Are Nonprofit Hospitals' Community Benefit Tax Breaks Truly Serving Communities in Need?

By: Ranier Simons, ADAP Blog Guest Contributor

Nonprofit hospitals are supposed to be primarily focused on the communities they serve. They exist, in theory, to provide quality, equitable access to care for all, regardless of the ability to pay. The mission should be community service and improving the healthcare outcomes and well-being of their communities. Unlike for-profit hospitals, which concentrate on generating profits for private shareholders or owners, nonprofit hospitals are mandated to use their profits to invest in the community. Unfortunately, data shows that many nonprofit hospitals are not fiscally operating to properly benefit their communities despite the significant tax exemptions they are afforded, referred to as community benefits. In fact, some nonprofit hospital systems are exploiting their tax incentives and adding to patient and community medical debt. As such, many stakeholders and policymakers are increasingly scrutinizing nonprofit hospitals' tax-exempt status.

Photo Source: Third Way

Over half of the hospitals in the United State are designated by the Internal Revenue Service (IRS) as nonprofit.[1] According to the American Hospital Association (AHA), there are approximately 6,120 hospitals in the United States, with 2,987 of them categorized as nongovernment not-for-profit community hospitals.[2] The nonprofit designation means the entities are tax-exempt from most federal, state, and local taxes. A recent study conducted by researchers at Johns Hopkins Bloomberg School of Public Health, Johns Hopkins Carey Business School, and Texas Christian University found that in 2021, nonprofit hospitals received $37.1 billion in tax benefits.[3] Over the next decade, estimates indicate that the federal revenue lost from nonprofit tax breaks will be approximately $260 billion.[1] The significant tax deductions should spawn considerable community benefits. Nevertheless, the reality paints a different picture.

In turn, for the designation as a charitable non-hospital, these entities are required to use the funding generated from the tax breaks to provide for the needs of the patients served. This help is referred to as community benefit obligations. These obligations can be fulfilled with endeavors such as health education programs, community health improvement initiatives, charity care, and financial assistance programs.[1] Unfortunately, data shows that many nonprofit hospitals are not adequately fulfilling their community benefit requirements and, in some cases, operate like for-profit institutions. In some cases, they even fall short of the level of community benefit given by for-profit institutions. 

One of the most quantifiable and identifiable metrics of community benefit is charity care. Charity care is defined as providing free or significantly discounted medical care for patients who cannot afford it. Many patients who face medical affordability challenges are significantly impacted by emergency room or inpatient hospitalization expenses.[4] Both uninsured/underinsured and insured patients present a need for charity care. 

There is a growing chorus amongst stakeholders invested in improving public health calling for reforms to the lucrative 340B Drug Pricing Program, which was initially designed to "stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services." According to a recent report by IQVIA, the 340B Program ballooned to $124B in 2023, yet another report found 85% of disproportionate share hospitals (DSH) earn more in 340B profit than they spend on charity care. The special interests fighting 340B reform claim clear guidelines already exist for community benefit requirements. 

The IRS first issued guidance for hospitals designated as 501(c)(3) nonprofit entities regarding the specific charity care requirement in 1956.[1] This was before Medicare and Medicaid when there was a dire need for a means to help those in need. It directly specified that nonprofit hospitals could not deny care to those who couldn’t pay if they wanted to maintain their nonprofit status. After the advent of Medicare and Medicaid, the IRS pivoted to the community benefits standard concept of required activity in 1969.[5] This broader definition is part of the present dilemma with qualifying the community help nonprofit hospitals provide.

Whether specifically charity care or community benefit, data shows that most nonprofit hospitals are not adequately utilizing their savings from tax-exempt status to reinvest in the community. According to a March 2024 policy brief issued by the nonpartisan Lown Institute, in 2021, “about 80% of [nonprofit] hospitals spent less on meaningful community investment compared to the value of their tax breaks.”[6] For charity care specifically, in 2018, Johns Hopkins University research data showed that overall, nonprofit hospitals provided charity care valued at only 2.3% of their total operating expenses compared to the valuation of their tax exemption, which was 4.3% of total operating expenses.[7] A 2023 United States Senate HELP Committee report indicated similarly trending 2021 data. The report examined 16 major nonprofit hospital chains, all of which had more than $3 billion in annual revenue. Twelve of the 16 allotted less than two percent of their total revenue to charity care, with six of those twelve allotting less than one percent.[8]

In contrast to most nonprofit hospitals with poor levels of tax break investment, the Lown Institute identified a few positive anomalies for the 2021 fiscal year. Data was taken from information on IRS Form 990. Ten hospitals and ten hospital systems were identified as having community investments that exceeded their tax breaks.[9] The analysis was based on metrics deemed to have a “direct and meaningful impact on community health.”[9] These metrics included financial assistance, community health improvement services, cash and in-kind contributions, community-building activities, and subsidized health services.[9] 

Lakeland (Fla.) Regional Medical Center and Summit Healthcare Regional Medical Center (Show Low, Ariz.) topped the hospital list with high community investment spending at $194 million and $159 million, respectively.[9] Hackensack Meridian Health (Edison, N.J.) and Nebraska Medicine (Omaha) topped the health system list at $358 million and $119 million, respectively.[9] It is unusual for nonprofit entities to have community investments that exceed their tax exemptions. Usually, for-profit entities would have more of an incentive to have high levels of charity expenditures as for-profit entities can write them off to lower their tax burden, unlike nonprofits.

