Tax-exempt hospitals — 'hedge funds with hospital beds' — face more scrutiny under bill

Al Drago/Bloomberg

Large tax-exempt hospitals would face more detailed community benefit reporting requirements to justify their tax breaks under a bill that the House Ways and Means Committee passed last week.

"Taxpayers and patients have a right to know how their hospital, which receives generous subsidies and tax benefits from the federal government, is spending their money," said sponsor Rep. Greg Murphy, R-N.C.

Republican lawmakers have long been skeptical about whether nonprofit hospitals deserve the federal tax breaks, which in addition to the ability to issue tax-exempt bonds allow providers to avoid federal taxes, state income tax, and local sales and property taxes. Tax-exempt healthcare bonds make up a significant and growing sector in the municipal bond market.

In return for the tax breaks, hospitals must provide community benefits, including charity care, and meet other requirements, including annually disclosing the community benefits to the Internal Revenue Service.

Republicans said at the July 1 markup hearing that "multi-billion-dollar tax-exempt hospital empires" are investing in real estate and stocks while overcharging patients for services.

"Tax-exempt hospitals look less like hospitals and more like hedge funds," Ways and Means Committee Chair Rep. Jason Smith, R-Mo., said on a social media post. "Politicians have refused to take on the health care empire and its lobbyists for too long. If we're serious about lowering costs and expanding access to health care, nothing can be off-limits."

Nonprofit hospitals make up about 61% of more than 6,100 hospitals in the U.S., though not all would be covered under the bill.

The Tax-Exempt Hospital Transparency Act, H.R. 9504 applies to facilities with more than 100 staffed patient beds and with patient revenues over $100 million. It updates Form 990 Schedule H, the annual disclosure form required of all U.S. tax-exempt hospitals, which is "woefully inadequate and makes it possible for these entities to hide potential abuse of the tax code," Smith said.

The bill comes as the Treasury Department is in the process of updating Form 990 as part of a "transparency initiative."

The bill passed 25-15, with Democrats arguing that it would amount to a costly administrative burden. "We should be looking for ways to strengthen [hospitals], not create new burdens that could further jeopardize their future and their service to our communities," Rep. Mike Thompson, D-Calif., said.

Nonprofit hospitals contributed $150 billion in total community benefits in 2022, according to a September 2025 analysis from the American Hospital Association, which is lobbying against the bill. That's up from an increase of almost 50% from 2017 and equals $10 in community benefits for every one dollar in federal tax exemption, the AHA said.

The group said it has has "serious concerns" about the bill while noting it was "improved" from an earlier version that would have required a parallel for-profit tax calculation. An earlier iteration would also required critical access, rural emergency and small community hospitals to adhere to the advanced reporting rules.

"However, the AHA maintains serious concerns and questions regarding the substantial administrative and financial burdens imposed by the remaining provisions, which would impact, to one extent or another, nearly two-thirds of all hospitals," the group said. "We believe the focus on financial assistance, to the exclusion of other critical components of community benefit — like Medicaid shortfall — disregards tax-exempt hospitals' already extensive reporting and the many other ways hospitals serve their communities."

The bill would also hurt academic health systems and teaching hospitals, said Association of American Medical Colleges President and CEO David Skorton said in a statement. "The legislation would impose burdensome reporting requirements based on an institution's size and revenue while disregarding the unique, complex financial structures and mission-related costs inherent to academic medicine," Skorton said.

The bill now heads to the House floor.