What Is a Nonprofit Hospital? How They Differ, and the Rules They Follow

A nonprofit hospital is a hospital run by a tax-exempt organization, usually a 501(c)(3) charity, with no owners or shareholders. It can make a surplus, and most do, but the surplus has to go back into the hospital’s charitable purpose rather than to investors. In return for its exemption from federal income tax, a nonprofit hospital must meet federal rules on community health needs, financial assistance, charges and debt collection. This page explains what makes a hospital nonprofit, how large nonprofit hospitals are compared with the rest of the sector, how they differ from for-profit and government hospitals, and what the rules mean if you are a patient.

Are most hospitals nonprofit?

Nonprofit hospitals are a small number of organizations with an enormous share of the sector. Form 990 Part IV line 20a asks every charity whether it operated a hospital facility during the year. We analysed it for the 269,686 501(c)(3)s that file the full return:

Fewer than one charity in a hundred operates a hospital, yet those organizations account for about two-fifths of all the revenue reported by charities filing the full return, nearly three in ten of their employees and over a quarter of their assets. When people describe “the nonprofit sector” in dollars, they are largely describing hospitals. The broader picture is in nonprofit sector statistics, and the job figures in nonprofit jobs, where health organizations hold 36.7% of all charity W-2s.

Separately, the IRS Business Master File codes about 5,400 public charities as hospitals by activity. That count is larger because it includes organizations that do not themselves operate a licensed hospital, and because one hospital organization can run several facilities. The 2,286 figure above counts organizations that said on their return that they operated one.

What makes a hospital nonprofit

A hospital qualifies as a 501(c)(3) charity because promoting health is a charitable purpose. The IRS standard for hospitals dates from Revenue Ruling 69-545, which looks at whether the hospital benefits the community as a whole, for example through an open emergency room, an open medical staff and a board drawn from the community. The Affordable Care Act added specific requirements in section 501(r), below. Like any charity, a nonprofit hospital cannot pay its earnings to private individuals, and its executives’ pay must be reasonable; see charity CEO salaries and nonprofit executive compensation.

“Nonprofit” describes who the money belongs to, not whether the hospital makes money. The difference between nonprofit and not-for-profit, and why the words are used loosely, is in nonprofit vs not-for-profit.

Do nonprofit hospitals make money?

The typical nonprofit hospital organization took in about 2.5% more than it spent, but the range is wide: a quarter lost more than 2.8% of revenue, and more than a third spent more than they took in during the year. Together, all hospital organizations reported a margin of 3.7%. These are total margins, including investment income and donations, not operating margins on patient care alone, and they come from one year of returns. How deficits compare across the rest of the sector is in nonprofit deficits, and how nonprofits earn their money more generally in how nonprofits make money.

The four federal requirements: section 501(r)

Since the Affordable Care Act, a hospital organization with 501(c)(3) status must meet four requirements, facility by facility, set out in section 501(r) of the tax code and on the IRS’s 501(r) page:

1. A community health needs assessment, conducted in the current year or either of the two preceding years, with an implementation strategy adopted to meet the needs it identifies. Failing this requirement carries an excise tax of $50,000 under section 4959.
2. A written financial assistance policy, setting out who is eligible, how charges are calculated, how to apply and how the policy is publicized, and a written emergency care policy requiring emergency care without discrimination, whether or not a patient qualifies for assistance.
3. A limit on charges. Patients eligible for financial assistance cannot be charged more for emergency or other medically necessary care than the amounts generally billed to people who have insurance covering that care, and the hospital may not bill them its gross charges.
4. Billing and collection. The hospital may not take extraordinary collection actions before making reasonable efforts to find out whether the patient qualifies for financial assistance.

Failing to meet section 501(r) can cost a hospital organization its 501(c)(3) status.