Photo Source: Health Affairs

The actions of nonprofit hospitals that do not adequately satisfy their charity care and community benefit are damaging in multiple ways. Some of the bad actors have low levels of revenue spent on charity care yet aggressively pursue bills of patients who cannot afford their needed care. Nonprofit hospitals have sold patient debts to for-profit collection agencies, garnished wages, put liens on property, and even denied non-emergent care to low-income individuals with insurmountable medical debt.[10] This is in bad faith and not in the community's best interests when there is ample revenue from the tax-exemption profit that can and should be used for charity care. Data shows that many low-income patients who are victims of aggressive debt collection practices are eligible for free and discounted care. Despite the protections put in place by the Affordable Care Act (ACA), many nonprofit hospitals make it difficult for patients to find out they are eligible for charity care, in addition to making the process challenging to navigate.[8]

Some nonprofit hospitals operate more like for-profit entities, especially regarding acquisition. Nonprofit hospitals have merged, acquired for-profit hospitals and insurers, and even opened for-profit businesses in other countries.[11] Several nonprofit hospitals with low percentages of revenue spent on charity care also have high CEO compensation. For example, in 2021, Allina Health System in Minneapolis, Minnesota, paid its CEO a salary equal to 21% of the total charity care provided by the entire hospital system.[8] New York Presbyterian Hospital paid its CEO $10.9 million while only allotting $68.5 million in charity care when the total 2021 hospital system revenue was almost $10 billion.[8]

Reform is needed to ensure nonprofit hospitals operate in the manner for which they were intended. Reforms suggested by the Committee for a Responsible Federal Budget include transparency and refining reporting, clearly delineating what community benefit means, and setting minimum community benefit spending levels.[8] The form entities use to report their community benefit activities is IRS Form 990 Schedule H. That form needs to be revised to require nonprofit hospitals to give significantly more details of categories and amounts of community benefit spending.[8] Moreover, rules should be updated to require reporting at the facility level, not the health system parent organization level.[8]

Community benefit should be more explicitly defined. Currently, it is too nebulous and includes metrics that are hard to measure and do not necessarily provide direct community or patient benefit.[8] Things like physician education and Medicaid shortfall should no longer be considered. Most importantly, things like Medicaid shortfall expenditures are already offset by funding, such as disproportionate share hospital payments.[8]

Federally, Congress should consider setting minimum levels of community benefit spending. Some states have already instituted this. Texas, for example, has stringent state laws around nonprofit hospitals. If an entity is not designated as a Medicaid Disproportionate Share Hospital (DSH), it can fulfill the required charity care levels by: providing charity care and community benefit equaling at least five percent of the entity or system’s net patient revenue with four percent of that being charity care and government-sponsored indigent care, provide charity care that exceeds the amount of funding generated by tax-exempt status, or prove that charity care is being given at proportionate levels corresponding to the community needs and entity’s ability.[12]

Photo Source: NPR

As a part of the continuing examination of the burden of medical debt, this week, ADAP Advocacy launched an online survey to collect data on patient perspectives and experiences with medical debt. It is available nationwide for anyone in the United States to participate. It is also anonymous with the option of providing personal information if you wish to be contacted for additional follow-up.

The ADAP Advocacy-sponsored Ryan White Grantee 340B Patient Advisory Committee commissioned the study to support patient-centered reform. Many hospitals, as recipients of drug rebates under the 340B Drug Pricing Program, are notoriously bad actors. Data from the survey will add color to patients’ lived experiences with medical debt’s whole-person effect on their lives.

Medical debt continues to adversely affect patients' healthcare outcomes and cause stresses on other aspects of daily living. Nonprofit hospitals are supposed to operate in a manner that benefits anyone who needs care regardless of the financial means to pay for it; however, that is not the status quo. Reform is necessary since data shows many nonprofit hospitals are focused on generating profits instead of providing robust investment into their communities.

Senator Bernie Sanders succinctly described the dire situation when he expressed, “At a time when 85 million Americans are uninsured or underinsured, over 500,000 people go bankrupt because of medically-related debt, and over 60,000 Americans die each year because they cannot afford to go to a doctor when they need to, nonprofit hospitals should be providing more charity care to those who desperately need it, not less….And if they refuse to do so, they should lose their tax-exempt status.”

Read our related blog, In the United State, is Medical Debt is Truly Hospital Debt?

[1] Committee for a Responsible Federal Budget. (2024, June 12). The Federal Tax Benefits for Nonprofit Hospitals. Retrieved from https://www.crfb.org/papers/federal-tax-benefits-nonprofit-hospitals

[2] American Hospital Association. (2024, January). Fast facts on U.S. Hospitals. Retrieved from https://www.aha.org/statistics/fast-facts-us-hospitals

[3] Johns Hopkins Bloomberg School of Public Health. (2024, September 26). U.S. Nonprofit Hospitals Received More than $37 Billion in Total Tax Benefits in 2021. Retrieved from https://publichealth.jhu.edu/2024/us-nonprofit-hospitals-received-more-than-37-billion-in-total-tax-benefits-in-2021

[4] Levinson, Z., Hulver, S., Neuman, T. (2022, November 3). Hospital Charity Care: How It Works and Why It Matters. Retrieved from https://www.kff.org/health-costs/issue-brief/hospital-charity-care-how-it-works-and-why-it-matters/

[5] Bai, G., Letchuman, S., & Hyman, D. A. (2023). Do nonprofit hospitals deserve their tax exemption? New England Journal of Medicine, 389(3), 196–197. https://doi.org/10.1056/nejmp2303245

[6] Lown Institute. (2024, March). Hospital Community Benefit Spending: Improving transparency and accountability around standards for tax-exempt hospitals. Retrieved from https://lownhospitalsindex.org/wp-content/uploads/2024/03/lown-institute-fair-share-policy-brief-20240321.pdf

