Measuring charitable contributions: implications for the nonprofit hospital's tax-exempt status

Abstract

Since 1985, some nonprofit hospitals have tried to measure the magnitude of their charitable contributions in order to protect themselves from challenges to their nonprofit tax-exempt status. Using a sample of 562 Catholic nonprofit hospitals, this research shows that these charitable contributions may be defined and measured in several different ways, each having methodological advantages and disadvantages. The data indicate that charity care contributions vary widely, are unequally distributed across the sample of hospitals, and are influenced by the characteristics of the people in the local community and not by the characteristics of the health care delivery system. These findings suggest that legislators may be correct when questioning the rationale for the tax-exemption accorded to virtually all nonprofit hospitals. Further, it suggests that nonprofit hospital administrators can protect the tax-exempt status of their hospital by emphasizing the charitable contributions it makes by absorbing the unreimbursed costs from Medicare and Medicaid.