Hospitals are very important to a functioning America. The Trump Administration has pushed some common-sense reforms to get prices of drugs and care down, but there is a gaping hole in the system now that increases the cost to taxpayers while not providing care to the needy. Non-profit hospitals need to provide more care to those in need or they should lose their non-profit status.
There is concern by many that non-profit hospitals are gaming the taxpayer to make big profits. It makes no sense for an organization that purports to be a charitable organization to convert into a massive, for-profit enterprise. The big losers are patients and taxpayers.
Here is a great example of how a non-profit should run. Vanderbilt University was founded in 1873 with a $1 million gift from Cornelius Vanderbilt. That modest endowment was invested and, most importantly, used to educate students. It allowed Vandy to grow into a leading educational institution that serves not only Nashville, but the entire U.S.
Modern endowments aren’t as clearly focused. They exist not to provide education, but to grow (and grow and grow) so the university can brag about how large its endowment is. For example, Harvard was sitting on a $50.7 billion endowment in 2023. Yale had $40 billion, and the average endowment at the top 20 colleges was north of $18 billion.
Money makes money, of course, so big endowments tend to get bigger. But these universities should be using the principle to educate students. Tuition at Harvard costs more than $80,000 per year, and the school could slash that substantially for every student and expand to welcome more learners. To its credit, it is making an effort to make tuition free for families that earn less than $100,000, but it could do plenty more with $50 billion.
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The same thing should be true for hospitals.
When it comes to healthcare, hospitals are on the front line. That’s why federal law says they must provide stabilizing care to anyone who comes into the Emergency Room, regardless of whether the person has insurance or is able to pay. That is a cost to hospitals, of course, but a benefit for all Americans.
Beyond ERs, non-profit hospitals play a vital role in the county. They care for patients, of course, but they also do many other things, such as hosting activities and programs to improve the health and health literacy of their local communities.
Still, it isn’t clear that non-profit hospitals are providing enough care to their communities, especially considering the tax benefits those institutions enjoy. One tax exemption is worth almost $25 billion each year. “Despite the Affordable Care Act (ACA) reforms, there has been minimal change in community benefit spending by nonprofit hospitals, especially in the form of charity care,” according to one report.
That study found that “the overall mean for charity care as a percent of total expenses was 2.62 percent for for-profit hospitals compared with 2.95% for non-profit hospitals,” which is a non-significant difference. “Among large-sized hospitals, the mean for charity care as a percent of total expenses for for-profit hospitals was 3.72% compared with 2.60% for nonprofit hospitals, a statistically significant difference,” it notes.
At the same time, it is worth noting that even non-profit hospitals make money, with some of the largest bringing in as much as $9 billion in net patient revenue each year. This is a staggering number and speaks to the idea that these non-profit hospitals are making money hand over fist.
There are plenty of ideas being floated for how to improve healthcare in the U.S. But a simple solution, one that can be implemented right away, would be to require hospitals to do more to help patients.
Lawmakers could expand the requirements on hospitals and insist that the nation’s most profitable hospitals (in terms of net income or assets) must provide charity care at a level that at least matches their tax benefits and public support. They clearly have enough resources and should be asked to do more to help the needy.
Such a program could be defined as the top ten percent of hospitals in terms of patient revenue, which should provide a specific amount of their tax advantages and public support as charity care. Maybe make all of them do it. A failure to follow the requirements should result in hospitals losing their tax-exempt status and becoming for-profit entities.
Hospitals must make money to stay in business, of course. There is plenty of overhead in healthcare, from salaries to equipment to buildings. But they also exist to make Americans healthier. Some simple changes in tax law could allow hospitals to be profitable while also doing more to help people.
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