Do you remember when Kramer and Newman, of Seinfeld fame, decided to engage in a recycling scheme? They lived in New York but found out that returning bottles netted them 10 cents per bottle if they returned them to Michigan. Newman, a postal worker, used a Mother’s Day mail surge to drive out to Michigan and store a massive stack of bottles he collected so they could net a profit. As usual, the project was a disaster.
The takeaway from that story is that the return of bottles is something that is intended to keep bottles from cluttering our streets. The “bottle bill” is not a for-profit enterprise. The same may be happening with our nation’s non-profit hospitals, which are acting like for-profit enterprises.
Non-profits are set up to belong to the community at large – not a set of investors. Because a non-profit is set up to provide a public good, the goal is to provide a service to the community, and non-profits have the benefit of not paying taxes on the money they take in.
The law that relates to non-profit hospitals, the Emergency Medical Treatment and Labor Act (EMTALA), “is a federal law that imposes specific obligations on Medicare-participating hospitals that offer emergency services.” This law mandates that anybody coming to a hospital emergency room requesting treatment can get an examination. This allows those without insurance or the ability to pay to go to a hospital and the hospital can get reimbursement through Medicare, Medicaid or donations to the hospital. These hospitals are tax-exempt and this puts them in a status where they can recoup some of the money lost when treating patients who can’t pay.
One program that has benefited non-profit hospitals to the detriment of taxpayers is the 340B program. The program, created in 1992, is intended to help these hospitals afford prescription drugs by providing them at a reduced cost. Manufacturers provide rebates to state Medicaid programs and the rebates are based on something called the ‘best price’ for the drug.
Non-profits have used this program as a for-profit moneymaking scheme. Christopher Whaley, Associate Professor of Health Policy at the Brown University School of Public Health and Associate Director of the Center for Advancing Health Policy through Research (CAHPR), testified at the House of Representatives Ways and Means Subcommittee on Oversight on September 16, 2025, “despite receiving more than $37 billion annually in federal and state tax benefits, non-profit hospitals’ community benefit spending falls short by more than $25 billion per year relative to the value of their tax exemption.” One of the reasons is the 340B discount drug program. "A recent report from the Congressional Budget Office (CBO) finds that the 340B program now accounts for $43.9 billion in drug purchases, an increase of nearly 600% from $6.6 billion in 2010,” according to Whaley. That report said that “many drugs purchased through the 340B program are heavily marked-up. Sales of 340B drugs are an estimated $124 billion.” That sounds more like the activities of a for-profit entity, rather than one operating with a tax exemption to benefit the community.
The incentives for non-profit hospitals are distorted. Whaley cited statistics that indicate that non-profit hospitals have a reason to prescribe more expensive drugs to make more money. According to the Alliance for Integrity and Reform, the “340B program is now larger than Medicaid and Medicare Part B, making it the second largest U.S. federal prescription drug program.” It cites statistics that show non-340B short-term acute care facilities have a higher average charity care than 340B non-profits on average. They conclude that “while the 340B program has grown by nearly every metric, there is still no guarantee that patients benefit from the significant discounts offered to certain hospitals,” and they recommend that “Congress must revise eligibility criteria for 340B hospitals to target true safety-net facilities – not hospitals that provide minimal charity care.” This is a problem in need of a solution.
With Americans struggling with high gas prices and a slow job market, it is not fair that non-profit hospitals can game the system to make large profits. Reform is needed to protect the taxpayers from a scheme that creates more debt and causes health care inflation in costs for those who need medical care.
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