Lawsuits show misunderstanding around community benefit spending

Two municipal agencies in Pennsylvania recently sued two nonprofit hospital systems in two separate lawsuits alleging the systems operate similar to for-profits and therefore owe property taxes. These cases, as well as many others throughout the country, highlight the need to clarify the community benefit spending label, which covers everything from medical education to marketing materials for local health affairs. Without proper guidelines around how much to spend and how to report those dollars, many systems are at risk of being challenged by local officials for inappropriate reporting or spending.

  • In Allentown, Pennsylvania, a school district filed a complaint against the Lehigh Valley Health Network, asking it to pay more than $5 million per year in property taxes as it did not provide documents proving its exemption from local property taxes
  • Lehigh Valley indicated its $547 million in community benefit spending last year was proof of its exemption
  • In Pittsburgh, two school districts filed similar complaints against St. Luke's University Hospital and Abington-Jefferson Health

The Internal Revenue Services (IRS) and hospital groups have struggled to clarify how to report community benefit. In FY 2017, the agency cited 388 hospitals for reporting issues out of the 1,193 analyzed, though only one nonprofit hospital has ever lost its tax-exempt status. For now, providers shouldn’t fear focusing on creating profit-generating service lines and should prioritize population health programs in a measurable way.

For more information on this topic, or to learn how Baker Tilly healthcare specialists can help, contact our team.