How States Can Hold Hospitals Accountable for their Community Benefit Expenditures

March 15, 2021/by Allie Atkeson and Elinor Higgins

The COVID-19 pandemic has impacted state budgets and illuminated racial and ethnic health disparities that recent health improvement efforts have not adequately addressed. It is more important than ever that nonprofit hospitals provide meaningful community benefit investments in exchange for the large tax exemptions they receive. State leaders have an opportunity to use policy levers that go beyond federal community benefit requirements to hold hospitals accountable for their commitment to improve community health.

For decades, nonprofit hospitals have received valuable tax exemptions in exchange for charitable investments in their communities. Accompanying this history — which culminated in the current federal community benefit reporting system — there have been concerns about transparency and whether hospital spending is actually reaching those with the greatest need. 

In 1956, hospitals providing charity care first received a charitable tax exemption from the Internal Revenue Service (IRS). In 1969, the IRS created the community benefit standard in its place. The new standard offered hospitals a broader range of health promotion activities that would result in a charitable tax exemption. These options included providing charity care, the operation of an emergency room that was open to all, and a broad array of patient care improvements through research and staff training.  

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In 2009, the IRS retooled Form 990 and added Schedule H — a reporting form specific to nonprofit hospitals. Schedule H was designed to increase transparency in hospital community benefit reporting and required hospitals or hospital systems to report their community benefit spending by category. Shortly after the new Schedule H went into effect, additional changes were enacted through the Affordable Care Act. Notably, since 2012 nonprofit hospitals have been required to conduct community health needs assessments (CHNAs) with the input of community members every three years to identify the most critical health priorities. Hospitals must also create an implementation strategy detailing how the identified needs will be addressed. However, despite the integration of the CHNA and the implementation strategy into the Schedule H, there is no requirement that community benefit spending is tied to the CHNA or the implementation strategy.

The evolution of federal community benefit policy reflects a shifting perception of the role that hospitals should play in their communities — and also what hospitals must do to justify their multi-billion-dollar tax exemption. Today’s hospital landscape, with regional consolidation, rising health care prices, and an ever-stronger acknowledgement of the need to advance health equity, is very different than it was in 1956. As hospitals merge to form vast systems that span regions and cross state borders, it becomes increasingly problematic for a hospital system with multiple facilities that use the same employer identification number to report its community benefit spending in aggregate. The lack of granularity present in the aggregated data makes it difficult to assess the impact of community benefit initiatives, and to identify whether needs from the individual hospitals’ CHNAs are addressed. Without additional oversight, it is possible for hospitals to meet IRS reporting requirements without providing impactful benefit to their communities or addressing the needs that community members have identified. 

A 2017 study illustrates this issue in urban nonprofit hospitals. The study found that 65 percent of these hospitals’ CHNAs cited health disparities or health equity explicitly – 100 percent referenced health equity implicitly and 75 percent reported that external stakeholders identified health equity as a need. Yet only 46 percent prioritized health equity in their CHNAs, and a mere 9 percent of the hospitals’ implementation strategies included activities explicitly designed to improve health equity. With no direct link between reported community benefit spending and implementation strategies, it is impossible to track whether hospitals were directing their resources in ways that would most appropriately tackle the identified issues. 

However, there may be room to redirect community benefit spending to meet these identified community needs. The top two categories of hospital community benefit expenditures have historically been charity care and unreimbursed Medicaid services. Because the IRS has not yet adopted the Healthcare Financial Management Association Statement 15, hospitals can report their expenses for charity care, bad debt, and services for the uninsured at chargemaster rates instead of at the lower net cost of the provided services. In other words, under the current requirements, there is the potential for hospitals to report higher community benefit spending that is based on hospital charges or insurance-allowed amounts. As such, there is reason to believe that hospitals may be able to direct more of that money towards providing concrete community health improvement activities. 