[7] Zare, H., Eisenberg, M. D., & Anderson, G. (2021). Comparing the value of community benefit and Tax‐Exemption in nonprofit hospitals. Health Services Research, 57(2), 270–284. https://doi.org/10.1111/1475-6773.13668

[8] United States Senate HELP Committee. (2023, October 10). Executive Charity Major Nonprofit Hospitals Take Advantage of Tax Breaks and Prioritize CEO Pay Over Helping Patients Afford Medical Care. Retrieved from https://www.sanders.senate.gov/wp-content/uploads/Executive-Charity-HELP-Committee-Majority-Staff-Report-Final.pdf

[9] Gooch, K. (2024, March 26). 20 hospitals, systems where charity care exceeds tax breaks. Retrieved from https://www.beckershospitalreview.com/finance/20-hospitals-systems-where-charity-care-exceeds-tax-breaks.html?oly_enc_id=8229J1560589D4S

[10] Thompson, I. (2023, September 5). Nonprofit Hospitals Pursue Aggressive Medical Debt Collection. Retrieved from https://nonprofitquarterly.org/nonprofit-hospitals-pursue-aggressive-medical-debt-collection/

[11] Rosenthal, E. (2024, July 22). Why many nonprofit (wink, wink) hospitals are rolling in money. Retrieved from https://www.washingtonpost.com/opinions/2024/07/22/nonprofit-hospital-health-care-industry/

[12] Texas Hospital Association. (2024, September). Charity Care and Community Benefit in Texas: Frequently Asked Questions. Retrieved from https://www.tha.org/wp-content/uploads/2024/09/Charity-care-FAQ-September-2024-FINAL.pdf

[13] Muoio, D. (2023, October 11). Sanders: Nonprofit hospitals 'should lose their tax-exempt status' if they 'refuse' to increase charity care. Retrieved from https://www.fiercehealthcare.com/providers/sen-sanders-nonprofit-hospitals-should-lose-their-tax-exempt-status-if-they-refuse

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.   

340B Program Cash Cow for Covered Entities and Their CEOs, Report Finds

By: Brandon M. Macsata, CEO, ADAP Advocacy; Marcus J. Hopkins, Executive Director, Appalachian Learning Initiative

In 2023, ADAP Advocacy, along with the Community Access National Network (CANN), launched a project to examine the potential impacts of the 340B Drug Pricing Program (340B Program) on the annual revenues, chief executive salaries, and charity care expenditures of covered entities. Specifically, we sought to examine whether eligibility for the 340B program was correlated with statistically significant increases in annual revenues and whether executive compensation for company presidents and Chief Executive Officers (CEOs) for all covered entity types and charity care provision for hospital entities saw commensurate increases. The report – “The 340B Drug Pricing Program and its Potential Impacts on Annual Revenues, Executive Compensation, and Charity Care Provision in Eligible Covered Entities” – found that annual revenues increased by an average of 824.32%, and executive compensation increased by an average of 231.51%.

The compensation of healthcare executives has been a topic of growing concern and worker outrage, particularly since the COVID-19 pandemic demonstrated both the irreplaceable value of and the poor compensation of healthcare workers (Saini, Garber, & Brownlee, 2022). Research from the North Carolina State Health Plan for Teachers and State Employees, Rice University’s Baker School for Public Policy, and Johns Hopkins University’s Bloomberg School of Public Health found that CEO pay has climbed significantly in the state of North Carolina while nurse pay has largely stagnated (North Carolina State Health Plan for Teachers and State Employees, 2023). This, their report posits, is because hospital CEO salaries are largely based upon their abilities to increase hospital revenues while simultaneously cutting costs in ways that both threaten patient safety and decrease the affordability of care (Scott, 2023).

In 2021, in the midst of the COVID-19 pandemic, former Democratic Congressman Tim Ryan (Ohio 13), expressed what most American workers and patients struggling to pay their medical bills feel:

“In the late ‘70s, a CEO made 35x the worker; today, it’s 300-400x the worker.”
(Forbes Breaking News, 2021)

Photo Source: Forbes Breaking News

In fewer places is this truer than in the healthcare industry. According to the U.S. Bureau of Labor Statistics, Licensed Practical and Licensed Vocational Nurse salaries average $59,730/year, while Registered Nurses average $86,070/year (U.S. BLS, 2024). Comparatively, the average CEO compensation for the 38 hospitals we examined was $1,141,973.29—180.1% higher than an LPN and 172% higher than an RN.

The explosive growth in the 340B Program has been painstakingly documented over the years by Dr. Adam Fein with Drug Channels. In September 2023, Drug Channels’ headline read, EXCLUSIVE: The 340B Program Reached $54 Billion in 2022—Up 22% vs. 2021. Fein, whose well-known call sign is “I ♥ DATA”, noted the following: “Every 340B covered entity type experienced double-digit growth, despite drug prices that grew more slowly than overall inflation.”

This process involved identifying different covered entities, checking the Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs Information System (OPAIS) to determine the dates when each entity became eligible for the 340B program, and then using ProPublica’s Nonprofit Explorer to access publicly available federal 990 filings for each of the covered entities, looking at filings for the year prior to eligibility, the year after eligibility, five years after, ten years after, and the most recent year on record.

