Some of the most financially successful nonprofit health systems are academic medical centers and the systems they anchor. Despite being considered “nonprofit” hospitals, that doesn’t mean they don’t make a profit. Nonprofit is a tax status that means a hospital is exempt from paying federal, state, and local taxes if it meets certain vague requirements for giving back to the community.
In place of paying taxes—no matter how much those taxes might be worth—a nonprofit hospital has to dedicate some of its revenue to provide health services to its community, through either charity care for patients who can’t afford medical treatment, health education for community members, free health screenings, or some other mechanism. However, academic medical centers have been able to game this requirement. They get to count millions of dollars in internal expenses for research and development and training of residents and fellows, over and above the millions of