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Tax Exemptions for Nonprofit Hospitals: Toward Transparency and Accountability

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  • Waymire Tammy R.
  • Christensen Douglas J.

Abstract

Whether nonprofit hospitals fulfill their implicit obligation to provide benefits to the public that are commensurate with the benefits associated with their tax exemptions is an important policy question. To contribute to this discussion, we examine the variation in charity care provided, scaled by net patient revenues and by imputed federal income taxes, in a sample of nonprofit hospitals that are subject to Single Audit requirements. We find that small hospitals tend to provide more charity care than large hospitals, and that rural hospitals tend to provide more charity care than urban hospitals. Interestingly enough, we find little difference in charity care amounts provided by hospitals in high income areas v. low income areas, suggesting that demand for charity care, at least in this setting, has little effect on hospital behavior regarding the provision of charity care. As a result of our analyses, we make recommendations for increased availability of hospital financial statements, as well as specific disclosures of other components of community benefits, which represent the applicable standard for evaluating tax exemptions. These recommended disclosures and increased transparency would permit more meaningful policy analysis regarding nonprofit hospitals as well as a comparison to for-profit and governmental hospitals.

Suggested Citation

  • Waymire Tammy R. & Christensen Douglas J., 2011. "Tax Exemptions for Nonprofit Hospitals: Toward Transparency and Accountability," Nonprofit Policy Forum, De Gruyter, vol. 2(1), pages 1-26, May.
  • Handle: RePEc:bpj:nonpfo:v:2:y:2011:i:1:p:26:n:3
    DOI: 10.2202/2154-3348.1014
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    References listed on IDEAS

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    1. Eldenburg, Leslie & Vines, Cynthia C., 2004. "Nonprofit classification decisions in response to a change in accounting rules," Journal of Accounting and Public Policy, Elsevier, vol. 23(1), pages 1-22.
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    3. Kennedy, Frances A. & Burney, Laurie L. & Troyer, Jennifer L. & Caleb Stroup, J., 2010. "Do non-profit hospitals provide more charity care when faced with a mandatory minimum standard? Evidence from Texas," Journal of Accounting and Public Policy, Elsevier, vol. 29(3), pages 242-258, June.
    4. Brickley, James A & Van Horn, R Lawrence, 2002. "Managerial Incentives in Nonprofit Organizations: Evidence from Hospitals," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 227-249, April.
    5. Mark G. Duggan, 2000. "Hospital Ownership and Public Medical Spending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1343-1373.
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