It is first important to define what ADAP Advocacy’s findings do and do not suggest:

1. ADAP Advocacy’s findings make no implications of impropriety against any of the entities whose filings were examined. Rather, the research was designed to determine whether or not eligibility for the 340B drug rebate program had any positive or negative impacts, either directly or indirectly, on annual revenues, on executive compensation, and, for hospital entities, whether or not increases or decreases in annual revenues were met with comparable increases or decreases in the percentage of charity care provided to lower-income patients.

2. ADAP Advocacy’s research makes no claims about the use, misuse, or abuse of 340B revenues by any covered entities.

3. ADAP Advocacy’s research does not claim that increases in executive compensation are the result of any impropriety; simply that those increases have occurred.

From these filings, we gathered the following information:

• Total Annual Revenue
• Annual CEO/President Compensation in U.S. Dollars
• CEO Compensation as a Percentage of Annual Revenue (i.e., what percentage of revenues were spent on CEO compensation)
• Annual Charity Care Expenditures in U.S. Dollars (for hospital entities, only)
• Charity Care Expenditures as a Percentage of Annual Revenue (i.e., how much of annual revenues are spent on the provision of charity care)

We then measured the following:

• Percentage Change in Annual Revenues from Pre-340B to Present
• Percentage Change in Annual Executive Compensation from Pre-340B to Present
• Percentage Change in Annual Charity Care as a Percentage of Annual Revenues from Pre-340B to Present
• Average Change in Annual Revenues Across Entity Types (excluding the highest and lowest outliers)
• Average Change in Annual Executive Compensation Across Entity Types (excluding the highest and lowest outliers)
• Average Change in Annual Charity Care as a Percentage of Annual Revenues Across Entity Types (excluding the highest and lowest outliers)

We examine a total of 69 covered entities, including 24 HIV Care Providers, 38 Hospitals, and 7 Other types of entities, including Federally Qualified Health Centers (FQHCs) and Comprehensive Healthcare Centers (CHCs). Our key findings include:

• Annual revenues increased by an average of 824.32% across all entity types:
• HIV Care Entities saw an average increase of 2,094.88%
• Hospitals saw an average increase of 217.09%
• Other Entity Types saw an average increase of 1,312.59%

• Executive compensation increased by an average of 231.51% across all entity types:
• HIV Care Entity executives saw an average increase in annual compensation of 282.57%
• Hospital executives saw an average increase of 206.10%
• Executives at other entities saw an average increase of 187.16%

• Charity Care as a percentage of annual revenues decreased across all hospital entity types by 14.79%

Increases in Annual Revenues

ADAP Advocacy’s findings suggest that the types of entities that the largest increases in revenues after gaining eligibility for the 340B drug rebate program tend to be those providing HIV care. This may be because of the high list prices of HIV medications which, when the rebates are supplied to HIV care providers for the difference between the list prices and the purchase prices, may result in significant revenues (Figure 1). These 340B revenues may account for a percentage of those revenue increases, though other revenue streams and the acquisition of additional locations with pharmacies may account for them, as well. 

Figure 1 - HIV Organizations with the Largest Increases in Annual Revenues After Receiving Eligibility for the 340B Drug Rebate Program 

Photo Source: ADAP Advocacy

While hospital revenues saw comparatively modest increases, this may be because many of those hospitals already had annual revenues in the hundreds-of-millions of dollars, whereas many of the HIV organizations began with revenues in the lower millions (Figure 2). Essentially, while hospitals still see increases in revenues in the multiple millions of dollars, they tend to start with far greater annual revenues than HIV care organizations making the increases in revenue proportionally smaller.

Figure 2 - Hospitals with the Largest Increases in Executive Compensation After Receiving Eligibility for the 340B Drug Rebate Program 

Photo Source: ADAP Advocacy

While increases in 340B revenues—and consequently increases in 340B revenues as a percentage of total revenues—significantly bolster the ability of HIV care providers to provide services to patients, where more clarity is needed across every entity type is in exactly how, where, and on what those 340B dollars are spent.

The 340B regulatory and enforcement landscape is such that, aside from certain types of entities being required to report the amount of 340B revenues in a specific filing period, HRSA has failed to provide specific guidelines concerning allowable expenditures using those dollars or where those dollars are reinvested (Mulligan, 2021). While the legislation itself only requires certain entity types, including HIV care providers, to spend 340B revenues according to the stipulations of their grants, hospitals are not required to utilize those revenues in any specific way or in any specific jurisdiction. This may result in expenditures that, while not technically in violation of the statutory requirements, would be largely perceived as violating the spirit of the statute. An example of this would be for a hospital system to generate 340B revenue at a Disproportionate Share Hospital—one that serves a disproportionately large share of lower-income patients and receives payments from the Centers for Medicaid and Medicare Services (CMS) to cover the cost of providing care to uninsured patients—and then utilizing those revenues by building new facilities, upgrading existing facilities, or expanding services in areas that serve primarily higher-income populations.

Increases in Executive Compensation

When examining the compensation of covered entities’ presidents and CEOs, ADAP Advocacy found that their compensation increased by an average of 231.51% across all entity types, with executives at HIV care organizations seeing the highest increases in compensation, in terms of a percentage of growth, at an average of 282.57%. Two organizations—Equitas Health, Inc. and CAN Community Health—saw CEO compensation increase by 1,380.79% and 1,088.94%, respectively (Figure 3). These increases resulted in both CEOs receiving more than $1 million dollars in compensation, significantly higher than any of the other 22 HIV care organizations we examined.

