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Audit: Minnesota hospitals appear to give more than they receive in tax breaks • Minnesota Reformer [1]

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Date: 2025-02-19

Minnesota’s 104 nonprofit general hospitals appear to give back more to their communities than they receive in tax breaks, although it depends on what is counted as a community benefit, and with the caveat that tax benefits are difficult to estimate.

That’s the squishy assessment the Office of the Legislative Auditor delivered in a report on Wednesday to state lawmakers, who had ordered an evaluation of how nonprofit hospitals’ community benefit spending stack up against the sizable tax breaks they receive.

The Minnesota Nurses Association, the union representing some 22,000 nurses, was a vocal proponent of the analysis in its push for more stringent regulations on hospitals’ community spending. The union frequently accuses hospitals of acting like profit-seeking corporations, and argued Minnesotans deserved an accounting of how health systems are justifying their tax-exempt status while closing units, blacklisting patients with medical debt, suing patients that were eligible for charity care and rewarding executives with massive salaries.

The Minnesota Hospital Association celebrated the report’s findings, saying it “confirms what we’ve known all along: Not only are non-profit hospitals fulfilling their charitable missions, but they’re also going above and beyond.”

Nonprofit hospitals are exempt from taxes on income, property and sales with the expectation that they reinvest those savings back into the community. Minnesota and the federal government require hospitals to report this spending, at least in vague terms, but don’t require a minimum amount of spending in exchange for their tax exempt status.

What can be counted as spending on community benefit is also broadly defined. It can include charity care, meaning care for indigent patients with no ability to pay; education; research; unreimbursed care for Medicaid patients; contributions to community groups or a number of other expenses.

The OLA report estimated hospitals’ spending using limited, moderate and expansive definitions and found spending estimates can vary widely.

For example, Allina Abbott Northwestern Hospital’s community benefit spending totaled between $22,000 and $551,000 per bed in 2023 while the hospital received an estimated $15,000 per bed in local, state and federal tax breaks. (Although the OLA report says “the accuracy of any individual hospital’s estimate is questionable.”)

Mayo Clinic’s flagship hospital in Rochester spent between $45,000 and $188,000 per bed on community benefit initiatives in 2023 while receiving an estimated $285,000 per bed in tax breaks.

A limited criteria only includes charity care, subsidizing health services offered at a loss, community health services, contributions to other organizations, community building activities and community benefit administration overhead.

The health care reform think tank Lown Institute used a more limited definition of community benefit when it estimated that 90% of Minnesota’s hospitals receive more in tax breaks than they give back to the community, adding up to a $1.1 billion loss for the state.

Using the OLA’s moderate definition of community benefit expenditures, Minnesota hospitals’ spending far exceeded the tax breaks they received: $7.4 billion in spending to $2 billion in tax benefits in total from 2019 to 2023.

Hospitals groups advocate for an even more expansive view of community benefits to include education, research, absorbing bad debt and covering any shortfall from Medicare and Medicaid reimbursements because the programs often don’t pay the actual cost of the care.

The OLA doesn’t make recommendations on legislation but did survey requirements in other states, noting that a handful mandate that nonprofit hospitals make minimum community benefit expenditures to maintain their tax exemptions.

The Minnesota Constitution bars the Legislature from requiring community benefit expenditures as a condition of exempting hospitals from income and sales tax, but they can do so for property tax exemptions or for hospital licensure.

Illinois and Utah, for example, require hospitals to show their charitable spending exceeds their property tax liabilities.

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[1] Url: https://minnesotareformer.com/2025/02/19/audit-minnesota-hospitals-appear-to-give-more-than-they-receive-in-tax-breaks/

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