A new analysis found that U.S. nonprofit hospitals received an estimated $37.4 billion in tax benefits in 2021, with over half attributed to state and local taxes. Researchers reviewed data from 2,927 nonprofit hospitals across all 50 states and Washington, D.C., providing a comprehensive view of the financial benefits these hospitals gain from their tax-exempt status.

The breakdown of the 2021 tax benefits includes $11.5 billion in federal income tax benefits, $9.1 million in sales tax benefits, $7.8 billion in property tax benefits, $3.7 billion in state income tax benefits, and $5.5 billion in other benefits including charitable contributions, bond financing, and other benefits.

The study, published in JAMA, used 2021 Medicare Cost Reports and the American Hospital Association Survey to quantify the tax-exempt benefits. Researchers developed a standardized methodology to estimate these benefits in line with current tax laws and practices.

While the total benefits are sizable, they were not equally distributed among the almost 3,000 hospitals included in the study. Half of the total taxes benefits were realized by 212 hospitals, or 7% of the sample in the study. The top 1% of the hospitals received 19% of the total tax benefits. The size of the institution proved important as well with the largest hospitals—those with more than 223 beds—representing 25% of the sample, but accounting for 71% of the total tax benefit.

The study found a wide range in the tax benefits received by hospitals in different settings and different parts of the country. The tax benefit per hospital bed ranged from $25,098 in Delaware to $159,464 in Massachusetts. The per capita benefit ranged from $19 in Alabama to $275 in Massachusetts. The top 1% of hospitals by net income accounted for 30% of income-related tax benefits but only 7% of non-income-related benefits. The bottom 90% of hospitals accounted for about one-third of total income and two-thirds of non-income-related tax benefits.

Urban hospitals accounted for 58% of the total tax benefit, while rural hospitals accounted for 42%. Teaching hospitals, which made up 34% of the sample, accounted for 72% of the total net income and tax benefits.

The study highlights the significant role of state and local taxes in these hospitals' overall tax benefits. Thirty states had state and local tax benefits greater than federal tax benefits, and 35 states had more non-income-related benefits than income-related ones.

The tax benefits were calculated by summing each hospital's taxes not owed—including federal and state income tax, sales tax, property tax, and federal unemployment tax—the savings obtained by issuing tax-exempt bonds, and the fair market value of charitable contributions. The data was aggregated at the system level for federal tax calculations and at the system-state level for state tax calculations, reflecting common filing practices.

The median hospital size included in the study was 89 beds, with a median of 16,740 annual patient days. The study looked at almost the same number of urban and rural hospitals, and 34.2% were teaching hospitals, while 19.8% had religious affiliations.

The study noted limitations, including the assumption that nonprofit hospitals would not change their behavior if their tax-exempt status were revoked. The researchers emphasized that the $37.4 billion estimate is a conservative lower bound for 2021.

The results underscore the importance of understanding the financial benefit nonprofit hospitals derive from their tax-exempt status, which has come under increased scrutiny from policymakers in recent years.

Conflict of interest disclosures can be found in the study.