The majority of hospitals are 501(c)(3) organizations, or what are commonly referred to as nonprofit hospitals. Organizations that successfully demonstrate they meet the requirements for 501(c)(3) status are granted exemptions from several taxes at the federal level in exchange for carrying on the crucial services they provide. Ohio law also contains provisions exempting 501(c)(3)  organizations from various state and local taxes. In general, tax exemptions acknowledge the role charitable institutions play in either reducing government burden or providing community benefit.

For all of the tax exemptions granted to 501(c)(3) hospitals and other organizations, it is rational for taxpayers and lawmakers to consider whether these charities are providing sufficient benefits to the community. Faced with declining federal, state and local revenues, many layers of government have begun to look at ways to generate additional dollars. Some policymakers have even begun mounting challenges to hospitals’ nonprofit tax status.

While the tax breaks nonprofit healthcare institutions receive in exchange for providing community benefits are significant and key to their ability to serve the community, the array of community benefits hospitals provide far surpasses their obligations as nonprofit entities and the value that comes back to the community far exceeds what hospitals would be able to provide as taxable entities. Each day Northeast Ohio hospitals provide care for which they are not reimbursed, adding up to over $150 million dollars of uncompensated care each year. Hospitals also provide necessary, unprofitable hospitals services, such as trauma and burn care units, to benefit the community.

In addition to direct healthcare services, nonprofit hospitals offer a wide variety of programming to support the physical and mental health needs of members of their communities, such as educational lectures, health screenings, support groups, and first aid classes. Research activities, which help spur medical advances, and education, which helps train our next generation of medical professionals, are both examples of activities nonprofit hospitals are more likely than for-profits to be involved in. Adding to the ways in which nonprofit hospitals demonstrate they merit their special tax status is the element of community accountability that their boards, composed of community volunteers, provide.

Beyond community benefits, the significance of the economic impact that nonprofit hospitals in Northeast Ohio bring to the region cannot be overstated and should not be forgotten when lawmakers consider nonprofit hospitals’ value. The healthcare sector creates over 100,000 jobs throughout a variety of industries in Northeast Ohio and generates over $250 million of dollars in state and local tax revenues. Retaining nonprofit tax status enables hospitals to thrive in communities, like Northeast Ohio, that might not otherwise be able to attract and retain outstanding healthcare facilities that help serve as an economic anchor.

Last Updated: January 2006