The IRS must review the community benefit activities of every nonprofit hospital at least once every three years — referrals for examination from that review fell from 64 in fiscal year 2022 to 1 across fiscal years 2023 and 2024, the Treasury inspector general reported in May 2025

What is happening?

A hospital organization exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is treated as exempt only if it meets four requirements added by section 501(r) in 2010, as part of the Affordable Care Act. It must conduct a community health needs assessment at least once every three years and adopt an implementation strategy. It must have a written financial assistance policy stating eligibility, how amounts charged are calculated, how to apply, what collection actions may follow and how the policy is publicized. It must limit amounts charged for emergency and other medically necessary care to the amounts generally billed to insured patients, without using gross charges. And it must not take extraordinary collection actions before making reasonable efforts to find out whether the patient is eligible for financial assistance. Treasury regulations define those actions — among them selling the debt, reporting to credit agencies, legal action, liens, foreclosure, attaching a bank account, garnishing wages and arrest — and set out the reasonable efforts, including a 120-day application period after the first billing statement and at least 30 days of notice.

Checking this falls to the IRS, which is required by law to review the community benefit activities of each such hospital at least once every three years. On 2020-09-17 the Government Accountability Office reported, in GAO-20-679, that the IRS referred nearly 1,000 hospitals for examination over potential noncompliance with Affordable Care Act requirements across fiscal years 2015 through 2019, and that the IRS could not say how many of those referrals concerned community benefit. The same report identified 30 hospitals that reported zero community benefit spending for calendar year 2016. On 2023-04-26, in GAO-23-106777, GAO found again that community benefit is not defined in statute and that the factors the IRS set out in 1969 are not requirements.

The most recent measurement is report 2025-100-019 of the Treasury Inspector General for Tax Administration, issued in May 2025 and begun in 2023 at the request of four senators. In April 2022 the IRS narrowed the questionnaire it uses in its Community Benefit Activity Review from 207 questions to 17, limiting it to the items the Affordable Care Act requires. Referrals of hospitals for examination arising from that review numbered 64 in fiscal year 2022 and 1 across fiscal years 2023 and 2024 combined. The same report identified 142 hospitals subject to section 501(r) that were not on the IRS list of hospitals to be reviewed, and found 14 hospitals classified as government units and 13 as church affiliates treated as excluded. The IRS agreed with all four recommendations the inspector general made.

Whose problem is this?

The protections in the statute are owed to patients, but the process that confirms them runs between a hospital and the IRS, and no patient is a party to it.

Where does this problem end?

The boundary matters because the statute sets conditions that each hospital must meet, while the measured change is in how often the federal reviewer finds a reason to look more closely at any hospital at all.

What is the state now, and what should it be?

Now

Should be

The standard is the one written in law — a review of the community benefit activities of every hospital at least once every three years, and four requirements that each hospital must meet to be treated as exempt. The recommendations the IRS agreed to in May 2025 add a second layer from the audited agency itself: seeking legislative clarification of the community benefit standard, setting minimum standards for financial assistance policies, improving how hospitals subject to section 501(r) are identified, and updating guidance on the grounds for exclusion. No opened source gives a target rate of referral, a target rate of compliance, a date by which the corrective actions are to be complete, or a measure of how many referrals a working review ought to produce.

How big is it?

About 5,000 community hospitals operate in the United States and more than half are nonprofit, according to GAO-23-106777, issued 2023-04-26; the report page does not state the year the count describes. A study of calendar year 2018 Medicare cost reports worked from a sample of 2,709 nonprofit, 1,024 government and 930 for-profit hospitals. Inside the review system, 142 hospitals subject to section 501(r) were missing from the IRS review list, as reported in May 2025.

The public money attached to the exemption is estimated separately. A Congressional Research Service brief on nonprofit hospitals cites Joint Committee on Taxation estimates for fiscal year 2026 of 7.6 billion dollars in revenue forgone through the deduction for charitable contributions and 1.8 billion dollars through tax-exempt bond financing.

