Hospitals Go To The Mattresses To Avoid Transparency

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Washington just got an important lesson in the uncharitable nature of what were once called charity hospitals. When House Ways and Means Chairman Jason Smith floated a proposal to require nonprofit hospitals to explain how they are using their tax-exempt status to benefit patient care, the hospital lobby moved quickly to issue thinly veiled threats to lawmakers on the committee.

The markup was pulled under duress, and the American Hospital Association (AHA)revealed its clients would go the mattresses to squash efforts at transparency that threaten the status quo.

That reaction should raise a simple question: what, exactly, are nonprofit hospitals trying to hide?

Tax-exempt hospitals receive more than $50 billion annually in federal, state, and local tax benefits. The rationale is straightforward. In exchange for those subsidies, hospitals are supposed to provide meaningful community benefits, especially charity care for low-income patients. It is a classic example of a well-intentioned policy designed to support the vulnerable.

In practice, however, the incentives have drifted. Many large hospital systems now operate less like charities and more like sophisticated financial enterprises while still enjoying the privileges of nonprofit status.

Start with consolidation. Over the past decade, tax-exempt hospitals have expanded into sprawling regional systems, acquiring physician practices and outpatient facilities. This growth has given them significant leverage over insurers, which ultimately shows up in higher premiums and out-of-pocket costs for patients. The Congressional Budget Office has found that hospital consolidation increases prices without clear improvements in quality.

These dynamics are not accidental. The current system rewards size, market power and strategic positioning which offer leverage against insurers and pharmacy benefit managers, but also against employees and patients.

The 340B drug pricing program illustrates the problem. Created to help hospitals serving large numbers of low-income patients, 340B allows eligible hospitals to purchase drugs at steep discounts. The expectation was that hospitals would pass those savings on to patients.

Instead, many hospitals charge patients full price and retain the difference. The result is a significant revenue stream with little accountability for how the money is used. In 2024 alone, hospitals generated tens of billions of dollars through 340B-related activity.

At the same time, questions persist about how much charity care tax-exempt hospitals actually provide. Recent reporting and congressional inquiries have found that some large systems spend far less on direct patient assistance than they receive in tax benefits. In one instance, tax-exempt hospitals in Indiana devoted roughly 1% of expenses to charity care in 2022.

That gap is difficult to reconcile with the original purpose of tax exemption.

Meanwhile, many of these same systems are investing heavily in areas far removed from core charitable missions—advertising campaigns, branding deals, real estate ventures and lobbying operations. In recent months hospitals have been exposed for exorbitant spending on everything from Super Bowl advertising to sports branding deals.

None of these are inherently improper expenditures. But they do underscore how far the modern nonprofit hospital model has strayed from its charitable roots.

The real concern is not that hospitals are financially successful. It is that the current framework allows them to capture public subsidies without clear, enforceable expectations for public benefit.

That brings us back to the Ways and Means proposal. The draft legislation did not impose price controls or mandate sweeping reforms. It simply required greater transparency: hospitals would need to explain how they use their tax advantages and demonstrate the community benefits they provide.

The hospital lobby’s response was swift and telling. Industry groups warned lawmakers and mobilized local hospital systems to emphasize the economic importance of hospitals in congressional districts. The message was clear: think twice before challenging them.

This is a familiar playbook. When even modest oversight is framed as a threat, it often signals that the underlying system is overdue for scrutiny.

None of this suggests that tax-exempt hospitals do not play a vital role in the healthcare system. But that reality makes accountability more important, not less. Public subsidies should be tied to measurable outcomes, not assumed goodwill.

Chairman Smith and the Ways and Means Committee are on the right track. A sensible path forward would start with transparency. Policymakers could require standardized reporting on charity care and community benefits, align tax-exempt status more closely with actual patient support, and ensure that programs like 340B are used as intended. These are reasonable steps that preserve flexibility while restoring credibility.

Certainly, there are hospitals unafraid of transparency and willing to partner with Congress to get this bill into shape that it can be marked up and advanced and passed on a bipartisan basis.

At a time when healthcare costs continue to rise, taxpayers deserve confidence that public resources are being used effectively. If hospitals want the benefits of tax exemption, they should be prepared to demonstrate that they are serving the public, not just operating successfully within a favorable set of rules.

Joe Grogan served as a domestic policy adviser to President Trump from 2019 to 2020 and is the President and co-founder of Public Policy Solutions.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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