States Are Leading the Way to Establish Meaningful Community Benefit Policies

Currently, there are no federal community benefit requirements that:

  • Ensure hospitals use the most accurate accounting standards for charity care and unreimbursed Medicaid services;
  • Set a minimum level of community benefit spending;
  • Require hospitals to spend on community benefit dollars on identified needs;
  • Describe in detail the type of activities that quality as community benefit spending.

Since 2017, the National Academy for State Health Policy (NASHP) has convened a multi-sector workgroup of state officials to share strategies, problem-solve, and brainstorm solutions to community benefit practices, programs, and policies. States have a variety of legislative and regulatory levers at their disposal, the following examples provide a range of accountability mechanisms to ensure hospitals invest in their communities to improve population health.

States can require a hospital’s minimum spending amount on community benefit. Analysis of hospital community benefit spending from 2008-2012 shows that in 2012, 8.5 percent of hospital spending was on community benefit with more than 80 percent attributed to charity care, unreimbursed Medicaid, and subsidized health services. An analysis of over 2,400 hospitals that submitted IRS Form 990 and Schedule H between 2009-2015 found that there was an increase in community benefit spending on community health initiatives in states with minimum spending amounts. The following are examples of states that legislate community benefit spending amounts and reporting requirements:

  • Illinois’ law requires nonprofit hospitals to spend the amount of their property tax on “services that address the health care needs of low-income or underserved individuals or relieve the burden of government with regard to health care services” in order to receive a property tax exemption.
  • In Nevada, nonprofit hospitals with more than 100 beds in counties with two or more hospitals are required to report “the expenses that the hospital has incurred for providing community benefits and the in-kind services that the hospital has provided to the community in which it is located.” They are also required to provide 0.6 percent of the previous fiscal year’s revenue in indigent care.
  • In 2019 Oregon passed HB 3076 to expand income limits for charity care and create a community benefit spending floor for Oregon’s nonprofit hospitals. The bill reduces the cost of care to zero for those earning less than 200 percent of the federal poverty line (FPL) and creates a sliding scale for those earning 200 to 400 percent of FPL. The law also requires the Oregon Health Authority to set a spending floor in collaboration with hospitals every two years based on an identified methodology. In February 2020, OHA set the first hospital community benefit floor for Legacy Health at $253 million dollars. This amount is “based on its previous levels of unreimbursed care; its direct spending on the social determinants of health, health equity, and other community benefits; and its operating margin.”
  • In Pennsylvania, the Institutions of Purely Public Charity Act outlines six community benefit standards for a hospital to be tax-exempt. 
  • Utah’s property tax Standards of Practice require nonprofit hospitals to “establish that its total gift to the community exceeds on an annual basis its property tax liability for that year.”

States can include community benefit requirements in their hospital licensing programs. States use certificate of need (CON) or determination of need (DON) programs to regulate the number of health care resources in an area. 

  • Massachusetts uses its DON process to require hospitals to invest in public health goals. The process includes a Community-Based Health Initiative (CHI) to connect hospital spending to DON Health Priorities. The goal of the CHI program is to “support DON applicants and their community-based partners in focusing on social determinants of health.” Hospitals are required to make a contribution that addresses one of the DON Health Priorities. Hospitals should report qualifying CHI expenditures under the Attorney General Office’s Community Benefit Guidelines.
  • In Connecticut, the state has used the CON process to ensure that community benefit spending addresses stated community needs. For approved CON applications involving certain hospital transfers of ownership, the Health Systems Planning Unit within the Office of Health Strategy (OHS) is required to hire an independent consultant to report 1) efforts the purchaser and representatives of the new hospital have taken to comply with conditions in the CON, and 2) community benefits and uncompensated care provided by the new hospital [CT law Section 19a639(e)(1). In 2019, a CON agreement tied to the transfer of assets from Milford Health to Bridgeport Hospital mandated that the hospitals:
    • Submit their CHNA and implementation strategy to the Office of Health Strategy (OHS);
    • Adopt evidence-based interventions from the Centers for Disease Control and Prevention’s 6/18 initiative and provide information about how outcomes from the implementation strategy will be reported to the community;
    • Increase the total dollars spent on community benefits by at least 1 percent every year for the next five years, and ensure that spending and activities directly address the health needs identified by the hospital’s CHNA. The five-year annual 1 percent increase in community benefits spending cannot go towards hospital expenses or include spending on Medicaid, but must be used to address the social determinants of health and the population health needs identified in the CHNA.
    • Submit documentation to OHS showing “how its community benefit and community building activity expenditures addressed each element identified in the applicable CHNA, with brief narrative explanation of relevant activity for that element, and dollars spent.”

