Hospitals No Longer Non-Profit?

October 10, 2011
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Hospitals in the United States are a mix of for-profit and non-profit entities. The latter group gets a big benefit in the form of being exempt from taxation. To qualify, well, your organization has to be deemed a charitable organization, but that definition has never really been established or enforced.

Hospitals in the United States are a mix of for-profit and non-profit entities. The latter group gets a big benefit in the form of being exempt from taxation. To qualify, well, your organization has to be deemed a charitable organization, but that definition has never really been established or enforced. Consequently, hospitals are more or less on the honor system to provide a sufficient level of uncompensated care and other services that are collectively termed “community benefit.” The provision of this community benefit translates into non-profit status, which again, means exemption from taxation.

However, at least one state is cracking down on hospitals that appear to be gaming the system by enjoying the tax-exempt status of a non-profit without providing a meaningful level of community benefit. According to Bruce Jaspen, the state of Illinois has had enough. Their budget is tight, and they could use the revenue, so they rescinded the non-profit status of one hospital last year, are working to do the same with three more hospitals this year, and may eventually target more than a dozen additional hospitals across the state. It makes tremendous sense. After all, if you’re acting like a for-profit hospital, you should be treated like a for-profit hospital.

Budget issues are not unique to Illinois, and I highly doubt that non-profits behaving like for-profits are unique to Illinois either. Figuring out how to define, measure, evaluate and monitor community benefit levels in hospitals could become big business as states consider ways to generate more revenue.

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