Two other figures describe what hospitals provide, and they are not the same measure. A national hospital industry association published in September 2025 a self-reported total of 149 billion dollars in community benefits for calendar year 2022, on its own method. The 2018 cost report study found that nonprofit hospitals spent 2.3 dollars on charity care per 100 dollars of total expenses, against 4.1 dollars at government hospitals and 3.8 dollars at for-profit hospitals.

These counts describe hospitals and dollars, and none of them counts the patients whose financial assistance or collection protections the review is meant to confirm. The population file for this document therefore records not-derivable.

Under what conditions does it arise?

1. The central term has no statutory definition. GAO reported in 2020 and again in 2023 that community benefit is not defined in statute, and that the factors the IRS set out in 1969 are not requirements. A review can confirm that a hospital has an assessment or a written policy, but there is no statutory threshold to measure the community benefit it provides against.

2. The reviewer sets its own instrument. The questionnaire used in the Community Benefit Activity Review went from 207 questions to 17 in April 2022, limited to what the Affordable Care Act requires. The referral counts for fiscal years 2022 through 2024 were then measured on the output of that review.

3. The reviewer also builds its own list. The inspector general found 142 hospitals subject to section 501(r) that were not on the IRS review list. A hospital that is missing from the review list is not reached by a review cycle that runs only through that list.

4. The outcome of a referral is not counted in any opened source. No source opened here reports how many hospitals have lost exemption for failing section 501(r). A fall in referrals therefore shows up only when an auditor measures it.

What has been tried?

Most of these attempts are audits and hearings that describe the review system, while the one change reported inside the review itself is the narrower questionnaire of April 2022.

What was found?

These dollar figures do not combine. The Joint Committee on Taxation estimates, the self-reported association total and the charity care rates use different methods, different units and different years — fiscal year 2026, calendar year 2022 and calendar year 2018. None can be added to another or used in place of another, and none of them is set against another in this document.

Why is it still unsolved?

Enforcement absent — the conditions for exemption are written into statute and the review is required by law, but the referrals that review produced fell to one hospital across two fiscal years, and the list it runs on was incomplete.

The first part is that the standard at the center of the review has no definition. GAO reported in 2020 and again in 2023 that community benefit is not defined in statute and that the IRS factors from 1969 are not requirements. A review can confirm that a hospital completed an assessment or adopted a policy. It has no statutory threshold against which to measure whether the community benefit a hospital provides is sufficient, because none exists. The first recommendation the inspector general made, and the IRS agreed to, was to seek that clarification.

The second part is the instrument. In April 2022 the questionnaire the IRS uses in the review went from 207 questions to 17, limited to what the Affordable Care Act requires. Referrals for examination from the review were 64 in fiscal year 2022 and 1 across fiscal years 2023 and 2024. The opened sources report the narrowing and the fall in the same audit, and block 12 records what they do not separate.

The third part is the list. A review that runs through a list reaches only the hospitals on it, and the inspector general found 142 hospitals subject to section 501(r) that were not there, alongside exclusion categories whose criteria it recommended explaining more clearly. Whether those 142 hospitals met the requirements was outside what the audit examined.

The fourth part is what keeps the pattern stable. No opened source reports how many hospitals have lost exemption for failing section 501(r), so the number that would show whether a referral leads anywhere is not in the record carried here. When referrals fall, nothing in that record changes until an auditor counts them. The IRS agreed with all four recommendations in May 2025, and no opened source gives a date by which any of them is to be complete.

What observation would mean it is solved?

Candidates — (a) the IRS completes the corrective actions for all four recommendations and the inspector general closes them (b) a follow-up audit finds that the review list includes every hospital subject to section 501(r) and that referrals for examination track the noncompliance the review actually finds (c) Congress enacts a statutory definition of community benefit and the IRS review measures hospitals against it.

(a) alone is weaker than it looks. A recommendation closes when an auditor is satisfied that an agency did what it said it would do. Guidance can be updated and a list corrected while the number of referrals stays where it is, and closure records an administrative fact about the agency rather than a fact about any hospital.

(b) alone cannot be read from a count. A referral count can fall because hospitals comply more fully or because the review looks at less, and the count by itself does not distinguish the two. It has to be read together with what the questionnaire asks and with an independent check of compliance in a sample of hospitals, which no opened source supplies.

