Profitable nonprofit hospitals

Seven of the 10 most profitable hospitals in America are nonprofit. Mayo Clinic, Cleveland Clinic, and Johns Hopkins fall into this category. Having a non-profit designation means the hospital is exempt from federal and local taxes. In exchange, the hospital must provide a certain amount of “community benefit.” Ideally that benefit should be charity medical care. Instead, the hospitals can qualify for the tax exemption by accepting Medicaid insurance, which, it turns out, allows them to make even greater profit.

Here’s how it works: hospitals calculate the gap between Medicaid payments and the hospital’s self-determined costs for procedures. That gap constitutes their “community benefit.” Thus, the Affordable Care Act has been a real financial boon to them. It brought millions more paying customers into the field, such that the revenue in the top seven nonprofit hospitals increased by 15 percent, while charity care—the most tangible aspect of community benefit—decreased by 35 percent.

With charitable care being optional, it stands to reason that nonprofit hospitals are often the most profitable: they don’t have to pay taxes. They also benefit from tax-free contributions from donors and tax-free bonds for capital projects. Plus they’re allowed to include training residents, fellows, and other clinical staff as community benefit. The most profitable nonprofit hospitals tend to be part of huge health care systems. Monopoly hospitals are known to charge more than non-monopoly hospitals.

The average chief executive’s package at nonprofit hospitals is worth $3.5 million annually. From 2005 to 2015 the average chief executive compensation in nonprofit hospitals increased by 93 percent. Nurses got 3 percent.

OK: While I’m at it, I’ll throw in a couple more factoids about health care: patient care generated $3.6 trillion in 2018, an amount shared by your hospital, doctor, and insurer. Also, according to the Bureau of Labor Statistics, the poorest people in this country spend 35% of their pre-tax incomes on health care and the wealthiest spend 3.5% of their income on health care, but the wealthiest spend an average of $8,720, compared to $2,119 for the poorest people. No surprise there.

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