Figure 3 – HIV Organizations with the Largest Increases in Executive Compensation After Receiving Eligibility for the 340B Drug Rebate Program

Photo Source: ADAP Advocacy

By comparison, executive compensation rose at the hospitals ADAP Advocacy examined by an average of 206.10%, with the highest increases in compensation occurring at Yale New Haven Hospital and Sutter Valley Hospitals, at 1,421.15% and 1,133.42%, respectively (Figure 4). The primary differences in executive compensation levels between HIV care organizations and hospitals is that the starting size of the compensation packages are vastly different. All of the HIV care executives began with salaries below $200,000/year, while only one hospital executive’s salary started below $200,000. In fact, 25 of the 38 hospitals we examined (65.8%) had starting executive salaries above $500,000.

Figure 4 – Hospital Organizations with the Largest Increases in Executive Compensation After Receiving Eligibility for the 340B Drug Rebate Program

Photo Source: ADAP Advocacy

Decreasing Charity Care Provision

Perhaps the most stunning findings to come out of ADAP Advocacy’s research are the significant decreases in the provision of charity care or uncompensated care by hospitals at cost as a percentage of annual revenues. Of the 38 hospitals whose 990s ADAP Advocacy examined, just 9 (23.7%) reported increases in the amount of charity care they provided as a percentage of annual revenues. Of the five hospitals that saw the largest decreases in charity care, three—Cabell-Huntington Hospital, Pleasant Valley Hospitals, and Charleston Area Medical Center—are located in West Virginia, one of the most impoverished states in the nation (Figure 5). This is particularly concerning due to the fact that more than 1 out of every 4 West Virginians (28.1%) earns less than 150% of the Federal Poverty Level (American Community Survey, 2023).

Figure 5 - Decreases in the Provision of Charity Care as a Percentage of Annual Revenue in Hospitals After Receiving Eligibility for the 340B Drug Rebate Program

Photo Source: ADAP Advocacy

This raises a significant concern regarding the utilization of 340B revenues in hospitals: if the purpose of the program is to increase patient access to medications and treatments, shouldn’t the provision of charity care at cost be one of the primary mechanisms for doing so? Unfortunately, because there is no transparency regarding 340B revenues, either in the generation or spending of them, neither HRSA nor patients are able to hold hospitals accountable.

Perhaps the most salient statement about the rules regarding hospitals and 340B is this: 

“The number one rule of 340B is that there are no rules.”

Where other 340B entity types have reporting requirements, hospitals have none; where other entities are required to use funds in compliance with certain restrictions, hospitals have no such restrictions; where other entities actively risk losing their 340B eligibility for failing to comply with HRSA’s 340B requirements, hospitals face no such risk. Moreover, hospitals, their lobbyists, and their executives have openly opposed all efforts to reform the 340B program, including a 2023 bill—H. R. 3290—that proposed relatively modest changes to the program that would require transparency about revenues generated by covered entities (Southwick, 2023).

HIV care providers are equally likely to oppose 340B reform. In a statement released in September 2022, Ryan White Clinics for 340B Access (RWC-340B)—a national 501(c)(4) organization composed of over 60 organizations across 24 states that advocates against 340B reform efforts—argued that opinion pieces and “so-called ‘studies’” criticizing the 340B program in 2022 were authored almost exclusively by persons with “...have financial ties to the pharmaceutical industry, calling into question the objectivity and integrity of their work” (RWC-340B, 2022). The arguments against 340B reform from HIV care organizations tend to be grounded in the idea that any changes to the program are likely to fundamentally destroy their ability to provide services to PLWHA by reducing the size of the program and increasing scrutiny of how those revenues are reinvested to improve patient access to and utilization of care. They additionally contend that efforts to reform the 340B program are funded by pharmaceutical manufacturers that are statutorily required to participate in the program, and that anyone who receives funding from those companies is biased in favor of increasing pharmaceutical company profits.

The arguments against 340B reform pose a set of interesting questions:

• Is there room for targeted 340B reforms that focus on increasing regulations, transparency, and reporting requirements for specific types of covered entities?
• How should potential reforms be structured in order to ensure that patients reliant upon social safety net programs like the Ryan White Part B program and who receive healthcare services at Ryan White clinics are not negatively impacted?
• What are the potential downstream impacts of reforms that would specifically define how 340B revenues may be used, and which entities will be most likely to face negative impacts?
• Aside from regulatory reforms, what changes are required to grant enforcement power and regulatory oversight to HRSA that would allow them to discipline entities that fail to comply with existing 340B regulations and any other requirements that may be enacted through the reform process.

As with most issues related to the healthcare system in the United States, the answers to these questions and issues are rarely simple. Any efforts to reform programs or the healthcare system itself to benefit patients is met with stern opposition from providers who rely on certain revenue streams, payors who rely on cost containment measures to ensure profitability, and manufacturers who depend on complex reimbursement and the for-profit healthcare model to support both profitability and purported innovation. One significant change in the patient’s favor may result in the destabilization or wholesale destruction of one or more pillars of an overly complex, profit-driven model that impacts one-sixth of the American economy.

With those considerations in mind, it is important that any efforts to reform the 340B program look at the totality of impacts across all covered entity types and make reforms that will increase and improve patient access to care and treatment, rein in bad actors who abuse the 340B system, and ensure that good actors are able to access 340B revenues without increase their regulatory and reporting burdens.

This report reminds us why patients keep asking, "340B: What About Me?"

Disclosure: Phase I of this report was funded by general revenues. A complete listing of funders is available online, here. Phase II of this report was funded by revenues from its Ryan White Grantee 340B Project. This 340B Project is funded by the following corporate entities: Bristol-Myers Squibb, Genentech, Gilead Sciences, Johnson & Johnson Health Systems (Janssen Pharmaceuticals), Merck, Novartis, PhRMA, and ViiV Healthcare. The report explicitly states that ADAP Advocacy exercised full control over the implementation strategy, design, and data analysis, independent of funder influence. This independence is crucial for maintaining the objectivity and credibility of the research.

