Tax-exempt Hospital Transparency Act signals shift toward disclosure-driven oversight
The House Ways and Means Committee’s July 1 approval of the Tax-Exempt Hospital Transparency Act marks a turning point in U.S. federal oversight of nonprofit hospitals—one that prioritizes disclosure over mandated behavior. Rather than imposing minimum charity care thresholds or other prescriptive requirements seen in prior legislative efforts, the bill focuses on expanding transparency through enhanced reporting obligations under the Internal Revenue Code.
If enacted, the legislation would require hospitals to significantly expand Form 990 disclosures, including detailed explanations of how organizations address needs identified through: community health needs assessments (CHNAs), audited financial statements, financial assistance activity, and operational data across both system-wide and facility-level reporting.
A response to sustained scrutiny
The proposal reflects years of increasing congressional and regulatory attention on whether nonprofit hospitals provide community benefits commensurate with their tax-exempt status. Scrutiny intensified following the April 26, 2023, Ways and Means Subcommittee hearing on tax-exempt hospitals and the community benefit standard, which examined both the adequacy of existing community benefit standards and the quality of reporting to the IRS and the public.
Following the hearing, bipartisan letters to the IRS highlighted concerns around rising medical debt, aggressive collection practices and whether certain hospitals are meeting obligations to vulnerable populations. These developments collectively reinforced calls for greater consistency, comparability and accountability in hospital reporting.
Closing gaps in the community benefit framework
A key driver behind the legislation is the longstanding ambiguity embedded in the community benefit standard. The Government Accountability Office found that the IRS evaluates hospitals based on a facts-and-circumstances approach, without clearly defining which activities qualify as sufficient community benefit—complicating both enforcement and oversight.
In response, lawmakers have sought to more clearly define how hospitals characterize spending by sharpening the distinction between qualifying community benefits and administrative or operational costs, including areas such as information technology, human resources, billing, communications and other nonclinical functions. By narrowing what can be reported, the legislation addresses criticism that current disclosures may obscure how resources are allocated and potentially overstate community impact.
From congressional hearings to data-driven oversight
The proposed legislation also reflects a growing policy focus on hospital transparency, shaped in part by congressional hearings and research from Johns Hopkins professor Ge Bai, whose work has questioned whether nonprofit hospitals provide community benefits commensurate with their tax-exempt status. Her testimony before the House Ways and Means Committee was closely aligned with several provisions in the bill, and her expected appointment as assistant secretary of the U.S. Department of Health and Human Services suggests that scrutiny of hospital affordability, financial assistance and community benefit practices is likely to remain a policy priority.
More broadly, the proposal reinforces a regulatory shift already underway—from principles-based oversight to standardized, data-driven reporting. Many of the required disclosures mirror areas long examined by the IRS, including financial assistance policies, billing practices, community health needs assessments and community benefit reporting.
Action steps for hospital organizations
To position for this evolving regulatory environment, organizations should consider:
- Strengthening CHNA alignment: Ensure clear linkage between identified community health needs, programmatic investments, and measurable outcomes by hospital facility.
- Enhancing financial assistance tracking: Implement systems to accurately capture application volume, approval rates, denials and associated costs at the hospital facility level.
- Standardizing internal reporting: Align service-line and cost accounting structures with emerging external reporting expectations.
- Preparing for IRS examination: Review prior audit findings and ensure consistent IRC 501(r) documentation and compliance across facilities.
- Improving transparency narratives: Pair quantitative disclosures with clear explanations to better articulate community impact.
Taken together, these steps can help hospitals adapt as transparency—rather than prescriptive mandates—emerges as the central pillar of nonprofit hospital oversight.
Learn more about what’s happening in healthcare in our industry outlook.
