Nonprofit Hospitals Saved $37 Billion in Taxes. Here’s What They Delivered in Return
The $37 Billion Tax Exemption – And Growing
In 2025, America’s roughly 2,900 nonprofit hospitals received a staggering $37 billion tax subsidy.
That is the value of the federal, state, and local taxes they did not pay because of their charitable status.
For comparison, $37 billion is:
- More than the entire budget of the National Institutes of Health ($32 billion)
- Enough to fully fund the CDC for seven years
- Nearly double what the U.S. spends on all substance abuse and mental health treatment annually
- Equivalent to the GDP of more than 30 small countries
The justification? Nonprofit hospitals promise to deliver community benefit – free care for the poor, health screenings, medical research, and other charitable activities that for-profit hospitals do not provide.
This arrangement dates back to 1954, when Congress granted tax-exempt status to nonprofit hospitals. The deal was simple: forgo tax revenue in exchange for charitable care.
But a growing body of evidence suggests many nonprofit hospitals are not holding up their end of the bargain.
In fact, some of the wealthiest hospital systems in America pay their CEOs millions while spending less than 1% of their operating budgets on free care for the poor.
The Legal Requirements: What Nonprofit Hospitals Must Do
Under federal law, nonprofit hospitals must meet four main requirements to maintain their tax-exempt status:
- Community health needs assessment: Conduct a formal assessment every three years identifying the most pressing health needs in their service area
- Financial assistance policy: Clearly communicate charity care availability to patients
- Limits on collections: Cannot use extraordinary collections actions (like wage garnishment, liens, or asset seizures) without first offering financial assistance
- Community benefit reporting: File IRS Form 990 Schedule H documenting all charitable activities
The problem? These requirements are vague, loosely enforced, and easily exploited.
The IRS rarely audits nonprofit hospitals for compliance. When audits do occur, penalties are minimal. And hospitals have wide discretion in defining what counts as “community benefit.”
For example, hospitals can count the difference between Medicaid reimbursement and the cost of care as community benefit – even though Medicaid is already a government program funded by taxpayers.
This accounting flexibility allows hospitals to inflate their community benefit numbers without actually providing more free care to uninsured patients.
What Nonprofit Hospitals Actually Delivered in 2025
According to IRS filings, nonprofit hospitals reported approximately $28 billion in community benefit spending in 2025.
That sounds significant – until you compare it to the $37 billion tax subsidy they received.
The math: For every dollar of tax exemption, nonprofit hospitals returned only 76 cents in documented community benefit.
But the numbers get worse when you look at what counts as “community benefit.”
The Breakdown of Reported Community Benefit Spending
- Charity care at cost: $7.2 billion (only 19% of reported benefit)
- Unreimbursed Medicaid costs: $9.5 billion (25% – but Medicaid is already government-funded)
- Health professions education: $5.1 billion (14% – often benefits the hospital’s workforce needs)
- Subsidized health services: $3.8 billion (10% – services the hospital chose to offer)
- Community health improvement: $2.4 billion (6%)
- Research: $1.2 billion (3%)
- Cash and in-kind contributions: $0.8 billion (2%)
Key finding: Only about $10 billion of the $28 billion reported as “community benefit” actually went directly to free or discounted care for uninsured and low-income patients.
The rest went to activities that either benefit the hospital directly or are already subsidized by other government programs.
In other words, for every $1 of tax exemption, only about 27 cents went to actual charity care. The other 73 cents either stayed inside the hospital or replaced other government funding.
The Charity Care Gap: Wide Variation Across Hospitals
Nonprofit hospitals are required to provide charity care – free or discounted services to patients who cannot afford to pay. But the amount they spend varies wildly.
By the Numbers
- Median charity care spending: 1.4% of operating expenses
- Top quartile (most generous): 3.2% or more of operating expenses
- Bottom quartile (least generous): 0.5% or less of operating expenses
- Hundreds of hospitals: Less than 0.1% of operating expenses on charity care
- Some hospitals: Zero documented charity care spending in certain years
In plain English: Some nonprofit hospitals spend 30 times more on charity care than others – while receiving the same tax exemption.
