualified for charity care had they known to apply for it. Many hospitals do not proactively inform patients of financial assistance programs. Some bury eligibility information in dense paperwork. Others apply charity care inconsistently, leaving the process opaque enough that patients who should pay nothing instead pay everything, and then get sued when they can't.
Johns Hopkins Hospital, one of the most prestigious nonprofit health institutions in the world, was found by ProPublica to have sued thousands of low-income patients over the past decade, including patients who had sought care at a hospital that received hundreds of millions in public subsidies. The Maryland legislature ultimately passed legislation restricting such practices — but the fact that legislation was necessary to stop a nominally charitable institution from suing its poorest patients into bankruptcy is itself a damning verdict on the adequacy of existing accountability structures.
The Regulatory Gap That Makes This Possible
The core problem is structural: the IRS, which oversees nonprofit status, has neither the resources nor the mandate to rigorously audit whether hospitals are actually delivering community benefit commensurate with their tax exemptions. The Affordable Care Act added some requirements — nonprofit hospitals must conduct community health needs assessments and adopt implementation strategies — but these requirements are largely process-based. They mandate planning documents, not outcomes. A hospital can produce a comprehensive community health needs assessment, identify that low-income residents lack access to primary care, propose a strategy to address it, and then fail to meaningfully implement that strategy — and retain its nonprofit status throughout.
State attorneys general have authority to enforce charitable obligations, and a handful — notably in New York and California — have used that authority aggressively. But most states lack either the resources or the political will to take on major hospital systems, which are significant local employers and substantial political donors.
The result is a regulatory environment in which the obligations attached to nonprofit status are simultaneously real enough to justify $28 billion in annual tax exemptions and vague enough to be almost entirely unenforceable.
The Counterargument, Honestly Stated
The most serious defense of the current system is this: nonprofit hospitals do provide genuine services that for-profit hospitals systematically avoid — trauma centers, psychiatric units, burn centers, and care in rural and low-income communities where margins are thin or negative. Stripping their tax status or imposing rigid charity care mandates could destabilize institutions that provide irreplaceable services and push them toward consolidation with for-profit systems, which would likely make things worse.
This argument deserves respect. It is not wrong that the healthcare system's incentive structure would, without nonprofit institutions, likely produce even more geographic and demographic abandonment of vulnerable populations.
But it is an argument for reforming the accountability framework, not for preserving the current absence of one. The choice is not between the status quo and chaos. It is between a system in which $28 billion in public subsidies flow to institutions with no enforceable obligation to justify them, and a system in which those subsidies are conditioned on measurable, auditable, meaningful community benefit — with real consequences for institutions that fail to deliver.
What Accountability Would Actually Look Like
Reformers have outlined what a serious accountability regime would require. Minimum charity care thresholds — expressed as a percentage of operating revenue and set at a level that actually reflects the value of the tax exemption — would replace the current elastic definition that allows hospitals to count almost anything as community benefit. Proactive financial assistance screening, required before any billing collection action, would ensure that patients who qualify for charity care actually receive it. Restrictions on aggressive debt collection practices against low-income patients — wage garnishment, property liens, credit reporting — would prevent the perverse situation in which publicly subsidized institutions sue the people they exist to serve.
Congressional action to strengthen Schedule H requirements and give the IRS actual enforcement teeth would help. So would state legislation modeled on California's robust charity care laws, which set explicit minimum thresholds and require hospitals to screen patients for eligibility.
None of this is radical. It is simply holding institutions to the promises they made in exchange for public money.
The Verdict
A nonprofit hospital that posts a $500 million operating surplus, pays its CEO $8 million, and sues low-income patients for unpaid bills is not a charity. It is a corporation with a favorable tax status — and every dollar of that tax advantage is a dollar that could have funded the Medicaid expansion, the community health center, or the school nurse that the same institution's community health needs assessment identified as a critical gap.
The public made a deal with nonprofit hospitals. It is past time to enforce it.
