Nonprofit hospitals are hospitals that use any excess revenues that they generate from patient services to improve their operations and surrounding community instead of distributing the surplus to their shareholders in the form of dividends.
Nonprofit hospitals typically channel their profits into providing services, equipment, technologies, and access points to improve healthcare services in their communities.
The IRS considers a hospital to be a nonprofit and therefore tax-exempt, if:
- The hospital provides benefits to a class of people that is broad enough to benefit the community at large.
- The hospital operates to serve the public interest, rather than private.
Demonstration of community benefit includes:
- Operation of an emergency room that is accessible to all people
- Having a board of directors comprised of members of the community
- Having an open medical staff policy
- Providing care to all patients, including those who pay through public programs (i.e., Medicaid and Medicare)
- Spending excess funds on facility, equipment, and patient care improvement
- Spending excess funds to improve and expand medical training, education, and research
In addition to providing community benefits, nonprofit hospitals are required to carry out a needs assessment every three years to understand the health needs of their communities. Based on the findings of the needs assessment, the hospitals must then create an implementation strategy to address those needs.
Nonprofit hospitals also must measure how their programs impact their communities’ health and report on this regularly.