What this means if you are a patient

• Ask for the financial assistance policy. Every nonprofit hospital must have one and publicize it. Eligibility usually depends on household income, so check it even if you have insurance.
• Apply even after you receive a bill. The rule against extraordinary collection actions before a reasonable effort to check eligibility gives patients room to apply.
• If you qualify, check the charge. You should not be billed more than the amounts generally billed to insured patients, and never the full list price.
• Emergency care comes first. The emergency care policy requires treatment without discrimination, before any question of payment.
• Read the hospital’s Form 990. Schedule H describes its financial assistance policy and community benefit spending; see how to find a nonprofit’s Form 990.

Questions to ask about a bill

1. Is this hospital a nonprofit, and does its financial assistance policy cover the doctors who treated me as well as the hospital itself?
2. What income limits does the policy use, and does it offer free care, discounted care, or both?
3. Has my account been checked for financial assistance eligibility before being sent to collections?
4. If I qualify, how was my charge calculated, and how does it compare with the amounts generally billed to insured patients?
5. Can the bill be paused while my application is considered, and is there an interest-free payment plan?

Keep copies of everything you send and the date you sent it. A written application, made early, is the strongest position a patient can be in.

Community benefit, and what counts

Schedule H, which every organization operating a hospital facility files, reports the hospital’s community benefit spending in Part I, line 7. According to the Schedule H instructions, the categories are:

• financial assistance, at cost;
• unreimbursed costs of Medicaid and other means-tested government health programmes;
• community health improvement services and community benefit operations;
• health professions education;
• subsidized health services;
• research;
• cash and in-kind contributions for community benefit.

Two large items are deliberately left out of that line. Bad debt is reported separately in Part III, and the Medicare shortfall is not included in line 7 either, although a hospital can explain in Part VI why it considers some of it a community benefit. That is why hospitals’ own descriptions of their community benefit are often larger than the Schedule H figure: the difference is usually bad debt and Medicare.

Nonprofit, for-profit and government hospitals compared

For-profit hospitals are owned by companies or private investors and pay income tax; their profits can be distributed to owners. Government hospitals belong to a state, county, city or special hospital district. Some government hospitals also hold 501(c)(3) status, in which case section 501(r) applies to them too. Nonprofit and for-profit hospitals compete for the same patients and staff and are paid by the same insurers and government programmes, which is why the debate about whether nonprofit hospitals earn their tax exemption is a long-running one.

The tax benefits a nonprofit hospital receives

• Exemption from federal income tax on its surplus.
• Tax-deductible donations, which is why most nonprofit hospitals have a fundraising office or a separate foundation; see planned giving and capital campaigns.
• Access to tax-exempt bond financing for buildings and equipment, at lower interest rates.
• State and local exemptions, often including property tax and sales tax, under rules that vary by state.

Hospital foundations

Many nonprofit hospitals raise money through a separate 501(c)(3) foundation that supports the hospital. Foundations matter outside fundraising too: several programmes for nonprofits exclude hospitals but accept their foundations, including Canva for Nonprofits and Google Workspace for Nonprofits. The kinds of 501(c)(3) are set out in types of nonprofits.

How to look up a nonprofit hospital

1. Find the hospital organization’s Form 990 using its legal name or EIN; see how to find Form 990.
2. Check Part IV line 20a, which confirms it operates a hospital facility.
3. Read Schedule H: Part I for community benefit, Part III for bad debt and Medicare, Part V for each facility’s assessment and financial assistance policy.
4. Read Part VII and Schedule J for executive pay.
5. Compare revenue and expenses over several years, in Part I of the main form.

What each part of the return contains is in Form 990.

Where the figures come from

Our analysis of the IRS Statistics of Income extract of Form 990 returns covers 269,686 501(c)(3) organizations that file the full return, 2,286 of them answering yes to Part IV line 20a. Revenue is Part VIII line 12, expenses Part IX line 25, employees Part V line 2a and assets Part X line 16. Script: bin/analyse_soi_hospitals.py. Margins are total revenue less total expenses, as a share of revenue, for one year. The Business Master File count uses NTEE codes E20 to E24. Rules were read in sections 501(r) and 4959 of the tax code, on the IRS’s 501(r) page and in the Schedule H instructions on 19 October 2026. This page is general information, not legal, tax or medical billing advice.

This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.