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Using Community Benefits to Bridge the Divide Between Minnesota’s Nonprofit Hospitals and Their Communities

By Meredith Gingold. Full Text.

Nonprofit hospitals receive numerous state and federal tax exemptions. In return, communities expect that hospitals will give back what they can. This giving, called “community benefits,” can take many forms including money spent on educating a hospital’s doctors and residents, free or discounted care to low-income patients, and Medicaid shortfalls—the difference between the cost of providing care to a Medicaid recipient and the amount Medicaid reimburses the hospital. While there is an expectation that nonprofit hospitals will give community benefits, any giving is voluntary, and nonprofit hospitals often receive more money from their tax exemptions than they return to their communities in the form of community benefits.

This set of tax exemptions made sense at its inception, but as nonprofit hospitals have grown, merged into large corporations, and are increasingly profitable, it warrants rethinking. Some nonprofit hospitals clearly need these tax exemptions to allow them to do the integral work that they do, especially during the COVID-19 pandemic. However, others could be doing much more to benefit their communities in return for the tax exemptions that they receive. Nonprofit hospitals cannot give profits to shareholders, so they compensate executives with extravagant salaries, invest in lavish renovations, and spend immoderately on extensive advertising campaigns. This excess should be going back to the communities it would have gone to if not for these tax exemptions.

This Note considers what Minnesota can do at the state level to ensure that Minnesota’s nonprofit hospitals give community benefits at levels commensurate with their tax exemptions. It suggests changing the way that Medicaid shortfalls are calculated to more accurately reflect the real cost of providing care to low-income community members and establishing a minimum amount of community benefits that Minnesota nonprofit hospitals must provide in order to qualify for state and local tax exemptions. This amount should be flexible, based on current amounts of community benefit giving in the state, and specific enough for nonprofit hospitals to follow. These steps will facilitate community benefit giving by Minnesota’s nonprofit hospitals that will truly benefit the communities that surround them.