The majority of hospitals in the United States operate as nonprofit organizations and, as such, are exempt from most federal, state, and local taxes. This favored tax status is intended to be an acknowledgement of the “community benefit” provided by these institutions.
Prior to 1969, to qualify for tax-exempt status a hospital had to provide, “to the extent of its financial ability, free or reduced-cost care to patients unable to pay for it.” In 1969 this charitable care standard was replaced with a more general requirement that compelled hospitals to engage in activities that benefit the communities they serve. Under the “community benefit” standard, spending that promotes community health, in addition to charity care, counts toward meeting the requirements for tax exemption.
Tax-exempt status is worth a lot to nonprofit hospitals. The Congressional Budget Office estimated that the value of federal, state, and local tax exemptions, tax-deductibility of charitable contributions, and tax-exempt bond financing, was $12.6 billion in 2002. This figure was recently updated to $24.6 billion in 2011
The new ACA requirements do not include a specific minimum value of community benefits that a hospital must provide to qualify for tax-exempt status