By Tanner Aliff

When people think about non-profits, they tend to envision organizations like GoodWill, Habitat for Humanity, or the American Red Cross. Hardly anyone pictures a ritzy metropolitan hospital with granite fountains, marble floors, zen gardens, and huge medical bills. Yet in America, where many hospitals receive the tax benefits that come from 501(c)(3) non-profit designations, some hospitals’ actual business practices are far from what most would expect.

On the surface, it seems to make sense that hospitals can receive non-profit status. At times, doctors offer care free of charge to low-income individuals, so granting hospitals tax benefits may be a worthy cause. However, no health provider should benefit more from the tax exemption than the value of their supposed charitable care. The sad truth is that most of North Carolina’s non-profit hospitals are not living up to this standard.

The Department of State Treasurer recently released a report revealing that fewer than 25 North Carolina hospitals gave charitable care surpassing the value of their tax exemption. The analysis conducted by Johns Hopkins’ Bloomberg School of Public Health finds that North Carolina’s largest nonprofit hospital systems reaped tax breaks worth an estimated $1.8 billion in 2019-2020. In most of these large systems, charity care spending did not exceed 60% of the value of their tax breaks.

Charity should be a central mission of any hospital claiming to be a non-profit, especially when claims of charity care lead to higher prices for North Carolinians. As Treasurer Dale Folwell said, “Our hospital systems justify overcharging state employees and taxpayers by pointing to their charity care costs. But now we know that is not fully accurate. They are profiting on the backs of sick patients.”

Aided by a lack of transparency and accountability, North Carolina’s hospital systems tripled the national average for profits. Yet, at the same time, 1 in 5 families in the state struggle to pay substantial medical debt.

Not all non-profit hospitals engage in this type of behavior and some do genuinely seek to impact their communities with beneficial charity. But bad actors’ behavior cannot be overlooked or rewarded by policymakers when hospitals abuse their non-profit status.

State officials need to assess a hospital’s level of charitable giving to ensure that it is based on the real cost of the care given, not inflated numbers, and compare that to the value of the tax break they receive each year. This will ensure greater transparency and accountability to protect lower- and middle-class patients in need of care. It will also prevent the hospitals from overcharging taxpayers and small businesses as they claim they need to do to pay for the charity care they deliver.

With greater tax benefits comes greater responsibility. The path forward is simple: North Carolina communities are investing in these hospitals by offering them tax breaks. In response, hospitals need to fulfill their part of the social contract and deliver charitable care that is commensurate with their tax advantages.

Tanner Aliff is a healthcare policy manager at the Cicero Institute.