How can not-for-profit hospitals demonstrate community health impact?

By Alicia Janisch, US Health Care sector leader and vice chair, Deloitte Tax LLP, and Jay Bhatt D.O., managing director of the Deloitte Center for Health Solutions, Deloitte Services LP

In response to inquiries from Congress, the Internal Revenue Service (IRS), and state lawmakers, most nonprofit hospitals are working to show the value they provide to their communities and to the low-income patients they serve.

Prior to 1969, hospitals were required to provide charity care to maintain their tax-exempt status. Over time, the rules around charity care have become more ambiguous. Nearly 60% of the nation’s 5,100 hospitals are not-for-profit.¹ Their tax-exempt status requires them to provide community benefit through free or discounted care to low-income patients. However, some hospitals might not be prepared to thoroughly detail what they give back to their communities. In 2023, the US House Committee on Ways & Means held a hearing on not-for-profit hospitals’ tax-exemption issues; several senators have requested that the Internal Revenue Service (IRS) investigate compliance.²

Not-for-profit hospitals and health systems use Schedule H (IRS Form 990) to provide information about the community benefit provided during the tax year. Community benefit includes providing emergency care to all, regardless of their ability to pay. This includes patients who are covered by public programs such as Medicaid.³ Last summer, the IRS began conducting audits of tax-exempt hospitals, with a particular focus on their community benefit and financial assistance policies. Their policies for determining whether patients are eligible for financial assistance (free or discounted care) are also being evaluated. The audited hospitals appear to have been selected based on the community benefit percentages cited on their Form 990.⁴

Some states are evaluating community benefits on not-for-profit hospitals

Americans collectively owe at least $220 billion in medical debt.⁵ This burden of medical debt has prompted some lawmakers to seek more transparency and accountability from hospitals to demonstrate efforts to meet the health needs of their communities. Connecticut launched a medical debt relief initiative in 2023,⁶ followed by similar programs in Arizona, Illinois, Michigan, New Jersey, North Carolina, and Rhode Island in 2024.⁷ Last summer, New York’s attorney general struck a deal with a multi-hospital system to provide low-income people free or discounted care.⁸ The health system also agreed to significantly reduce medical-debt collection efforts and dedicate more staff to help patients apply for financial assistance. Oregon has established rules that outline when hospitals in the state must provide patients with discounted care.⁹ Montana’s 2023 law requires the state health department to track charitable giving among hospitals.¹⁰ And five states—Illinois, Nevada, Pennsylvania, Texas, and Utah—have set minimums that hospitals must spend on community benefits.¹¹

Strategies to help demonstrate community impact

Internal Revenue Code section 501(r), which was established by the Affordable Care Act (ACA), outlines the requirements that hospitals need to follow to demonstrate how they meet the health needs of their communities and low-income patients.¹² Hospitals should consider working with their organization’s tax department and internal auditors to evaluate compliance. Consider these strategies:

• Tap into CHNAs: Community Health Needs Assessments (CHNAs) could be used to highlight efforts being made to address the needs of a community. CHNAs, which were outlined in the ACA, require tax-exempt hospitals and health systems to identify health issues in the communities they serve, conduct quantitative analyses of those issues, appraise existing efforts to address them, and formulate a plan for future action.¹³ The provision was created to help hospitals understand the needs of their communities, identify whether they were spending money appropriately, and document it.¹⁴ But CHNAs can be so much more than a tax document. For example, EHRs, census data, and other information used to comply with the CHNA rule, could help guide a community health strategy. They can be used as a tool to diagnose health issues in the community and as a framework to monitor and evaluate if changes have been effective. The data collected on CHNAs, combined with other information, could help health system leaders illustrate their impact on their communities by creating messages the public can easily understand.
• Be specific and measure impact: Health systems tend to be large and complex organizations. Data included on a 990 form could be misleading if it doesn’t break out all of the organizations in a system. That can make it difficult to measure a health system’s impact. While some hospitals within a health system might provide charity care, other entities within the same health system (e.g., supporting entities, fundraising arms) might not work directly with patients at all. Health system leaders should consider how to explain their impact beyond the data included in schedule H. In addition, Children’s hospitals, research hospitals, and rural hospitals might all have a different mission for serving their communities and therefore might benefit from presenting information in their own way.
• Strengthen financial assistance policies: One of the most direct ways to address both regulatory scrutiny and community needs is to refine financial assistance policies. It can be done, for example, by simplifying the application process and broadening eligibility criteria. This can help more patients benefit from available financial support. Hospitals can also consider limiting documentation requirements and proactively communicating available assistance. By pursuing these actions, hospitals can reduce delays in care and improve patient satisfaction. Some institutions have implemented patient-centered financial assistance models that can not only ease financial burdens but also protect hospitals from aggressive debt collection practices. This approach can contribute to improved community trust.¹⁵

Conclusion

In 2020, the nation’s not-for-profit hospitals received about $28 billion in tax exemptions, according to a 2024 report.¹⁶ According to the American Hospital Association, those hospitals provided nearly $130 billion in community benefits in 2020, accounting for 15.5% of their total expenses.¹⁷ While many hospitals have made substantial investments in their communities, demonstrating a correlation to meaningful public health improvements can be challenging.¹⁸

Refining financial assistance policies and developing medical-debt relief strategies can help not-for-profit hospitals meet their regulatory requirements. By demonstrating their commitment to providing community benefits and addressing the needs of low-income patients, not-for-profit hospitals can better fulfill their mission and maintain continued support from both lawmakers and the communities they serve.

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Endnotes:

¹Fast facts on US hospitals, American Hospital Association, 2025

²Hearing on tax-exempt hospitals and the community benefit standard, US Committee on House Ways & Means Committee, April 26, 2023

³General requirements for tax-exemption under Section 501(c)(3), Internal Revenue Service

⁴IRS audits & ongoing scrutiny of nonprofit hospitals, Healthcare Law Blog, August 13, 2024

⁵The burden of medical debt in the US, Kaiser Family Foundation, February 12, 2024

⁶Nearly 23,000 Connecticut residents will have $30 million in medical debt erased, Governor Ned Lamont, December 16, 2024

⁷Medical debt solutions are getting support from Democrats and Republicans, National Public Radio, October 7, 2024

⁸NY AG announces historic agreement to New Yorkers receive financial aid for medical care, New York State Attorney General, June 4, 2024

⁹Lawmakers pass bill to help Oregonians pay for hospital care, Oregon Capital Chronicle, April 21, 2023

¹⁰Montana Looks To Become Latest State To Boost Nonprofit Hospital Oversight - KFF Health News

¹¹Federal tax benefits for nonprofit hospitals, Committee for a Responsible Federal Budget, June 12, 2024

¹²Section 501(r) reporting, Internal Revenue Service

¹³Community health needs assessments, Internal Revenue Service

¹⁴Community Health Needs Assessment, DC Health Matters Collaborative, 2022

¹⁵Early experiences with state medical debt protection laws, Urban Institute, The Commonwealth Fund, October 2024

¹⁶The federal tax benefits for nonprofit hospitals, Committee for a Responsible Federal Budget, June 12, 2024

¹⁷Tax-exempt hospitals provided nearly $130 billion in total benefits to their communities, American Hospital Association, October 10, 2023

¹⁸Association between nonprofit hospital community benefit spending and health outcomes, National Library of Medicine, September 15, 2023

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

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