Nonprofit hospitals, which make up about 58% of community hospitals in the U.S., can qualify for federal tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. To maintain this status, they must provide "community benefits," a broad category that includes charity care—free or discounted care for patients unable to pay. The Affordable Care Act (ACA) added Section 501(r) to the tax code, which imposes specific requirements on these hospitals. They must establish written financial assistance policies (FAPs), make reasonable efforts to determine eligibility for assistance before engaging in aggressive debt collection, and widely publicize these policies. However, the law does not set a minimum dollar amount or percentage of debt that must be forgiven—eligibility criteria and the extent of assistance are left to each hospital's discretion.
For example, a hospital might offer free care to patients with incomes below 200% of the Federal Poverty Level (FPL) and discounted care up to 400% FPL, but these thresholds vary. The value of this charity care often offsets some of the tax benefits they receive, though studies suggest it doesn’t always cover the full amount of the tax exemption.