Nonprofit organizations, including nonprofit hospitals, have been exempt from federal income taxation since their inception in the early 20th century, when these organizations accounted for a small portion of the U.S. economy. Nearly all hospitals were organized as nonprofit at that time, affiliated with either religious groups or foundations, and they served families who could not afford to pay a doctor to visit their home. Providing public benefits without question, these hospitals depended heavily on charitable gifts to finance their operations and earned little, if any, net income.
Over the ensuing 100 years, drastic changes in medical technology have transformed hospitals from places where the poor seek primary care and comfort to places where everyone goes to get various types of care when needed. The growth in the last century of private health insurance and government financing of care for the elderly and poor has played a major role in stimulating the development and adoption of that medical technology, and has made it feasible for nonprofit hospitals to finance most, if not all, of their operations through patient revenues (Gentry and Penrod 1994). At the same time, however, it fueled the emergence and growth over the past 50 years of for-profit, investor-owned hospitals. Today, some nonprofit hospitals have expanded their roles further by undertaking programs to promote healthy lifestyles or otherwise prevent illness.
Dialogue: Hospital Tax Exemption: Where Do We Go From Here?
Source: Inquiry: Vol. 49 No. 3, Fall 2012