Dec. 4, 2015: EY Report Examines Economic and Community Benefit Contributions of New Jersey’s Not-for-Profit Hospitals

PRINCETON – New Jersey’s not-for-profit hospitals provided $2.4 billion in community benefit in 2013, accounting for 13.4 percent of their total hospital expense, while absorbing a $1 billion cost in financial assistance to senior citizens, the needy and uninsured.

In addition, hospitals provided $475 million in other community benefits, such as health professional education, subsidized health services and community health improvement, accounting for an additional 2.7 percent of total hospital expense.

Those are the findings in a report from EY (formerly Ernst & Young), commissioned by the New Jersey Hospital Association to analyze the total economic and tax impacts related to New Jersey’s 63 not-for-profit hospitals. The company also reviewed N.J. hospitals’ Form 990 Schedule H, which details hospitals’ community benefit activity, for the tax year 2013 to capture and report benefits provided by these hospitals. The report is available at  

The New Jersey state average of 13.4 percent in community benefits is higher than the national average of 12.3 percent, as reported by EY and the American Hospital Association. That comparison relies on 2012 data, the most recent available for nationwide totals.

“This independent report verifies our annual findings that New Jersey’s hospitals continue to give back to their communities while serving as key economic drivers,” said NJHA President and CEO Betsy Ryan.  “These not-for-profit hospitals represent a lot more to their communities than bricks and mortar – they are significant contributors to the overall well-being of their communities and expect to remain that way for a long time to come.”

In New Jersey, EY reports that not-for-profit hospital operations and related economic activities generate substantial tax revenues for New Jersey governments. These taxes are generally not paid directly by the hospitals, but by hospital employees or hospital suppliers (both businesses and employees). As tax-exempt entities, taxes paid directly by the hospitals are limited to local property taxes paid on non-exempt real and personal property. Hospitals also pay some employment and payroll taxes (including FICA and unemployment insurance, among others). These payments totaling $182.4 million in 2013 are included in employee compensation, not as taxes.

New Jersey’s not-for-profit hospitals were also prime drivers of economic activity for their communities in 2013, employing 139,864 full- and part-time workers. The job impact ripples throughout the broader community. Indirect economic activity supported an additional 50,388 indirect New Jersey jobs (those related to hospital suppliers) and 63,201 induced jobs (related to hospital employee consumption), resulting in a total employment impact of 253,453 full- and part-time jobs.

New Jersey’s not-for-profit hospitals remit relatively small direct tax payments but generate state and local tax revenue through direct payments to labor and indirect and induced economic activity. The tax impact of not-for-profit hospitals is primarily indirect, reflecting taxes paid by employees and by other businesses as a result of ongoing hospital operations. The estimated total state and local tax impact of New Jersey’s not-for-profit hospitals was nearly $1.5 billion in 2013, split between state and local taxes. State taxes account for 57 percent of the total impact.

At the local level, property taxes generate the greatest share of total tax revenue, typical of most local tax systems. The property tax accounts for 42 percent of state and local tax impacts. Local property taxes paid by hospitals are included in the direct local property tax impact, totaling $25.9 million in 2013.  The remaining $234.7 million (90 percent) of direct property taxes are paid by hospital employees.

In addition, New Jersey’s not-for-profit hospitals support the state government by paying two assessments. The 0.53 percent assessment on each hospital’s total operating revenue netted the state $114 million in 2013, and the $10 per adjusted admission assessment, also administered by the state, netted the state approximately $17 million.

At the local level, hospitals paid $25.9 million in real property tax on leased, retail or other specified space owned by the hospital or in the form of a pre-established PILOT (payment in lieu of taxes) program.

NJHA has established a member task force to examine this issue and its impact on the state’s not-for-profit hospitals. Recognizing that this issue could prompt legislation, the task force’s goal is to provide certainty to hospitals and be part of a productive dialogue that arrives at a solution that is equitable to both hospitals and municipalities.