TAX EXEMPTIONS FOR NONPROFIT HOSPITALS, AND CARE QUALITY, ACCESS, AND PRICE: A PUBLIC SECTOR MANAGERIAL DECISION PROBLEM
Nonprofit hospitals traditionally have been expected to accept social and economic responsibilities for public services that for profit enterprises and government are either unsuited, unable, or unwilling to provide. In turn, the operations of nonprofit hospitals have created economic benefits for the communities and states in which they are located.
During the 1980s, nonprofit hospitals were encouraged by public policy (in the form of cost and quality controls) to operate in a more competitive manner. Nonprofit hospitals responded in part by adopting commercial financial and management strategies, including attempts to diversify incomes bases, and the inclusion of for profit affiliates in their corporate structures. While such efforts have not always achieved the intended financial goals, they have altered the traditional public perception of a nonprofit hospital.
The combination of the changing public perception of a nonprofit hospital, the entry of commercial firms into the health care services sector, and the budget crises at all levels of government has resulted in an increased frequency of political challenges to the tax exempt status of nonprofit hospitals. Nonprofit hospitals are particular target because the typically high values of their property bases.
The situation existing within the Commonwealth of Pennsylvania provides a good example of the problems associated with the tax exempt status of nonprofit hospitals in the contemporary economic and social environment. Legislative efforts to restructure the taxing authority to relieve some of the budget pressures on central cities with large tax exempt property bases have failed in recent years in Pennsylvania. It has been estimated, as an example, that between 40 and 50 percent of the land value in the City of Pittsburgh is exempt from the p...