The Lown Institute 2025 Fair Share Spending Report

The Lown Institute released its 2025 Fair Share Spending Report, “Making the Hospital Tax Exemption Work for Communities,” on April 15. The report compares not-for-profit hospitals’ spending on “meaningful community investment” with the estimated value of their federal, state, and local tax exemptions. This year’s analysis includes data from more than 1,800 hospitals across 20 states, representing approximately 69% of private not-for-profit hospitals in the U.S.

According to the report, 54% of hospitals had a “fair share deficit” – meaning they received more in tax benefits than they invested in their communities – down from 80% reported last year. The combined annual fair share deficit totaled $11.5 billion. California alone accounted for approximately $1.5 billion, making it one of the five states with the largest statewide shortfalls.

Crowe observation

This report contributes to the ongoing national discussion about the tax-exempt status of not-for-profit hospitals, a topic that has drawn increasing scrutiny from Congress, regulators, and advocacy groups.

As in prior years, the Lown analysis excludes several community benefit categories that are reportable on Form 990, Schedule H, “Hospitals,” including Medicaid shortfall, health professional education, and research, arguing these expenditures lack a direct and measurable connection to community health improvement.

Criticism of the Lown report methodology

As with previous reports, the Lown methodology has drawn criticism from the hospital industry and trade associations. Stakeholders argue that the exclusion of Medicaid shortfall and other IRS-recognized categories presents an incomplete – and in some cases, misleading – picture of the value hospitals provide to their communities. These exclusions disproportionately affect hospitals operating in Medicaid expansion states and those with higher charity care thresholds.

Critics also note that the report does not reflect the full range of social services and public health interventions many hospitals provide, such as housing support and workforce development. Additionally, by aggregating tax benefit estimates across different tax regimes, the report might obscure meaningful variation in how hospitals interact with their local and state governments.

Continued congressional and regulatory scrutiny

The release of the 2025 report follows a series of bipartisan actions signaling increased interest in tax-exempt hospital oversight. In November 2024, Sens. Charles Grassley and Elizabeth Warren issued a bipartisan letter to the IRS reiterating concerns that some not-for-profit hospitals might not be providing sufficient community benefit to justify their tax-exempt status. The senators emphasized the growing body of evidence related to medical debt burdens and raised questions about transparency and compliance with the community benefit standard.

In March 2024, the IRS Tax-Exempt and Government Entities (TE/GE) division added a compliance strategy focused on examining whether tax-exempt hospitals are complying with their statutory obligations under IRC Section 501(c)(3), including the community benefit standard, and Section 501(r). Following the release of this new compliance strategy, in June 2024, the IRS announced plans to conduct 35 examinations of tax-exempt hospitals. These examinations have proved to be both comprehensive and resource-intensive, with several hospitals reporting IRS site visits and requests for extensive supporting documentation. The examinations include numerous information document requests (IDRs) – some with 20 or more questions – covering everything from policy language and patient communications to board meeting minutes and community health needs assessment implementation strategies.

What not-for-profit hospitals can do now

The fair share deficit analysis certainly has reignited conversations about how tax-exempt hospitals demonstrate and communicate their community investment.

In practice, hospitals and health systems – often in partnership with external advisers or tax preparers – have found that refining internal processes and strengthening documentation protocols can meaningfully improve reported community benefit, sometimes by 3% to 4% and without requiring new spending. Much of the value already is being delivered; the opportunity often lies in ensuring that efforts are accurately captured, categorized, and reflected in reporting. Doing so includes:

• Standardizing the hospital’s approach by adopting a formal community benefit policy and written procedures
• Conducting a comprehensive review of existing activities and calculations so all eligible costs and initiatives are accounted for
• Anticipating upcoming changes in legislation or payment structures – such as shifts in Medicaid reimbursement – that could impact how benefit is measured and reported

These efforts not only help hospitals prepare for potential scrutiny but also help their reporting better reflect the full scope of their contributions to community health.

Amid continued public and regulatory scrutiny, not-for-profit hospitals should take proactive steps to assess and strengthen how they measure and communicate their community benefit. Key actions include:

• Reviewing Forms 990 and Schedule H to ensure that disclosures accurately reflect the hospital’s mission-driven programs and community health investments
• Calculating the estimated value of tax exemption annually and benchmarking it against documented community benefit expenditures
• Enhancing internal systems and processes for identifying, tracking, and categorizing community benefit activities across departments
• Educating hospital leadership, boards, and key staff on how community benefit is evaluated by external stakeholders and what standards are being used to assess it
• Engaging proactively with the public, policymakers, and local partners to share the hospital’s impact story and affirm its commitment to community health equity

Looking ahead

The 2025 Lown Institute report, alongside recent developments in congressional oversight and the IRS’ enforcement strategy, highlight a clear trend: Not-for-profit hospitals are facing greater expectations for transparency, accountability, and measurable community impact.

This scrutiny is only intensifying. The current administration has placed a renewed emphasis on tax-exempt organizations. At the same time, Congress increasingly is spotlighting healthcare organizations as part of larger tax reform discussions – raising questions about the value and verification of tax exemption in the sector.

As the national dialogue concerning medical debt, tax exemption, and charitable care intensifies, hospitals should prepare not only to defend their exempt status but also to demonstrate it with data and purpose. A robust, well-documented community benefit strategy grounded in the organization’s mission and aligned with local health needs will be essential to navigating this evolving landscape.