Kaiser and Stanford rake in millions more in tax breaks than they give back

Two Bay Area healthcare giants rank among the top of a list of the country’s nonprofit hospitals whose 2021 tax breaks exceeded by tens of millions of dollars the amount they spent on financial assistance and community investment, according to an analysis of IRS and other records by the nonprofit Lown Institute.

Kaiser topped the so-called “fair share deficit” list of the country’s hospital systems, netting $1.3 billion more in tax breaks over its community spending, the report said, while Stanford Hospital ranked sixth among the country’s hospitals, with a deficit of $181 million in 2021. In Stanford’s case, it was one of two major hospitals atop the deficit list that spent more in 2020 than it saved from tax exemptions.

Overall, the report found, 80% of nonprofit hospitals totaled $26 billion more in tax breaks than they spent on giving back.

Researchers at the health care think tank focused the analysis on spending that hospitals report to the IRS “that we thought are direct and meaningfully beneficial to the community,” said Dr. Vikas Saini, president of the Lown Institute. The spending included free and discounted care for eligible patients, community health improvement services such as health education classes, free clinics and other services, contributions to community groups, and other community building activities.

It then subtracted what hospitals reported spending on those selected benefits from the hospital’s estimated tax savings for the fiscal year ending in 2021.

According to the analysis Stanford spent 2.5% of its total expenses on those programs.

Kaiser, a huge system of 31 hospital facilities in California alone, spent an estimated 1.5% of its expenses on “meaningful community investments,” as delineated by the institute. Sutter Health also has a large deficit, $330 million, between its 21 facilities in the state.

Stanford and Kaiser, along with the American Hospital Association, challenge the basis of the Lown Institute’s analysis.

The researchers purposefully exclude what hospitals report in research, training, and Medicaid shortfall from their calculation, though they are reported as community benefits to the IRS, in part because the researchers deem them “susceptible to double- or triple-dipping.”

“There are things that we didn’t count that are in the IRS Form, we plead guilty to that,” Saini said.

For example the Medicaid shortfall is often cited by hospitals as a reason for charging private insurance higher rates. And Saini says there are also other programs that compensate the hospital for that care, that aren’t included in the shortfall calculations.

In response to this week’s report, Kaiser Permanente released a statement calling the Lown Institute’s analysis “deeply flawed,” saying the analysis “cherry-picks some community investment categories while ignoring others.”

Stanford also responded, saying that Stanford Medicine “donated more than $1 billion to the local community, supporting a range of services from food donations and free training for medical professionals to patient financial assistance,” also citing the cost of “uncompensated costs” for treating Medi-Cal patients, those covered by the state’s Medicaid program that insures 40% of all state residents.