(c) alone sets a standard without applying it. A definition gives the review something to measure against, but a review with an incomplete list and a narrow instrument can hold a definition and still refer almost no one. What that definition should require is also the value question block 3 declines to answer, and it belongs to Congress. The three have to be read together.

What is it connected to?

Fills with researchcharity care minimum standards set by individual states, federal and state limits on medical debt collection and credit reporting, the Form 990 reporting that exempt hospitals file, and the conditions of tax exemption for other kinds of nonprofit organizations. Relation type and evidence grade were not confirmed in this round.

What these sources do not say

• How many hospitals have lost exemption for failing section 501(r). No source opened here gives a count of revocations under that section since it took effect in 2010. This is not a report of zero; it is the absence of the figure from every opened source.
• Whether the 142 hospitals met the requirements. The audit, as the opened summaries describe it, found them missing from the review list. It did not examine whether each of them complied.
• How much of the fall in referrals follows from the narrower questionnaire. The opened summaries carry the April 2022 change and the referral counts for FY2022 through FY2024 together, but they do not quantify how much of the fall is due to the questionnaire rather than to other changes in those years. They also do not say how many of the 64 referrals in FY2022 came before or after the April 2022 change, which fell inside that fiscal year.
• Whether patients were affected. No source opened here links the fall in referrals to any change in extraordinary collection actions taken against patients or in financial assistance granted.
• When the review list was drawn. The count of 142 missing hospitals is reported in May 2025 without the date of the list it was checked against.
• The year behind the count of about 5,000 community hospitals. The GAO page gives the count and the nonprofit share without a reference year or an exact nonprofit number.
• Whether the GAO and inspector general referral counts share a basis. GAO counted nearly 1,000 hospitals referred over potential noncompliance across FY2015 through FY2019; the inspector general counted referrals from the Community Benefit Activity Review for FY2022 through FY2024. No opened source says the two are counted the same way, so they are not compared here.
• The exact scope of the tax expenditure figures. The two Joint Committee on Taxation estimates are carried through the Congressional Research Service brief. Whether those line items are limited to hospitals could not be confirmed, because the committee table refused automated requests.
• A single value for the exemption. The federal estimates, the association total and the charity care rates rest on different methods and years, and no opened source reconciles them.
• An independent check of the industry figures. The 149 billion dollar total and the ten-times estimate appear in the association publications. No opened source tests either, and the firm estimate itself was not opened.
• Dates for the IRS corrective actions, or a statement beyond agreement. The position of the IRS on the record in the opened sources is agreement with all four recommendations and a stated plan for corrective action. No completion dates are given, and no separate public statement from the IRS explaining the April 2022 narrowing, beyond the description that it was limited to what the statute requires, was found.
• Whether Congress acted after the hearing. No bill following the 2025-09-16 hearing was found in the sources opened here.

See the evidence

No primary audit document was read in full. The statute and regulation texts, the two GAO product pages, the Congressional Research Service brief, the committee event page and the three publications of the hospital industry association were opened directly. The inspector general report is served as an image-encoded PDF from which no text could be extracted, and its summary page returned page not found, so every figure attributed to that report comes through three professional sources that were each opened. They agree on the 207 and 17 questions, the 64 and 1 referrals and the 142 missing hospitals, and two of them agree on the 14 and 13 excluded hospitals and on the IRS agreement with all four recommendations — that agreement is why those figures are graded high, and the grade reflects what was opened here rather than who did the measuring. The journal article, the Joint Committee on Taxation table and the Senate release refused automated requests and were not reached by any other route, which is why the charity care rates and the tax expenditure figures are graded medium. Where the record is thin it is left thin rather than filled in — the count of revocations under section 501(r), the compliance of the 142 hospitals, any effect on patients and the dates for the corrective actions are all absent from every source opened here, and block 12 says so item by item. This is a Path A output, so observation_refs is empty and provenance_mode: press-derived.

People affected

Estimated range Not derivable

The reason and what is missing are listed under “What is missing” below