A majority of the state’s hospitals are reaping the benefits of tax-exempt status but come up short in providing adequate charity care to earn that designation — and they’re getting away with it. That’s the conclusion of a report released in October jointly by the Johns Hopkins Bloomberg School of Public Health and the N.C. State Health Plan.

The analysis found that fewer than 25 nonprofit hospitals in North Carolina are providing charitable exceeding the value of their tax exemption. The state’s largest hospitals benefited from $1.8 billion in tax breaks in fiscal 2019-20, but in a majority of these systems, charity spending did not exceed 60% of the value of their tax break. 

To maintain tax exemption from federal income tax, hospitals are required to devote some of their resources to providing indigent care, according to the IRS. As of 2019, more than 85% of N.C. hospitals are classified as nonprofits.

The report also concluded that, on average, local hospitals were three times more profitable than the national average operating profit margin in 2019.

“Charity care is the heart of what it means to be a nonprofit hospital,” said state treasurer Dale Folwell, a Republican, in a statement highlighting the report. “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.

“It appears that no one is holding hospitals accountable for the way they treat the poor,” Folwell said. “Instead, North Carolina enables bad actors to pocket their tax breaks instead of paying them back to their communities. We must support the hospitals who do serve their communities and require the others to step up.”

According to a release from Folwell’s office:

  • Multiple systems inflated their community benefits by claiming controversial “underpayments” from government programs.
  • Some nonprofits dedicated less than 0.5% of their total expenses to charity care, despite enjoying tax breaks equal to an estimated 5.9% of total expenses. For 25 nonprofits, charity care accounted for less than 2% of expenses. 
  • Only four of the state’s 15 most profitable hospitals delivered enough charity care to exceed the value of their tax exemption. All of these hospitals enjoyed profit margins greater than 20%, with six hospitals surpassing 30% margins in 2019.

“North Carolina officials should examine the amount of charity care being provided and carefully assess the tax advantages they are providing to nonprofit hospitals,” said Gerard Anderson, professor at Johns Hopkins Bloomberg School of Public Health. “The community is giving the nonprofit hospitals considerable tax breaks. The hospitals should respond by offering community and charity care that is commensurate with their tax advantages.”