Nonprofit Hospitals Could Face Tough New Tax-Exempt Rules: Bill Mandates Spending, Patient Access, and Local Boards by 2026

This bill, the "Holding Nonprofit Hospitals Accountable Act," is looking to rewrite the rulebook for nonprofit hospitals to keep their valuable tax-exempt status. Starting with tax years after December 31, 2025, it proposes adding a new "community benefit standard" to Section 501(r) of the Internal Revenue Code. Essentially, it's aiming to ensure these hospitals are giving back to their communities in very specific ways, from who sits on their boards to how much they spend on patient care versus new buildings.

More Than Just a Tax Break: Redefining 'Community Benefit'

The core of this bill, outlined in Section 2, is a new definition of what it means for a nonprofit hospital to earn its tax exemption. First off, hospital boards would need to be "drawn from the local community," putting more local voices in decision-making roles. More significantly, hospitals couldn't turn away or limit the number of patients using public programs like Medicare and Medicaid at any of their sites. This is a big deal for ensuring access, no matter how a patient pays.

The biggest financial shift? Hospitals would need to spend an amount equal to at least 100% of the value of their total federal, state, and local tax exemptions each year. This spending has to go towards specific things: training and education for better patient care, research, improvements to facilities and equipment (with a catch), or free and discounted care under their financial assistance policy. Think of it this way: if a hospital gets a $20 million tax break, it needs to show $20 million in these qualified community benefits.

The Fine Print on Spending: Not All Improvements Are Equal

Now, about those "improvements to facilities and equipment" mentioned in Section 2—there’s a cap. No more than 50% of that required community benefit spending can go towards bricks, mortar, and machines. So, if our hospital with the $20 million tax break needs to spend $20 million on community benefits, a maximum of $10 million can be allocated to facility upgrades. The bill also explicitly states that buying up existing doctor's offices or other care providers doesn't count as an "improvement" for this purpose. This could push hospitals to prioritize direct patient financial aid or staff development over, say, acquiring more physician practices to meet their spending quotas. This might be a hurdle for hospitals planning major infrastructure projects, as they'll need to balance those significant costs against other community benefit outlays to stay within the 50% cap.

Billing Adjustments: A Nod to Medicare Rates

The bill also tweaks how hospitals calculate bills for patients needing financial help. Under Section 3, a hospital's financial assistance policy (FAP) "must consider Medicare rates when determining amounts billed to patients." For someone eligible for financial aid, this could mean their hospital bill is benchmarked against what Medicare, a major government payer, would typically cover for those services. While the term "consider" leaves some room for interpretation on how heavily Medicare rates must influence the final bill, the intent seems to be to provide a more standardized and potentially lower baseline for what financially vulnerable patients are charged. This change also kicks in for tax years after December 31, 2025.

Adding More Watchdogs: Oversight on Policies and Enforcement

To make sure these new rules are being followed, the bill calls for more eyes on the system. Section 4 tasks the Treasury Inspector General for Tax Administration (TIGTA) with reviewing hospital financial assistance policies annually. They’ll report to Congress on what these policies contain and whether hospitals are complying. Separately, Section 5 directs the Comptroller General (head of the Government Accountability Office, or GAO) to review how well the IRS is actually enforcing these community benefit standards. This GAO report would go to Congress within a year of the bill's passage and then every three years. It’s like adding a couple of new referees to the game to ensure everyone’s playing fair and that the system has teeth.