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.

Provider ‘Smash and Grab’ Tactics Fueling Medical Debt, Hurting Patients

By: Ranier Simons, ADAP Blog Guest Contributor

In the United States, healthcare is one universal expense incurred by everyone, regardless of their station in life. Approximately 100 million people in this country, including 41% of adults, have some sort of medical debt.[1] Some people can manage it, but many struggle. As a result of medical debt, people have had to cut spending on food and necessities, deplete savings, delay purchasing a home, work multiple jobs, or even declare bankruptcy.[1]

Photo Source: iStock (purchased)

Most of the medical debt is actually hospital debt, and that debt is owed to large hospitals, not small private practices. In the United States, there are two different types of hospitals: for-profit and nonprofit. There are 5,139 community hospitals, with 1,228 being for-profit, 951 being state and local government-run hospitals, and 2,960 being non-governmental nonprofit health facilities.[2] For-profit hospitals are business-oriented and owned by investors and shareholders; thus, they are focused on making money for their stakeholders. Nonprofit hospitals are not beholden to any shareholders or investors. In theory, their profits are to be reinvested into the hospitals for their operations. Additionally, nonprofit hospitals are tax-exempt and required to provide more community health services and serve patients regardless of whether they can afford care. Unfortunately, some nonprofit hospitals are the worst offenders when it comes to saddling patients with debt.

Nonprofit hospitals do not pay any federal and state income, property, or sales taxes and receive other tax breaks.[2] In 2020, the nation’s nonprofit hospitals received an estimated $28 billion in tax benefits, accounting for 44% of their net income.[3] In return for the tax benefits, the federal government requires nonprofit hospitals to provide community benefits such as charity care. Charity care is providing services to low-income people for free or at significantly reduced rates.[3] The Affordable Care Act (ACA) also mandates that they must maintain a transparent and available financial assistance program and refrain from taking “extraordinary collection actions” against patients eligible for charity care.[4] The reality of some of the largest nonprofit hospitals is a travesty of the concept of charity care.

Photo Source: National Nurses United

Some nonprofit hospitals aggressively pursue patients over their bills. They garnish paychecks and sell patient accounts to collection agencies (debt buyers) that harass and intimidate. Lawsuits are filed against patients for outstanding balances. Some of them are filed against people who qualify for charity care. These lawsuits attach legal fees and late payment interest, multiplying the original outstanding debt amounts. Moreover, some hospitals pursue family members for a patient’s medical debts and even place property liens on patients’ homes. Many do not find out about property liens until a relative has passed. Property liens lower the value of homes and adversely affect the transference of intergenerational wealth.

Federal tax law mandates that nonprofit hospitals spend some of their revenues as community benefit and defines the kind of spending that qualifies but does not stipulate the amount. Charity care is just one of the defined categories of spend. In 2020, nonprofit hospitals had approximately $28 billion in tax exemptions but provided only $16 billion in free or discounted services through charity care.[5] 

U.S. Senator Bernie Sanders, chair of the Senate Committee on Health, Education, Labor & Pensions (HELP), filed a congressional report on nonprofit hospitals and their tax exemptions. The committee examined 16 of the largest nonprofit health systems in the U.S., finding that they spent less than 60% of the estimated value of their tax breaks on charity care.[6] The 16 hospital chains examined took in more than 3$ billion in annual revenue. Twelve of the 16 chains dedicated less than two percent of their total revenue to charity care, with 6 of those 12 having less than 1% of their total revenue dedicated to charity care.[3] Between 2012 and 2019, nonprofit hospitals increased their average operating profit by more than 36% and almost doubled their cash reserves. In the same timeframe, charity care spending dropped from only $6.7 million to $6.4 million.[3] Ironically, in 2021, of the 16 nonprofit hospital chains in the report, the average CEO compensation was $8 million, with a collective total of more than $140 million.[3]

Photo Source: WRAL

Editor's Note: ADAP Advocacy recently called into question 340B Drug Discount Program practices with an examination focused on growing 340B revenues, increasing executive compensation, declining charity care, and the exploding medical debt.

Sen. Sanders feels that Congress should specifically define the level of charity care and financial assistance required of nonprofit hospitals. One suggestion is that tax breaks be limited to the amount of charity care provided. Additionally, Sanders feels that hospital financial assistance programs should have defined standards. For example, some of the hospitals do not transparently explain, advertise, or actively facilitate entering qualified patients into the programs. Instead, some hospital systems, such as Atrium in North Carolina, steer patients towards loans to pay their outstanding bills that sometimes have interest rates as high as 13%.[7]

Hospital groups pushed back against the analyses by Sen. Sanders, but they also tend to oppose any accountability or transparency reforms.. The American Hospital Association states that nonprofit hospitals' community benefit is comprehensive and encompasses more than just charity care. It says that community benefit includes research, medical innovation, absorbing underpayments from Medicaid, health education, and housing assistance.[6,8] That sentiment is misleading and flawed. For example, a good deal of research is funded by taxpayers’ dollars.

Jen Laws, President & CEO of the Community Access National Network (CANN), isn't buying the AHA's argument. According to Laws, financial assistance and community benefit are different line items on the Internal Revenue Service's Form 990 for a reason. In fact, CANN has been quite vocal on the need for reforms to programs designed to help indigent patients, yet are falling short of that intended goal.

