What is Community Benefit Spending and Why Does it Matter for Not-for-profit Hospitals?

The vast majority of hospitals in Minnesota operate as not-for-profit organizations which means they are exempt from most local, state, and federal taxes. This privileged tax status is meant to be an acknowledgement of the ‘community benefits’ they provide. However, the definition of community benefit is loose and guidelines on appropriate levels of community benefit spending are sparse both federally and at the state level.

In Minnesota, there is no law that specifically requires not-for-profit hospitals to provide measurable community benefits.[1] There is, however, a state level reporting requirement on community benefit spending that has existed since 2007. The statute setting up this requirement loosely defines the meaning of community benefit and explicitly excludes reporting on bad debt and underpayments for Medicare services. The types of spending included in the reporting requirement are:

  • Charity care:
    • Care provided at a free or reduced amount to patients in financial need. It is provided with no expectation of payment and is therefore separate from bad debt.
  • State health care programs underpayment:
    • The difference between payments for care delivered to public program patients and the cost of providing that care, which may exceed payment levels. Includes MinnesotaCare and Medical Assistance (excludes Medicare).
  • Operating subsidized services:
    • The costs of maintaining services that operate at a financial loss. E.g. burn units, emergency departments
  • Community health services cost:
    • Cost of providing programs such as free clinics and screenings, self-help programs, community health education etc.
  • Research:
    • Clinical and community health research.
  • Education:
    • Cost of providing medical education such as student internships or scholarships.
  • Financial and in-kind contributions
    • Hours donated by staff and overhead costs of donations to not-for-profit organizations.
  • Costs of community building activities:
    • These can include environmental improvements, leadership training for community members, economic development projects etc.
  • Costs of community benefit operations:
    • Costs for providing staff and other spending associated with community benefit operations.

Despite this reporting requirement, there is no set minimum level of community benefit funding that hospitals must allocate. This lack of guidelines leads to great discrepancy in the contributions of not-for-profit hospitals both amongst one another but also over time, there is no consistent standard. In fact, a recent report by the Minnesota Department of Health indicates that between 2013-2015, community benefit spending decreased by 4.8% overall.[2] This decrease is magnified when looking at charity care spending. By 2015, charity care spending fell $55.2 million (35.1%) from 2013 levels and reached spending levels that had not been seen since 2007.

While the Minnesota state reporting requirement provides us with essential data to examine the contributions of our nonprofit hospitals, it does not go far enough.  Not-for-profit status is an enormous benefit to these organizations, releasing them from tax obligations as well as providing access to tax-exempt bond financing and the ability to accept tax-deductible donations. Over the past decade, there has been national scrutiny over whether or not not-for-profit hospitals provide enough community benefit to justify their tax-exempt status.[3] The recent decline in spending in Minnesota is keeping that very question in the spotlight, let’s hold our hospitals accountable and make sure they are prioritizing patients over profits.