States review nonprofit hospitals' tax exemptions

More legislators ask if nonprofit facilities should pay property taxes, especially if evidence shows they are acting like for-profit companies.

By Dave Hansen, AMNews staff. Sept. 10, 2007.

Nonprofit hospitals increasingly find their property tax exemptions under fire.

These facilities are not in imminent danger of suddenly having to pay millions of dollars in property taxes, but cash-strapped state governments are taking a harder look at whether nonprofit hospitals are acting in the public interest by providing charity care and other services, or whether it's in the greater public interest to have them contribute to government coffers and mitigate the tax burden on citizens.

In Washington, a state government committee recently recommended reviewing the tax-exempt status of nonprofit hospitals after finding that they provided less charity care than for-profit facilities.

Washington's nonprofit hospitals enjoyed a collective $47 million state tax break in 2006-07, according to the state's Joint Legislative and Audit Review Committee. It is reviewing more than 500 tax preferences, of which hospitals represent the largest monetary amount, on order of a bill passed last year. The committee of state senators and representatives has eight Democrats and eight Republicans.

Hospitals will reap an extra $50 million to $58 million for each of the next three years, the committee estimates. But for-profit hospitals receive a higher percentage of their revenue from Medicaid patients, it found.

There were no data on whether nonprofits provided more community-based services, such as educational seminars or medical screening programs.

The state Legislature should make nonprofits meet a threshold of charity or low-income care, the report recommended. The Legislature could also require nonprofits to provide an inventory of its community services or clarify which services are eligible for the tax exemption.