The Hospital That Calls Itself a Charity (But isn't)

America's most prestigious hospital names are pocketing billions in tax breaks while their patients drown in debt.

I am going to say something that is professionally uncomfortable for me, and I am going to say it anyway.

I trained at Mayo Clinic. I owe a significant part of my surgical education to that institution. The clinical culture there shaped how I think about patient care. I have enormous respect for the physicians who work within those walls.

And according to the Lown Institute’s analysis of IRS Form 990 data, Mayo Clinic had a fair share deficit of approximately $478 million in 2021, ranking among the ten worst-performing nonprofit health systems in the United States on the measure of community benefit relative to tax exemption value.

I am not saying Mayo Clinic is a bad institution. I am saying the nonprofit hospital model, as currently structured, allows even the most prestigious names in American medicine to collect enormous tax subsidies while delivering community benefit that falls far short of what those subsidies are worth. And the institutional reputation that should create accountability is instead being used as a shield against it.

That is the story. And it is not comfortable for anyone inside the system to tell.

What “Nonprofit” Actually Means in Practice

Let me explain the mechanics, because most patients do not know how this works.

Nonprofit hospital status exempts institutions from federal income tax, state income tax, local property tax, and sales tax. In exchange, these hospitals are supposed to provide charity care and community investment commensurate with the value of those exemptions. That is the deal. Tax relief in exchange for community benefit.

The Lown Institute, a Boston-based healthcare think tank, has spent several years calculating whether that deal is being honored. Their methodology compares the estimated value of each hospital’s tax exemption against its documented spending on charity care and community investment.

The findings are not ambiguous.

Of 2,425 nonprofit hospitals evaluated, 80% spent less on financial assistance and community investment than the estimated value of their tax breaks. The combined fair share deficit for all hospitals studied is $25.7 billion for 2021. That is enough to erase 29% of the country’s medical debt.

Twenty-nine percent of the medical debt crisis that I have written about separately, the one crushing 100 million Americans, could be eliminated simply by nonprofit hospitals honoring the terms of the arrangement that makes them nonprofit in the first place.

They are not honoring it. Four out of five are not honoring it. And the ten hospitals with the largest individual fair share deficits all reported net income exceeding $100 million in the same year they were collecting more in tax breaks than they gave back in community benefit.

The Names Matter. So Let’s Name Them.

The Lown Institute analysis of individual hospitals identified the following largest fair share deficits for 2021: New York-Presbyterian Hospital at negative $274 million, UPMC Presbyterian at negative $268 million, NYU Langone Hospitals at negative $222 million, and Cleveland Clinic at negative $212 million.

Cleveland Clinic. NYU Langone. New York-Presbyterian. UPMC. These are not obscure community hospitals operating on thin margins. These are among the most recognized, most heavily marketed, most financially robust healthcare institutions in the United States.

Cleveland Clinic spent only 1.5% of its revenue on charity care while paying its CEO $6.6 million.

I want to stay on that for a moment. 1.5% of revenue on charity care. At an institution that receives an estimated $908 million in annual tax exemption value. An institution that markets itself nationally as a destination for the highest-quality care and whose reputation generates patient volume from across the country and around the world.

The patients in Cleveland who cannot afford to use that institution are subsidizing, through foregone tax revenue, a system that is not returning that subsidy in care.

That is the transaction. It is happening in plain sight.

Institutional Reputation as a Shield

Here is the mechanism that makes this possible and keeps it from changing.

Prestige functions as accountability insulation in American healthcare. The more recognizable the institution’s name, the more difficult it is for journalists, regulators, or policymakers to sustain scrutiny. When the Lown Institute published its findings on Mayo Clinic, Mayo called the methodology “deeply flawed.” The Minnesota Hospital Association called the conclusions “false, sensational, and based on cherry-picked categories.”

The hospitals’ counterargument centers on what counts as community benefit. The IRS allows research spending and medical education to be counted. Hospitals with large research programs and residency training budgets argue that these activities constitute community investment. The Lown Institute’s methodology focuses on financial assistance to patients and direct community health investment, excluding research and education from the calculation.

Both positions reflect real values. Medical research creates long-term community benefit. Resident training produces the physician workforce the country needs. These are not nothing.

But the argument that research and education justify a $274 million gap between tax exemption value and direct community benefit requires a patient who cannot afford their bill to accept that the institution treating them as a revenue source is actually serving the community by publishing papers and training physicians.

That patient is standing in an emergency department with a bill they cannot pay, at an institution that received tens of millions in tax relief, and is being told the research wing justifies the arrangement. I do not find that convincing.

The CEO Compensation Test

There is a simple test I apply when evaluating whether an institution’s nonprofit status reflects genuine mission alignment.

Compare the CEO’s compensation to the charity care percentage.

The Mayo Clinic emerged as the highest-compensating nonprofit health system over a recent five-year period, with median annual total executive compensation of approximately $148 million. Cleveland Clinic followed, with median annual total executive compensation of approximately $115 million.

These are not single-executive figures. These are aggregate compensation for all listed executives in IRS filings. But the scale matters.

When a nonprofit institution pays its executive team $115 million to $148 million annually while maintaining a nine-figure gap between its tax exemption value and its community benefit spending, the “nonprofit” designation is performing a function. It is reducing the institution’s tax burden. It is not describing the institution’s relationship to the community it serves.

I am not making a blanket argument against physician or executive compensation. I run an organization. I understand that competitive compensation is necessary to attract and retain talent in a competitive market. That is a separate conversation.

What I am arguing is that an institution cannot simultaneously claim nonprofit status, market itself as a charitable institution serving its community, and maintain a $200+ million gap between the value of its tax subsidies and its community investment. At some point, the accounting requires intellectual honesty.

What Reform Actually Requires

The IRS has not updated the substantive requirements for nonprofit hospital status in a meaningful way in decades. The Affordable Care Act added some community health needs assessment requirements. The reporting has improved. The accountability has not.

What genuine reform requires is straightforward. Community benefit spending should be benchmarked against tax exemption value with a minimum threshold. Institutions falling below that threshold should face either tax liability or mandatory remediation plans with enforcement. Research and education should be credited, but not as a substitute for direct financial assistance to patients who cannot afford care.

Senator Bernie Sanders has called repeatedly for congressional action on this issue. The Senate Health, Education, Labor, and Pensions committee has held hearings. Legislation has been proposed. It has not passed. The lobbying resources of major health systems are substantial, and the reputational currency of institutions like Mayo, Cleveland Clinic, and NYU Langone translates into political influence that insulates them from accountability.

This is a pattern I have seen replicated at the organizational level in orthopedic surgery. Institutions with strong reputations operate with more latitude than the evidence of their practices would otherwise allow. Reputation substitutes for accountability. The more prestigious the brand, the more the brand protects the behavior.

At Indiana Orthopedic Institute, we publish our outcomes. We measure what we do against what we claim. That is not virtuous positioning. It is the minimum standard that any organization, nonprofit or otherwise, should be held to.

The hospital down the street is not required to do the same. And if it has the right name on the building, it probably never will be.

What I Want Patients to Know

When you receive care at a nonprofit hospital, you are receiving care at an institution that does not pay income tax, property tax, or sales tax on its operations. Those exemptions are funded by the public. They are funded by you.

You are entitled to know whether the institution serving you is honoring the community benefit obligation that those exemptions require. That information is public. The IRS Form 990 is available for every nonprofit hospital. The Lown Institute has done the work of compiling and calculating it.

The gap between what these institutions receive and what they return is documented. It is not a rumor. It is a public record.

The prestigious name on the building does not change the arithmetic. It just makes the arithmetic easier to ignore.

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