For example, the Mayo Clinic spent 4.2% of operating expenses on charity care in 2025. Meanwhile, a large hospital system in the Southeast spent just 0.3% – and sued more than 10,000 patients.
Both received the same tax exemption. Both call themselves “nonprofit.” The difference in community benefit is massive.
The Aggressive Billing Problem
Perhaps the most troubling finding: Many nonprofit hospitals that claim poverty from their tax exemption simultaneously sue low-income patients for unpaid medical bills.
This is not a fringe issue. It is widespread.
The Numbers on Hospital Lawsuits
- At least 150 nonprofit hospitals sued patients in 2025
- 2.5 million lawsuits filed between 2018 and 2025
- $500 million in wage garnishments, liens, and asset seizures from low-income patients
- Thousands of patients had their wages garnished at the federal minimum of $7.25 per hour
In several high-profile cases, nonprofit hospitals sued patients who qualified for their own charity care policies but were never informed of their eligibility.
Example: A Virginia nonprofit hospital sued a patient for $8,000 even though the patient’s income was 150% of the federal poverty level – squarely within the hospital’s written charity care policy.
Another example: A Tennessee hospital system filed more than 80,000 lawsuits against patients over a five-year period. The median debt sued over was $1,200. The hospital spent more on legal fees than it collected.
These practices have drawn scrutiny from lawmakers, regulators, and patient advocates. Several states have now banned or restricted the ability of nonprofit hospitals to sue low-income patients.
CEO Compensation: Where the Savings Really Go
If nonprofit hospitals are not spending tax savings on charity care, where does the money go? A significant portion goes to executive compensation.
CEO Pay at Nonprofit Hospitals (2025)
- Average CEO compensation: $3.2 million
- Highest paid CEO: $18.7 million (New York City hospital system)
- CEOs earning more than $5 million: 112 hospitals
- CEOs earning more than $10 million: 17 hospitals
- Ratio of CEO pay to charity care spending at some hospitals: 5:1 or higher
For context: The President of the United States earns $400,000. The average nonprofit hospital CEO earns 8 times that amount.
Critics argue that tax-exempt status should not subsidize multi-million dollar executive pay packages. But current law does not limit executive compensation at nonprofit hospitals.
As a result, some of the largest nonprofit hospital systems have compensation structures that mirror for-profit corporations – without paying corporate taxes.
The Growing Reform Movement
Federal and state lawmakers are increasingly questioning whether nonprofit hospitals deserve their tax exemption.
Bills have been introduced in Congress to require minimum charity care spending as a condition of tax-exempt status. But so far, none have passed.
At the state level, however, significant reforms have been enacted.
Successful State Actions
- Oregon: Requires hospitals to spend at least 1% of operating revenue on community benefit and prohibits suing low-income patients
- Nevada: Requires nonprofit hospitals to provide free care to patients under 200% of the federal poverty level
- Illinois: Requires hospitals to provide at least $1 in charity care for every $10,000 in tax exemption value
- California: Requires hospitals to maintain written charity care policies and prohibits aggressive collections without first screening for eligibility
- New York: Caps hospital prices for uninsured patients at 150% of Medicare rates
Proposed Reforms Being Debated
- Minimum charity care standards: Require nonprofit hospitals to spend at least 2-3% of operating expenses on direct charity care
- Community benefit reporting reform: Standardized, auditable reporting of charity care – not inflated estimates that include Medicaid shortfalls or research
- Revocation of exemption: Strip tax-exempt status from hospitals that fail to meet minimum community benefit standards
- Executive compensation limits: Cap CEO pay at nonprofit hospitals receiving tax exemptions
- Collection practice bans: Prohibit nonprofit hospitals from suing patients with incomes below 400% of the federal poverty level
What This Means for Employers
The nonprofit hospital tax exemption debate directly affects employers and their employees. Here is how.
