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Much is given by hospitals, more is asked (MS)

One man donated a pig "of an uncommonly fine breed." Another donated an Egyptian mummy. The founders of the state’s first hospital needed any gift they could get.

In 1817, hospitals served patients too poor to afford a doctor’s house call, so the wealthy had little incentive to support them. To cut costs, the Legislature ordered prison inmates to quarry the gray granite blocks that went into Massachusetts General Hospital’s walls.

Today, glass-and-steel medical towers dwarf that first building, a campus befitting the flagship hospital of Massachusetts’ largest healthcare company. But one thing at Mass. General remains much as it was in the 19th century: The hospital, like most in Massachusetts, is taxed as a nonprofit charity – which means it’s hardly taxed at all.

Nonprofit hospitals are popular institutions, especially in Boston, home to seven major tax-exempt teaching hospitals that attract billions in federal research grants and patients from around the world. Mass. General’s parent, Partners HealthCare, is not only the state’s number one private employer, but one of its most successful companies, with an investment portfolio valued at more than $4 billion.

However, as hospitals have prospered and grown, so too has the value of the breaks on state, federal, sales, and property taxes they enjoy as charities. And that fact has triggered a growing debate, among policy makers and politicians, about whether the public is still getting its money’s worth from an exemption that dates to the 19th century and was created to encourage hospitals to treat the poor.

Today, in fact, the value of tax exemption far exceeds the amount the state’s leading hospitals spend on free care for the poor and other community benefits they report annually to the attorney general, a Globe review has found.

What’s more, hospital spending on free care is declining because of the state’s 2006 healthcare reforms. Today, hospitals typically spend about 1 percent of expenses on free medical care, as measured by the attorney general, half of what they spent before reform made insurance available to many more low-income people.

The gap between tax benefits and charity care varies widely among hospitals. The gap is widest at the most prosperous hospital companies. And some less profitable institutions actually spend more on charity than they save on taxes.

Massachusetts regulators and elected officials have gently pressured tax-exempt hospitals to give more to their communities since the early 1990s when former attorney general Scott Harshbarger asked them to annually report the cash value of their charity work. But determining how much charity is enough has been difficult because no one – not even the Internal Revenue Service – had calculated how much hospitals save from not paying taxes.

With the help of authorities in nonprofit healthcare and management, this report aims to fill that gap.

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