Peter J. Pitts: North Carolina Gives Non-profit Hospitals Billions in Tax Breaks. Are Patients Getting Anything in Return?
North Carolina’s non-profit hospitals occupy a privileged position in the state’s healthcare system. In exchange for their charitable mission, they receive sweeping tax advantages including exemptions from federal, state, and local taxes, access to tax-exempt financing, and eligibility for tax-deductible donations. These benefits are not symbolic. They represent a substantial public investment.
Non-profit hospitals in North Carolina receive roughly $1.8 billion in tax exemptions every year. The expectation behind that subsidy is straightforward: hospitals should provide a level of public benefit that matches or exceeds the value of the tax relief they receive. The numbers suggest, however, that the social contract is out of balance.
In my new report released by the Center for Medicine in the Public Interest, I found that nonprofit hospitals across the state provide about $1.1 billion in charity care annually. That leaves an estimated $700 million gap between the tax advantages hospitals receive and the direct financial assistance they provide to patients who cannot afford care.
North Carolina can do better.
Tax exemptions for nonprofit hospitals function much like government spending. When the state allows an institution to avoid paying taxes, the state must make up for that lost revenue elsewhere, either from other taxpayers or through reduced public services. Historically, the justification for this subsidy was clear: non-profit hospitals were expected to provide free or deeply discounted care to patients who could not afford treatment.
Over time, however, the definition of “community benefit” has expanded. Hospitals now include a broad range of activities under that label, from health education programs to community outreach initiatives. Many hospitals charge extortionate rates for services, then negotiate them down when it comes time for payment and write the difference off as “charity care.”
Even with so much activity masquerading as charity care, North Carolina’s hospitals still fell short of giving back to the tune of $700 million per year. That raises some obvious questions. Is the system working as intended? Are taxpayers truly receiving a fair return on the billions of dollars in tax benefits hospitals receive each year?
North Carolina’s hospital sector is overwhelmingly nonprofit. More than 85 percent of hospitals in the state operate under nonprofit status, benefiting from extensive tax advantages while claiming charitable missions. Many of these systems, however, now resemble large corporate healthcare organizations.
Major networks operate across multiple states, manage thousands of employees, negotiate complex insurance contracts, and control billions in assets. Hospital consolidation has created powerful regional systems with enormous financial resources.
At the same time, medical debt remains a major burden for families across North Carolina. In 2024, the state launched an ambitious initiative to reduce medical debt that ultimately forgave more than $6.5 billion for approximately 2.5 million residents. That effort was an important step forward, but it also underscores the troubling reality that millions of North Carolinians accumulated medical debt in a state where most hospitals operate as tax-exempt charitable institutions. In 2024, that same year, ECU Health made $34 million in profit.
Even more concerning, some research suggests that hospitals have occasionally billed patients who qualify for financial assistance. When hospitals receive large public subsidies intended to support low-income patients, those patients should not end up in collections.
None of this means North Carolina should abandon the non-profit hospital model. Non-profit hospitals play a vital role in our healthcare system. They provide emergency care, train physicians, conduct research, and deliver specialized treatment that communities depend on. And many live up to the public trust vested in them as evidenced by their tax breaks. The framework for governing nonprofit hospitals, however, was largely built decades ago. Healthcare economics have changed dramatically since then.
It is time to modernize the system. North Carolina policymakers should consider several reforms.
First, the state should establish clear minimum charity-care standards tied to hospital revenues or tax benefits. If taxpayers are providing billions in subsidies, hospitals should be expected to deliver measurable patient assistance in return.
Second, transparency must improve. Hospitals should publicly report charity-care spending, executive compensation, community-benefit activities, and lobbying expenditures in clear, accessible formats.
Third, the state should create an independent authority responsible for reviewing hospital community-benefit claims and ensuring that tax exemptions are justified.
These reforms would not punish nonprofit hospitals. They would strengthen the legitimacy of their tax-exempt status and ensure that public subsidies produce meaningful public value.
Nonprofit hospitals were granted tax exemptions as part of a social contract. Taxpayers provide financial support through exemptions and subsidies. In return, hospitals provide substantial public benefit. That contract must be honored. North Carolina lawmakers should take a fresh look at the state’s nonprofit hospital framework and ask a simple question: Are taxpayers and patients getting what they were promised?
If the answer is no, or even “not enough,” then the legislature should act. Modernizing the rules governing nonprofit hospitals would protect patients, strengthen transparency, and ensure that billions in public subsidies are used to serve the communities they were meant to help.
Peter J. Pitts is president of the Center for Medicine in the Public Interest and author of the new report “Modernizing North Carolina’s Nonprofit Social Contract: Aligning Hospital Tax Exemptions with Public Benefit.”
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