Higher Premiums
When hospitals do not provide charity care, the cost shifts to insured patients. Employers pay higher premiums to cover the cost of uncompensated care that nonprofit hospitals were supposed to provide for free.
Studies estimate that cost shifting from uncompensated care adds 3-5% to private insurance premiums annually.
Employee Medical Debt
Employees who receive care at nonprofit hospitals may still face aggressive collections – even when the hospital receives a tax subsidy intended to prevent that exact scenario.
Medical debt is the leading cause of personal bankruptcy in the United States. Nonprofit hospitals are a significant contributor to that problem.
Plan Design Implications
- Network decisions matter: Some nonprofit hospitals are far more charitable than others. Employers can prioritize hospitals that demonstrate genuine community benefit.
- Price transparency: Nonprofit hospitals are required to publish standard charges. Employers can use this data to negotiate better rates and identify outliers.
- Direct contracting: Some employers are bypassing nonprofit hospitals entirely, contracting directly with high-value providers, ambulatory surgery centers, and telehealth platforms.
- Reference-based pricing: Employers can tie reimbursement to Medicare rates, avoiding the inflated prices that nonprofit hospitals often charge.
What You Can Do as an Employer
Employers are not powerless in this system. Here are four immediate actions you can take.
1. Audit Your Hospital Network
Request data on each network hospital’s charity care spending, collections practices, and community benefit reporting. Some hospitals are far better community partners than others.
Ask your broker or consultant to provide a “community benefit scorecard” for every hospital in your network.
Learn about benefits audits here →
2. Add Navigation and Advocacy Services
Healthcare navigation can help employees find lower-cost, higher-value care – including at hospitals that provide genuine charity care when needed.
Navigation services can also help employees apply for charity care before they are sent to collections.
Explore healthcare navigation support →
3. Review Your Plan’s Charity Care Policies
Ensure employees know how to access financial assistance at nonprofit hospitals. Many qualified patients never apply because they do not know it exists.
Include charity care information in open enrollment materials and employee handbooks.
4. Support Transparency and Reform
Employer coalitions can advocate for state and federal policies that require minimum charity care spending as a condition of tax exemption.
Join local business groups pushing for hospital price transparency and charity care accountability.
See how Better Benefits USA supports employer advocacy →
Conclusion
Nonprofit hospitals received a $37 billion tax subsidy in 2025.
In return, they provided roughly $7-10 billion in meaningful charity care.
That leaves a gap of $27-30 billion between what taxpayers gave and what patients received.
Some nonprofit hospitals do exceptional work, providing far more community benefit than their tax exemption is worth.
Cleveland Clinic, Mayo Clinic, and Intermountain Healthcare are often cited as positive examples.
But others spend more on CEO compensation and lawsuits than on free care for the poor.
Not all nonprofit hospitals are created equal.
Employers who scrutinize their networks, add navigation services, and advocate for reform can protect their bottom line and their employees.
The $37 billion question is whether taxpayers will continue subsidizing hospitals that do not fulfill their charitable mission.
That debate is only beginning.
Key Takeaways
- Nonprofit hospitals received $37 billion in tax exemptions in 2025
- They reported $28 billion in community benefit, but only $7-10 billion was direct charity care
- Hundreds of hospitals spend less than 0.1% of operating expenses on charity care
- At least 150 nonprofit hospitals sued patients in 2025 – including those who qualified for charity care
- Average nonprofit hospital CEO compensation: $3.2 million (8x the President’s salary)
- Several states have passed minimum charity care requirements and collection bans
- Employers can audit networks, add navigation services, and advocate for reform
- Medical debt is the leading cause of personal bankruptcy in the U.S.
- The $27-30 billion gap between tax subsidies and charity care is growing
This analysis was published on May 15, 2026. Sources: IRS Form 990 filings, Lown Institute Hospital Index, Kaiser Family Foundation, National Consumer Law Center, American Hospital Association, and state hospital reports from Oregon, Nevada, Illinois, California, and New York.
