Nonprofit Hospital
A hospital organized as a 501(c)(3) tax-exempt entity, making up about 58% of U.S. community hospitals, that reinvests revenue into the community in exchange for federal, state, and local tax exemptions.
Nonprofit Hospital is a term from U.S. hospital cost and quality reporting — the field that produces the CMS Hospital Compare program, the Medicare Inpatient Payment files, and the patient-facing tools built on top of them. The definition below covers what the term means in CMS files, what it does not mean, and how it interacts with the other measures CMS publishes. On the LakeQuality value rubric, Nonprofit Hospital is one of the inputs (directly or indirectly) to the combined cost-and-quality grade. Understanding how the term is computed at CMS — what counts and what does not — is part of reading hospital pages defensibly.
Each hospital page on LakeQuality surfaces the specific Nonprofit Hospital value for that facility (when CMS reports one), so the general definition here translates into a concrete data point on the per-hospital pages you actually use.
How It Works
Nonprofit hospitals constitute the largest segment of U.S. community hospitals. Among approximately 5,100 community hospitals (excluding federal, psychiatric, and long-term-care facilities) tracked by the American Hospital Association, about 58% are nongovernmental nonprofit, 24% are for-profit investor-owned, and 18% are state or local government. Nonprofit hospitals are organized under Section 501(c)(3) of the Internal Revenue Code and receive exemption from federal income tax, state and local property and sales taxes, and access to tax-exempt municipal bond financing. In exchange, the IRS requires tax-exempt hospitals to provide "community benefit" including charity care, community health programs, research, professional education, and subsidized health services. Section 9007 of the Affordable Care Act added four explicit requirements: conducting a Community Health Needs Assessment (CHNA) every three years, adopting and publicizing a Financial Assistance Policy (FAP), limiting charges for charity-care-eligible patients to amounts generally billed (AGB), and constraining extraordinary collection actions. Despite the nonprofit designation, many nonprofit hospital systems generate significant operating surpluses and maintain large investment portfolios. Kaiser Family Foundation and Health Affairs research shows that the median nonprofit hospital reports community benefit worth 7-8% of expenses, while its tax exemption value runs 5-6% of expenses, producing a modest surplus over required community benefit. The largest nonprofit systems include Kaiser Permanente, Ascension, CommonSpirit Health, Providence, Trinity Health, Mass General Brigham, Cleveland Clinic, Mayo Clinic, Advocate Health, and Banner Health; many have annual revenues exceeding $20 billion. Congressional scrutiny has increased since 2022 with Senator Grassley and others investigating charity care levels, and several states (Oregon, Washington, Illinois, New Jersey) have tightened state-level community benefit requirements.
Related Terms
- For-Profit Hospital, An investor-owned hospital that operates to generate returns for shareholders, making up about 24% of U.S. community hospitals, paying taxes and distributing profits rather than reinvesting in community benefit.
- Charity Care (Financial Assistance), Free or reduced-cost hospital care provided to patients who cannot afford to pay, required of all 501(c)(3) nonprofit hospitals under IRS Section 501(r) and frequently offered voluntarily by for-profit and government hospitals.
- Disproportionate Share Hospital (DSH) Payments, Supplemental Medicare and Medicaid payments to hospitals that serve a disproportionate number of low-income patients, totaling approximately $28 billion annually across both programs.
- 340B Hospital, A hospital that qualifies for the federal 340B Drug Pricing Program, purchasing outpatient drugs at prices approximately 25-50% below wholesale acquisition cost to support care for low-income and uninsured patients.
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About This Definition
This definition is part of the HospitalCostData Hospital Pricing Glossary, 47 terms explaining hospital costs, quality ratings, and healthcare billing. Written for patients, journalists, researchers, and healthcare professionals.