According to Laws, community assumption is a "good faith" definition, but loopholes surrounding hospital-related nonprofit status tax rules inevitably can lead to bad faith in this space, or even abuse. He believes the overwhelming body of evidence surrounding the decline in hospital charity care is in direct opposition of the IRS' intention, namely providing a benefit to needy persons, families, and communities.

Laws said, "For example, our government, namely the IRS, hasn't updated 'community benefit' rules in decades and many no longer apply, like having an open Emergency Room. This gets to the core of CANN's position - honesty is not part of that muddy language. And we need to be frank about that lack of honesty."

It is crucial that community benefit standards are revamped with a focus on charity care that directly benefits those in need. In some states, the difference between the amount of funds spent on charity care and the total tax exemptions the nonprofit hospitals receive is greater than the recorded debts listed on patients' credit reports.[3] Change must come so that needy patients' lives are no longer ruined by being sued by hospitals for outstanding balances as low as $500 or less that they can’t afford to pay.

[1] Levey,N. (2022, June 16). 100 Million people in America are saddled with health care debt. Retrieved from https://kffhealthnews.org/news/article/diagnosis-debt-investigation-100-million-americans-hidden-medical-debt/

[2] Modi, J. (2023, March 21). Nonprofit vs. for-profit hospitals: what’s the difference? Retrieved from https://www.buzzrx.com/blog/nonprofit-vs-for-profit-hospitals-whats-the-difference

[3] United States Senate Health, Education, Labor, and Pensions Committee. (2023, October 10). Mahority Staff Report: Major Nonprofit Hospitals Take Advantage of Tax Breaks and Prioritize CEO Pay Over Helping Patients Afford Medical Care. Retrieved from https://www.sanders.senate.gov/wp-content/uploads/Executive-Charity-HELP-Committee-Majority-Staff-Report-Final.pdf

[4] 26 U.S.C 501(r)(4), (6); Internal Revenue Serv, Billing and Collections – Section 501(r)(6) (Jul. 13, 2023), https://www.irs.gov/charities-non-profits/billing-and-collections-section-501r6. 

[5] Miller, A., Hawryluk,M. (2023, July 11). As Nonprofit hospitals reap big tax breaks, states scrutinize their required charity spending. Retrieved from https://kffhealthnews.org/news/article/nonprofit-hospitals-tax-breaks-community-benefit/

[6] Wilkerson,J. (2023, October 10). Bernie Sanders bashes nonprofit hospitals over their tax breaks. Retrieved from https://www.statnews.com/2023/10/10/bernie-sanders-nonprofit-hospitals/

[7] Levey,N. (2023, August 16). North Carolina hospitals have sued thousands of their patients, a new report finds. Retrieved from https://kffhealthnews.org/news/article/north-carolina-hospitals-patient-debt-lawsuits/

[8] American Hospital Association. (2023, October). Tax-exempt hospitals provided nearly $130 billion in total benefits to their communities. Retrieved from https://www.aha.org/system/files/media/file/2023/10/Results-from-2020-Tax-Exempt-Hospitals-Schedule-H-Community-Benefit-Reports.pdf

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.   

340B Hypocrisy: The Inconvenient Truth Behind Why We Need to Reform This Vital Safety Net Program

By: Brandon M. Macsata, CEO, ADAP Advocacy
       Jen Laws, President & CEO, Community Access National Network

The 340B Drug Pricing Program (“340B”) is probably one of the most transformative public health programs providing lifesaving supports and services to people living with HIV in the United States, second only to the Ryan White HIV/AIDS Program (“RWHAP”). As such, rigorous debate about the future of the program is not only healthy, but it is also paramount to its success. As patients (and patient advocates), it is our responsibility to demand accountability, transparency, and stability. There is universal agreement about the vital role 340B plays in improving access to healthcare. But for many – including ADAP Advocacy and the Community Access National Network – we contend that the program could be doing more…and better! The focus of the program should be on the patients, and not the Covered Entities, medical or service providers, or any other business enterprises making lots of money off it. That is the inconvenient truth behind why we need to reform this vital safety net program.

Photo Source: CANN

Section 340B of the Public Health Service Act (PHSA) is a Drug Pricing Program established by the Veterans Health Care Act of 1992. That year, Congress struck a deal with pharmaceutical manufacturers to expand access to care and medication for more patients; if pharmaceutical manufacturers wanted to be included in Medicaid’s coverage, then they’d have to offer their products to outpatient entities serving low-income patients at a discount. The idea was brilliantly simple. Drug manufacturers could have a guaranteed income from participation in the Medicaid program and Covered Entities could have guaranteed access to discounted medications. Congress set-up a payment system by way of rebates and discounts affording certain healthcare providers a way to fund much needed care to patients who could not otherwise afford it. 

“…to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” 

H.R. Rep. No. 102-384(II), at 12 (1992)

THAT is the legislative intent behind 340B. THAT is where some of us want to return 340B’s focus. THAT is why reform is coming!

Ironically, critics of the 340B reform movement – often motivated by self-preservation and protecting their ever-expanding budget and geographic footprint – are quick to attack the idea of the need for reforms. Sadly, they’re also quick to turn their criticism into personal attacks, including questioning the intentions, morals, and character of the people supporting reform. They charge, using Inspector Clouseau “gotcha” style rhetoric, that we’re in the “pockets” of the drug manufacturers because we accept their money to help with our patient advocacy and education (yet there is no “gotcha”, since this information is quite publicly available on our websites, annual tax returns, Guidestar, as well as frequent public commentary). 

