Community benefit: ACA and tax exemptions help patients

The Affordable Care Act (ACA) has faced two constitutional challenges in the U.S. Supreme Court, and a third lawsuit is gaining force. The legal threat to the ACA is centered on partisan attacks on the individual mandate and its provisions regarding pre-existing conditions. 

Primarily overlooked in these debates is the ACA’s provision for how not-for-profit hospitals may justify their tax exemptions. This essential element of the ACA fundamentally alters the way hospitals engage with communities they serve.

The majority of hospitals in the United States are set up as not-for-profit organizations, and so are exempt from many federal, state, and local tax obligations. The financial implications are substantial — the latest national estimate values the tax exemption at almost $25 billion per year. 

Historically, tax-exempt status was an acknowledgment of the “community benefit” provided by hospitals. The American Hospital Association estimates that tax-exempt hospitals provide $95 billion per year in total community benefits around the country, far exceeding the value of the tax exemption.

Yet, over time, how hospitals define community benefit, and whether their activities are sufficient to justify their tax-exempt status has become controversial.

These debates now center around an essential provision of the ACA, which requires hospitals to justify their favored tax position through carrying out and publishing periodic community health needs assessments, reports that are meant to document the health needs of the communities served by a hospital. 

This ACA provision — though not as controversial as the individual mandate or regulations around pre-existing conditions — a vitally essential, and opens the possibility for a new kind of relationship between hospitals and the communities they serve. In recent years, this relationship has been strained in several high-profile cases around the country.

In Baltimore, a 2017 landmark analysis pointed out that hospitals find more profit in treating asthma “hot spots” than fixing the underlying issues that bring asthmatics to the emergency room. There is revenue to be earned from emergency room visits and inpatient admissions. 

The report questioned why dollars could not be shifted from hospital care to community investment — whether it be air purifiers, pest control, or housing renovations (to mitigate exposure to known asthma triggers) or fund visits from community health workers, all evidence-based interventions known to reduce the community burden of asthma. Under the financial incentives of the U.S. health-care system, it is more profitable to treat asthma attacks than prevent them — raising important questions over how we quantify and account for “community benefit” dollars spent by hospitals.

In Chicago, the 2018 re-opening of a Level I adult trauma center at the University of Chicago Medical Center was the result of years of community activism and public protest by groups like Fearless Leading by the Youth (FLY) and Southside Together Organizing for Power (STOP). 

It was activist groups who leveraged research on “trauma deserts” and mobilized for social change, calling on the University of Chicago to respond to the urgent needs of the community over the financial calculus, which shows trauma care is not profitable. 

Around the country, “patient dumping” (the transfer of a patient from one hospital to another primarily for financial reasons) is still a problem, despite a federal law designed to prevent the practice. The latest evidence finds that uninsured patients and Medicaid beneficiaries with standard medical conditions are at most risk of interhospital transfers. 

The horrific “dumping” of patients into the streets regularly makes the news, as was the case with the 2018 dumping of a barely dressed patient by the University of Maryland Medical Center. 

These cases — and many more around the country — are indicative of the strained relationship between hospitals and the communities they serve. 

Yet there are some signs of progress.

With colleagues at the Center for Community Health Equity, I analyzed reports from two waves of community health needs assessments from Chicago-area hospitals.

The first wave (2012-13) and second wave (2015-16) reports showed real differences, with many hospitals shifting from narratives that emphasized individual behaviors to stories that highlighted social issues, including poverty, inequality, and structural racism.

Of course, what matters here are not the reports themselves. What matters are the relationships between hospitals, as not-for-profit institutions, and the communities they serve. To be sure, the inequalities embedded within the U.S health care system cannot be remedied by requiring nonprofit hospitals to do more to justify their tax-exempt status. 

The ACA does not address the fundamental inequalities in the U.S. health-care system, and the “community benefit” system is very different than one that acknowledges health care is a human right, guaranteed by citizenship, rather than a commodity, to be purchased under market mechanisms.

Yet the ACA’s community health needs assessment provision does provide a much-needed system for dialogue between hospitals and the communities they serve.

Fernando De Maio is a professor of sociology at DePaul University, where he serves as founding co-director of the Center for Community Health Equity. He is a Public Voices fellow with The OpEd Project.