Last September, I (Whaley) testified before the House Ways and Means Subcommittee on Oversight about something that should trouble every American who has ever paid a hospital bill or a health insurance premium: the nonprofit hospital tax exemption isn’t delivering what it promises.
The premise of the exemption is simple enough. Hospitals that forgo profits and reinvest in their communities don’t have to pay federal, state, or local taxes. It’s a reasonable bargain, in theory. In practice, the data tell a different story.
Nonprofit hospitals collectively receive more than $37 billion annually in tax benefits. That number has grown steadily from $7.8 billion in 1994 and $24.6 billion in 2011. In return, the Internal Revenue Service requires these hospitals to primarily benefit their communities. Research suggests that community benefit spending falls short of the value of those tax exemptions by more than $25 billion per year. That’s not a rounding error. That’s a $25 billion gap between the deal Americans were promised and the deal they’re actually getting.
Recently, the House Ways and Means Committee advanced the Tax-Exempt Hospital Transparency Act, legislation that would require nonprofit hospitals to disclose far more about how they’re spending the public’s money. The bill’s ask is simple: show your work.
For all tax-exempt hospitals, that means basic facility-level financial data and figures on financial assistance applications, how many were received, how many were approved. For larger hospitals, details on community health investments and quality spending. For high-revenue systems, advertising budgets, service line financials, and 340B drug discount program data. Rep. Greg Murphy, MD (R-N.C.), the bill’s lead sponsor and a former hospital administrator, put it plainly: “It’s fourth-grade stuff.“
The push for transparency comes amid mounting evidence that nonprofit hospitals don’t operate meaningfully differently than their for-profit counterparts, and in some measures, they perform worse. Across patient experience scores, Medicaid patient mix, and commercial prices relative to Medicare, the two categories are nearly indistinguishable. Nonprofit hospitals’ charity care payer mix is actually lower, 2% compared to 3.2% at for-profit hospitals. If the tax exemption is supposed to buy meaningfully better community benefit, the numbers don’t support it.
Where are the dollars going instead? Hospital consolidation has driven commercial prices up more than 220% since 2000, nearly three times the rate of overall inflation, and faster than consumer electronics, computer software, or any other sector of the U.S. economy. Commercially insured patients now pay roughly 250% of what Medicare pays for the same care. At system-affiliated hospitals, operating margins for commercially insured patients exceed 40%.
Meanwhile, the 10 largest health systems hold more than $310 billion in total financial assets. CEO pay at nonprofit hospitals has risen steadily since 2009, with some earning millions or even tens of millions annually. Several tax-exempt systems have invested in private equity vehicles. Others sponsor sports stadiums or, in one notable case, developed a production studio to make films with Netflix. Recent data show that nonprofit health systems have $300 billion in securities investments. These may be shrewd business decisions, but they are hard to square with a charitable mission and the direct interest of patients.
The 340B drug discount program tells a similar story. Originally designed to help safety-net providers stretch limited resources, it now accounts for nearly $44 billion in drug purchases, a nearly 600% increase since 2010. Research finds that 340B hospitals charge prices of nearly 300% of average sale price for physician-administered drugs, with profit margins on those drugs approaching 700%. The program was built to lower costs for vulnerable patients. In practice, much of that benefit appears to stay with the hospital.
None of this is an argument for revoking tax-exempt status or assuming that nonprofit hospitals are uniformly bad actors. Many provide essential services, particularly in rural and underserved communities. The argument is narrower: a $37 billion annual public subsidy should come with meaningful accountability, and right now it largely doesn’t.
Current reporting requirements allow large, interstate health systems to file a single aggregate community benefit disclosure. You cannot evaluate a hospital’s performance in one city using a system-level filing that spans two dozen states. You cannot enforce a standard you cannot measure.
That’s the gap this legislation is trying to close. It doesn’t cap prices, restructure the tax code, or impose minimum charity care thresholds. It asks hospitals to document, at the facility level, how they are meeting the obligations that justify their tax-exempt status.
If nonprofit hospitals are genuinely delivering on their community mission, transparency should vindicate them. If the data reveal something else, Congress and the public will finally have what they need to act. Either way, the answer is the same: show your work.
The opinions and conclusions expressed in this op-ed are the authors’ alone and do not necessarily reflect those of Brown University or the Brown University School of Public Health.