Isn’t it funny how the “gotcha” mentality cannot accept the obvious, that maybe our interests align with the drug manufacturers because it is in the best interest of the patients. Drug manufacturers make products patients want and need. Ensuring funding flows in a way that expands patient access to medications does indeed benefit both patients and the drug manufacturers. It should be noted, this criticism tends to also neglect mentioning the interests of the entities challenging reform: anti-competitive consolidation among hospitals and pharmacies (leaving whole areas without services), increasing profits, paying for salaries unrelated to healthcare, and increasing administrative salaries are all excellent examples of why we’re left asking “Who is actually benefiting from this program?”

The truth of the matter is, aside from a growing list of patients, patient advocacy organizations, and drug manufacturers, there is a growing chorus calling for reform. Academia wants it (NEJM, Penn LDI, USC Schaeffer), economists want it (Nikpay, Gracia), national trade associations want it (NACHC, NTU), policy think tanks want it (CMPI, NAN), and even multiple news media outlets are suggesting it (Forbes, NYT, WSJ). Local activists are also increasingly fed-up with what they’re witnessing (Dinkins, Feldman, Winstead).

Dr. Diane Nugent, Founder & Medical Director of the Center for Inherited Blood Disorders, recently noted an opinion piece in the Times of San Diego, “A September 2022 analysis by the Community Oncology Alliance revealed that some hospitals participating in 340B price leading oncology medications nearly five times more than the price they paid. Another study found that hospital systems charge an average of 86% more than private clinics for cancer drug infusions.”

But speaking of deep pockets, isn’t it also an inconvenient truth that the very folks fighting reform, and fighting improving the program so patients can benefit more directly from it, are the same folks financed by big hospital systems, and mega service providers abusing 340B intent?

A question often asked by advocates learning about 340B: “So, exactly how much money are we talking about here?”

Photo Source: Business 2 Community

Well, we don’t really know…sort of. For Federal Grantees covered under 340B, their grant contracts require accounting of 340B rebates as part of their programmatic revenues. Those revenues are required to be re-invested in the program, which generated the income. This level of transparency is pretty much a “gold standard” that other Covered Entities (less maybe hemophiliac centers) in the 340B space are required to meet. That’s part of why we, and other advocates, are calling on minimum reporting requirements for hospitals, contract pharmacies, and pharmacy benefit managers (insurers covering medications) to begin providing some data. Clearing up the murkiness, if you will. What we do know is drug manufacturers reported more than $100 BILLION in 340B-related sales last year.

That’s concerning especially because “charity care” is declining and medical debt is a growing issue for more and more patients and their families. The Affordable Care Act mandated “charity care”, or “financial assistance”, to be offered by non-profit hospitals seeking to qualify as 340B entities but did not place any definitions behind the mandate, including any “floor” of how much charity care a hospital has to offer. 

Now, in all rhetoric opposing any type of transparency in 340B, hospitals tend to conflate their “uncompensated care” and “unreimbursed care” or “off-sets” for public health programs – these don’t necessarily reflect any “charity” being provided to patients. These things should be separated when considering what benefit hospitals provide a community. And under that lens, things get kind of ugly with far too many of the 340B hospitals reporting providing less than 1% of their operating costs as charity. When reviewing how much hospitals write off in bad debt, or going after patients who can’t afford care, often far exceeding those charity care levels, we’re left asking if the “non-profit” designation is really a declaration of concentrating “profits” by way of salaries to top executives rather than formal shareholders?

That bad debt shows up for patients as medical debt. And we need to be very specific here: according to the Urban Institute, some 72% of patients with medical debt owe some or all of that debt to hospitals. Meaning, what we call medical debt is really hospital debt. The situation is unarguably bad. This year alone the Los Angeles County Office of Public Health issued a report outlining for policymakers the role and responsibility hospitals have in driving medical debt and how increasing charity care might stem this problem. 

Photo Source: Business Insider

As patients, and frankly as patient advocates who represent thousands like us, medical debt isn’t an issue that can be swept under the carpet. Entire communities avoid necessary care to protect their financial interests. We’ve personally watched our friends open GoFundMe accounts to cover medical expenses. We’ve helped our loved one’s cover food and light bills to not miss a medical bill. We also well recognize how negative credit reporting from medical debt can hurt people from getting rental housing or a car loan, or even simple necessities. And when thinking about how much we don’t know about what’s behind that $100 billion price tag, the fact that patients face these concerns on the regular is pretty obscene.

We do know there are plenty of good actors in the 340B space. Particularly, Federal Grantee Covered Entities, like Ryan White Clinics and AIDS Drug Assistance Programs (ADAPs). And we know they’re generally great actors because of that transparency in reporting and the oversight offered by their grant contracts. Ultimately, we’re not necessarily asking for a whole lot more than that for literally everyone else who stands to make a buck in the chain between drug manufacturers and patients. Indeed, that trust on Federal Grantees, particularly Ryan White Clinics and ADAPs, is part of why drug manufacturers restricting 340B sales held a carve out for these Federal Grantees. (To be fair and without much public fanfare, years ago, we – as in ADAP Advocacy and CANN – helped to negotiate these carve-outs as part of our advocacy. Our relationship with drug manufacturers isn’t a one-way street as detractors might try and sell you on. 

$100 billion is a lot of money! Is it too much to ask, “Why aren’t patients benefiting more directly from this ever-growing healthcare program?” Facts show that 340B revenues are soaring year after year, yet against the grim backdrop of consistently declining charity care in the impoverished communities needing the most help. To make matters worse, rising medical debt is crushing families. Patients deserve better. People living with HIV who depend on the RWHAP and 340B deserve better! And THAT is why we need reform.

Read our policy reform suggestions here.

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.