This example from Connecticut provides an avenue for states to use their CON process to hold hospitals accountable for meaningful investment into community health needs.

State audits can be used to determine the impact of community benefit spending. State legislators often request audits by state agencies on issues related to performance monitoring and program evaluation. State auditors conduct evaluations and provide policy recommendations for legislators to consider. As there are many stakeholders involved in hospital oversight, a legislative audit allows for a nonpartisan, evidenced-based evaluation and recommendations for legislators to consider.

From 2008-2014 the Montana State Attorney General’s Office published annual reports on charity care, community benefit and patient bankruptcies for Montana hospitals. The reports stopped in 2014 due to a lack of funding for the project. In September 2020, the Montana Legislative Audit Division released a report examining community benefit and charity care obligations at Montana nonprofit hospitals. The division calculated the total amount of tax exemptions and community benefit spending, and analyzed the top priorities identified by the 47 nonprofit hospitals’ CHNAs. The audit used the Robert Wood Johnson County Health Rankings to evaluate the relationship between hospitals community benefit spending and community health improvement.

The Montana audit ultimately determined that “community benefit spending has no clear impact on the health of Montanans.” The report also recommended “the legislature should enact laws defining expectations regarding detailed reporting of community benefit spending and its impact on community health and the state government entity responsible for actively reviewing community benefit spending.” Montana legislators are currently considering the report recommendations as they begin their 2021 legislative session.

States can require hospitals to link spending to community health improvement activities. In order to ensure meaningful community benefit, states must be able to measure community benefit investments in population health and community building activities. By requiring nonprofit hospitals to report community benefit spending in exchange for tax credits, states can gather information on the impact of these investments in communities.

In Massachusetts, the Attorney General’s Office (AGO) issued updated Community Benefit Guidelines in 2018. As a part of the guidelines, the AGO requests hospitals to submit their community health needs assessment, implementation strategy, and information on its community benefit program. The community benefit program information should include program goals, measured outcomes, and expenditures.

According to the AGO guidelines, community benefit program expenditures include “funds that are allocated to Community Benefits programs that address a need identified in the CHNA and a target population set forth in the implementation strategy.” The AGO also requests that expenditures be broken out by program type and by health need addressed. These reports are available to the public on the AGO’s website.

States can require hospitals to invest in their communities through community service contributions. In New Jersey, a 2015 tax court ruling involving a hospital determined “the operation and function of modern nonprofit hospitals do not meet the current criteria for property tax exemption.” In response, the New Jersey Legislature passed a bill in late 2020 that reflects the concern that hospital systems, as large land-owning entities that do not pay property taxes, are not contributing sufficiently to community services.

In February 2021, Gov. Phil Murphy signed the bill into law, requiring hospitals to pay a daily $3 per-bed fee to their local governments. This fee, or community service contribution, would go toward municipal services that taxes on these hospitals might otherwise support. Hospitals contributing more than 12 percent of their operating budget to community benefit spending will be exempt from the contribution. Analysis of IRS Form 990 Schedule H data finds that currently 10 out of 56 nonprofit hospitals spend more than 12 percent on community benefit activities.


Absent federal guidance on community benefit minimum spending, reporting requirements and impact analysis, states can use community benefit policy to maximize community benefit spending. Hospital community benefit spending is an important tool for states as they recover from the health and economic effects of COVID-19.

To learn more, read the National Academy for State Health Policy’s (NASHP) report, Resources to Help States Maximize their Hospitals’ Community Benefit Investments. To join NASHP’s work on community benefit or for more information contact Elinor Higgins.

Support for this work was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the foundation.

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