Nonprofit Hospitals Must Spend 100% of Tax Breaks on Community Benefits Starting 2026

The new Holding Nonprofit Hospitals Accountable Act is changing the rules for tax-exempt hospitals, effective for tax years beginning after December 31, 2025. Basically, if a hospital wants to keep its sweet tax break status, it needs to prove it’s actually serving the public good. The core change is a new “community benefit standard” that requires hospitals to meet three specific criteria: establish a board with local community members, treat Medicare and Medicaid patients without capping their numbers, and, most critically, hit a new minimum spending threshold.

The New Bottom Line: Matching Tax Breaks with Charity

This is where things get real for hospital finance departments. Under Section 2, the new minimum spending rule says a nonprofit hospital must spend an amount that is at least equal to 100% of the value of its Federal, State, and local tax exemptions for that year. If a hospital saves $50 million in taxes, it must spend $50 million on approved community benefit activities. This money can be a mix of training/research, facility/equipment upgrades, and free or discounted care based on their financial assistance policy.

For everyday people, this is a clear trade-off: if a hospital is getting a massive tax subsidy, the law is now forcing them to put that exact amount back into the community. This could mean more charity care for struggling families or better equipment—but it also means hospitals have zero wiggle room to use those tax savings for other purposes.

CapEx and Consolidation: The Spending Limits

The bill gets specific about what counts toward that 100% spending requirement, and this is where hospitals might feel the squeeze. If a hospital decides to spend money on facility or equipment upgrades (Capital Expenditures, or CapEx), Section 2 limits that spending to no more than 50% of the total minimum spending required. So, if the hospital needs to spend $50 million, only $25 million can be on new buildings or machines.

Even more pointedly, the bill explicitly says that money spent on buying another physician practice, hospital, or other “care delivery organization” does not count as an improvement. This is a direct shot at the trend of large hospital systems acquiring smaller practices. If a hospital system was hoping to meet its community benefit requirements by consolidating, this provision shuts that door immediately. They’ll have to find other ways to spend the money, like increasing charity care or funding research.

Financial Aid Gets a Medicare Makeover

Section 3 addresses how hospitals calculate discounted care for patients who qualify for financial assistance. Currently, the calculation can be a bit opaque, but starting in 2026, hospitals must base their financial assistance charges on Medicare rates. Medicare rates are generally much lower than the hospital’s sticker price (the chargemaster rates).

If you’re a working parent who doesn’t qualify for Medicaid but still struggles with high medical bills, this is a big deal. It means that if you qualify for a discount under a hospital’s financial assistance policy, the price you’ll be charged for services should be much closer to what the government pays, rather than some inflated rate. This change provides a much clearer, standardized baseline for what constitutes “affordable” care under these policies.

More Eyes on the Books

Finally, the bill significantly ramps up government oversight. Section 4 mandates that the Treasury Inspector General for Tax Administration (TIGTA) review hospital financial assistance policies and report annually to Congress on whether hospitals are complying with the rules. Separately, Section 5 requires the Government Accountability Office (GAO) to review how effectively the IRS is enforcing the community benefit requirements in the first place, with an initial report due within a year and updates every three years after that.

This means that not only are the rules getting stricter, but the government is dedicating resources to make sure the rules are actually being followed. For hospitals, this means a lot more paperwork and scrutiny. For the public, it means there are now multiple accountability mechanisms focused on ensuring those tax breaks translate into tangible community benefits, instead of just being treated as a windfall.