Understanding the Relationship between Nonprofit Hospital Community Benefit Spending and System Membership : An Analysis of Independent Hospital Acquisitions

The Internal Revenue Service (IRS) requires nonprofit hospitals to report community benefit spending to justify nonprofit tax exemption. In this paper, we examine whether nonprofit hospital acquisitions influence the amount and type of community benefit spending. We analyzed 2011-2016 data on urban, nonprofit hospitals that were independently licensed in 2011. The analysis dataset included 58 hospitals that were acquired and a matched control group. We used difference-in-differences specifications to measure the effect of acquisitions on total community benefit spending, and three subcategories – clinical, population health, and other spending types. We found that acquisitions led to decreased population health spending (−$0.38 million, p<0.01) and other spending categories (−$1.3 million, p<0.05). If the acquirer was located out-of-state, total community benefit spending declined by $2.1 million (p<0.10). Our findings support the need for community benefit spending to be considered, along with quality, efficiency, and prices, when evaluating the welfare impact of acquisitions