There’s a growing push to strip nonprofit hospitals of their tax-exempt status. Advocates claim it will make healthcare more affordable by holding hospitals accountable for high out-of-pocket costs. In reality, it’s a misguided, short-sighted proposal that would harm communities, particularly in rural America, without solving the underlying cost problems in the healthcare system.
Much of this scrutiny is fueled by healthcare special interests who would prefer to shift the blame for rising costs away from themselves. It’s a clever political move, but a dangerous one.
In Arizona, for example, 17 rural hospitals serve 340,000 residents. Many are the only source of emergency care, maternity services and specialized treatment for hundreds of miles. Rural hospitals nationwide have been closing at alarming rates — 153 since 2010, with hundreds more at risk. Taking away their tax exemptions could push many of these facilities over the brink and force them to close, leaving communities without local access to care.
Critics often point to “charity care” — free or discounted treatment for low-income patients — as the sole measure of whether nonprofit hospitals deserve tax benefits. While charity care is vital, it’s only one part of the value these hospitals provide. Nonprofit hospitals also absorb billions in Medicaid losses each year, operate unprofitable but essential services, and invest heavily in community health programs.
In 2020, nonprofit hospitals provided $129 billion in charity care and community benefits, 10 times the $13.2 billion value of their federal tax exemptions. Those benefits include addiction treatment, housing for the homeless and disease prevention programs. These services don’t just improve health outcomes; they save lives.
The push to revoke tax exemptions couldn’t come at a worse time. A perfect storm of financial pressures is already squeezing hospitals. Recently passed Medicaid cuts mean that there may be a $137 billion cut in spending in rural areas over the next decade. Meanwhile, Medicaid Disproportionate Share Hospital payments, which offset the cost of treating the uninsured, face cuts of more than 50 percent over the next few years. And post-pandemic workforce shortages have driven hospital labor costs up by nearly 30 percent.
These challenges are not abstract budget lines; they translate directly into decisions about which services hospitals can keep and which they must cut. Removing tax exemptions would be like pulling the life raft away from someone already struggling to stay afloat.
Other states are experimenting with this dangerous path. Indiana recently passed legislation revoking nonprofit status from some hospitals. In Pennsylvania, a lower court stripped a local hospital of its exemption over concerns regarding excessive executive compensation, a decision later reversed by the state Supreme Court. The reversal was a rare moment of common sense, recognizing that competitive pay doesn’t erase a hospital’s charitable mission. The fact that the case advanced so far shows just how quickly this movement can gain momentum.
This isn’t about defending a “loophole.” Nonprofit hospitals give back far more than they receive. Stripping their tax exemptions probably won’t lower patient costs in a meaningful way, but it would likely force service cuts, shutter community programs, and accelerate hospital closures.
Healthcare policy should be guided by the principle of strengthening what works, not undermining it. Nonprofit hospitals work. They keep services available in communities that for-profit providers won’t touch. They operate programs that address health crises before they escalate. They carry out missions that serve the public good, missions that would be impossible without the resources provided by their tax-exempt status.
Rather than punishing these institutions, policymakers should look for ways to reinforce their role. That means protecting tax exemptions, defending critical funding streams, and ensuring that reimbursement policies reflect the actual costs of care.
If politicians insist on going after nonprofit hospitals, the damage will be measured not in budget savings but in shuttered emergency rooms, longer drives to get care, and the loss of healthcare access in the places that need it most. That’s a price we can’t afford to pay.
When nonprofit hospitals thrive, communities thrive. We would do well to remember that before we tear down one of the last remaining pillars of healthcare in America.
