Non-Profit Charitable Tax-Exempt Hospitals - Wolves in Sheep's Clothing: To Increase Fairness and Enhance Competition in Health Care All Hospitals Should Be For-Profit and Taxable
![handle is hein.journals/rutlj42 and id is 143 raw text is: NON-PROFIT CHARITABLE TAX-EXEMPT HOSPITALS-
WOLVES IN SHEEP'S CLOTHING:*
TO INCREASE FAIRNESS AND ENHANCE COMPETITION
IN HEALTH CARE ALL HOSPITALS SHOULD BE FOR-
PROFIT AND TAXABLE
George A. Nation III**
I. INTRODUCTION
Most hospitals in the United States are not-for-profit tax-exempt
1 2
institutions.' Legally these hospitals are deemed to be charities and are
* Professor Clark first applied the phrase to non-profit hospitals. See infra note 25.
** Professor of Law and Business, Lehigh University.
I. See John Carreyrou & Barbara Martinez, Grassley Targets Nonprofit Hospitals on
Charity Care, WALL ST. J., Dec. 18, 2008, at A5 (noting that nonprofit hospitals account for
the majority of hospitals in the U.S.); see also CONG. BUDGET OFFICE, PUB. No. 2707,
NONPROFIT HOSPITALS AND THE PROVISION OF COMMUNITY BENEFITS 3 (Dec. 2006)
[hereinafter 2006 CBO REPORT], available at http://www.cbo.gov/ftpdocs/76xx/doc7695/12-
06-nonprofit.pdf (stating that non-profit hospitals account for sixty-eight percent of the
630,000 beds in Medicare-certified community hospitals in 2003). There are three types of
modern hospitals: nonprofit, for-profit, and government facilities. Id. at 2 n.3. Nonprofit
hospitals are governed by a board of trustees and may not be owned by investors and may not
distribute any profit to owners. Id. at 4; see also Vince Galloro, Profit or Loss? Do Gloomy
Economics and the Coming Surge in Medicare Enrollment Signal Tough Times for Investor-
Owned Hospitals?, MODERN HEALTHCARE, Mar. 2, 2009, at 28 (Over the past five decades,
investor-owned hospitals have carved out a significant niche in an industry still dominated by
not-for-profit providers.).
2. The significance of being a charity is that various tax benefits are associated with
this status. Thus, in this context the legally relevant definition of charity is found in the tax
law. Generally, the federal tax code sets the standard because most states follow the federal
definition. Internal Revenue Code (I.R.C.) section 501(c)(3) generally exempts from federal
income tax, [c]orporations, and any community chest, fund, or foundation, organized and
operated exclusively for religious, charitable, scientific, testing for public safety, literary, or
educational purposes, or to foster ... amateur sport competition . . . [or] the prevention of](ViewImageLocal?handle=hein.journals/rutlj42&div=6&collection=&method=preview&ext=.png&size=3)
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