WADDY: Hospitals Aren’t Charities. It’s Time To Stop Pretending They Are

Nicholas Waddy Associate Professor of History, SUNY Alfred
Font Size:

Expenditures, and profits, in the health care sector have been rising inexorably for decades, as everyone reading this article knows all too well. We’re approaching 20 percent of our GDP solely dedicated to health care, which is a dubious honor no society on earth has ever achieved before. To make a long story short, a lot of people are making money hand over fist by providing medical services — some of them necessary and life-saving, and some of them high-tech snake oil. 

When that much money is changing hands, the opportunities for corruption and for fraud are legion, needless to say. One area that is catching the attention of many experts is the tax breaks and incentives that many medical providers receive, often based on criteria that are highly suspect. 

For example, the vast majority of hospitals in the state of New York are privately run but still tax-exempt because they are “nonprofits” that provide “charity care”. This means these giant institutions pay no federal or state corporate income tax, no state sales tax, and no local property tax either. That’s a massive giveaway that amounts to a $9.4 million windfall per hospital, in case you like round numbers.

You may be thinking to yourself, “Well, why not? They aren’t in it for the money. They’re helping people in need.”

Well! First of all, when any major organization doesn’t pay taxes, there’s a ripple effect that’s highly deleterious to the rest of us. The revenue has to be made up somewhere. You can either raise taxes on those who do pay, or you can borrow the money, which means paying interest. And guess who picks up the tab for that in the long run? In the final analysis, there’s no free lunch, which means that honest, hardworking, mostly middle-class taxpayers are stuck paying the taxes that, in a fair system, might be shouldered by big organizations and institutions instead.

The idyllic little college town where I teach — Alfred, New York — is a good case in point. It’s got a population of roughly 4,000 and is home to not one, but two, institutions of higher learning: one private and one public. What do they have in common? Tax exemptions! And, thus, the residents of Alfred have to bear the crushing burden of paying for necessary services from which they, and approximately 6,000 students and many faculty and staff, benefit. The result is some of the highest property taxes in the nation. Ouch!

New York-Presbyterian Hospital is a good example of a New York hospital that is playing the same game, and playing it to perfection. By positioning itself as nonprofit and charitable, it avoids federal, state, and local taxes. But, if you open up the books, less than one percent of the services it provides are charitable in nature. Kinda fishy, right? And, meanwhile, New York-Presbyterian’s CEO is raking in almost $11 million per year. But that’s the way the system works. Dot a few i’s, and cross a few t’s, and — presto! — you’re disencumbered from the costly burden of paying taxes and thereby contributing to the upkeep of federal, state, and local infrastructure and services. How nice!

Luckily, there may be a solution in the offing to at least part of this problem. The U.S. Senate’s Health, Education, Labor, and Pensions Committee issued a landmark report in October on the overuse of the charitable designation by various hospitals and hospital systems, recommending greater federal scrutiny and possible changes in the tax code and how it is administered to crack down on these abuses. Independent Vermont Sen. Bernie Sanders, the chairman of the HELP Committee, has been especially vocal. He wants to make it harder for institutions like New York-Presbyterian to declare themselves “charitable” unilaterally. He believes that the bar for such designations should be set much higher than negligible amounts of charity. 

Sanders is right, and anyone who believes in fairness, and resents shouldering the tax burdens of freeloaders, should support him and the work of the HELP Committee.

Dr. Nicholas L. Waddy is an Associate Professor of History at SUNY Alfred and blogs at: www.waddyisright.com. He appears on the Newsmaker Show on WLEA 1480/106.9.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.