One owns a for-profit insurer, a venture capital company, and for-profit hospitals in Italy and Kazakhstan; it has just acquired its fourth for-profit hospital in Ireland. Another owns one of the largest for-profit hospitals in London, is partnering to build a massive training facility for a professional basketball team, and has launched and financed 80 for-profit start-ups. Another partners with a wellness spa where rooms cost $4,000 a night and co-invests with “leading private equity firms.”

Do these sound like charities?

These diversified businesses are, in fact, some of the country’s largest nonprofit hospital systems. And they have somehow managed to keep myriad for-profit enterprises under their nonprofit umbrella — a status that means they pay little or no taxes, float bonds at preferred rates, and gain numerous other financial advantages.

Through legal maneuvering, regulatory neglect, and a large dollop of lobbying, they have remained tax-exempt charities, classified as 501(c)(3)s.

“Hospitals are some of the biggest businesses in the U.S. — nonprofit in name only,” said Martin Gaynor, an economics and public policy professor at Carnegie Mellon University. “They realized they could own for-profit businesses and keep their not-for-profit status. So the parking lot is for-profit; the laundry service is for-profit; they open up for-profit entities in other countries that are expressly for making money. Great work if you can get it.”

Many universities’ most robust income streams come from their technically nonprofit hospitals. At Stanford University, 62% of operating revenue in fiscal 2023 was from health services; at the University of Chicago, patient services brought in 49% of operating revenue in fiscal 2022.

To be sure, many hospitals’ major source of income is still likely to be pricey patient care. Because they are nonprofit and therefore, by definition, can’t show that thing called “profit,” excess earnings are called “operating surpluses.” Meanwhile, some nonprofit hospitals, particularly in rural areas and inner cities, struggle to stay afloat because they depend heavily on lower payments from Medicaid and Medicare and have no alternative income streams.

But investments are making “a bigger and bigger difference” in the bottom line of many big systems, said Ge Bai, a professor of health care accounting at the Johns Hopkins University Bloomberg School of Public Health. Investment income helped Cleveland Clinic overcome the deficit incurred during the pandemic.

When many U.S. hospitals were founded over the past two centuries, mostly by religious groups, they were accorded nonprofit status for doling out free care during an era in which fewer people had insurance and bills were modest. The institutions operated on razor-thin margins. But as more Americans gained insurance and medical treatments became more effective — and more expensive — there was money to be made.

Not-for-profit hospitals merged with one another, pursuing economies of scale, like joint purchasing of linens and surgical supplies. Then, in this century, they also began acquiring parts of the health care systems that had long been for-profit, such as doctors’ groups, as well as imaging and surgery centers. That raised some legal eyebrows — how could a nonprofit simply acquire a for-profit? — but regulators and the IRS let it ride.

And in recent years, partnerships with, and ownership of, profit-making ventures have strayed further and further afield from the purported charitable health care mission in their community.

“When I first encountered it, I was dumbfounded — I said, ‘This not charitable,’” said Michael West, an attorney and senior vice president of the New York Council of Nonprofits. “I’ve long questioned why these institutions get away with it. I just don’t see how it’s compliant with the IRS tax code.” West also pointed out that they don’t act like charities: “I mean, everyone knows someone with an outstanding $15,000 bill they can’t pay.”

Hospitals get their tax breaks for providing “charity care and community benefit.” But how much charity care is enough and, more important, what sort of activities count as “community benefit” and how to value them? IRS guidance released this year remains fuzzy on the issue.

Academics who study the subject have consistently found the value of many hospitals’ good work pales in comparison with the value of their tax breaks. Studies have shown that generally nonprofit and for-profit hospitals spend about the same portion of their expenses on the charity care component.

Here are some things listed as “community benefit” on hospital systems’ 990 tax forms: creating jobs; building energy-efficient facilities; hiring minority- or women-owned contractors; upgrading parks with lighting and comfortable seating; creating healing gardens and spas for patients.

All good works, to be sure, but health care?

What’s more, to justify engaging in for-profit business while maintaining their not-for-profit status, hospitals must connect the business revenue to that mission. Otherwise, they pay an unrelated business income tax.

“Their CEOs — many from the corporate world — spout drivel and turn somersaults to make the case,” said Lawton Burns, a management professor at the University of Pennsylvania’s Wharton School. “They do a lot of profitable stuff — they’re very clever and entrepreneurial.”

The truth is that a number of not-for-profit hospitals have become wealthy diversified business organizations. The most visible manifestation of that is outsize executive compensation at many of the country’s big health systems. Seven of the 10 most highly paid nonprofit CEOs in the United States run hospitals and are paid millions, sometimes tens of millions, of dollars annually. The CEOs of the Gates and Ford foundations make far less, just a bit over $1 million.

When challenged about the generous pay packages — as they often are — hospitals respond that running a hospital is a complicated business, that pharmaceutical and insurance execs make much more. Also, board compensation committees determine the payout, considering salaries at comparable institutions as well as the hospital’s financial performance.

One obvious reason for the regulatory tolerance is that hospital systems are major employers — the largest in many states (including Massachusetts, Pennsylvania, Minnesota, Arizona, and Delaware). They are big-time lobbying forces and major donors in Washington and in state capitals.

But some patients have had enough: In a suit brought by a local school board, a judge last year declared that four Pennsylvania hospitals in the Tower Health system had to pay property taxes because its executive pay was “eye popping” and it demonstrated “profit motives through actions such as charging management fees from its hospitals.”

A 2020 Government Accountability Office report chided the IRS for its lack of vigilance in reviewing nonprofit hospitals’ community benefit and recommended ways to “improve IRS oversight.” A follow-up GAO report to Congress in 2023 said, “IRS officials told us that the agency had not revoked a hospital’s tax-exempt status for failing to provide sufficient community benefits in the previous 10 years” and recommended that Congress lay out more specific standards. The IRS declined to comment for this column.

Attorneys general, who regulate charity at the state level, could also get involved. But, in practice, “there is zero accountability,” West said. “Most nonprofits live in fear of the AG. Not hospitals.”

Today’s big hospital systems do miraculous, lifesaving stuff. But they are not channeling Mother Teresa. Maybe it’s time to end the community benefit charade for those that exploit it, and have these big businesses pay at least some tax. Communities could then use those dollars in ways that directly benefit residents’ health.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

Subscribe to KFF Health News’ free Morning Briefing.

TREASURE ISLAND, Fla. — Andrew McClave Jr. loved to lift weights. The 6-foot-4-inch bartender resembled a bodybuilder and once posed for a photo flexing his muscles with former pro wrestler Hulk Hogan.

“He was extremely dedicated to it,” said his father, Andrew McClave Sr., “to the point where it was almost like he missed his medication if he didn’t go.”

But the hobby took its toll. According to a police report, a friend told the Treasure Island Police Department that McClave, 36, suffered from back problems and took unprescribed pills to reduce the pain.

In late 2022, the friend discovered McClave in bed. He had no pulse. A medical examiner determined he had a fatal amount of fentanyl, cocaine, and xylazine, a veterinary tranquilizer used to sedate horses, in his system, an autopsy report said. Heart disease was listed as a contributing factor.

McClave is among more than 260 people across Florida who died in one year from accidental overdoses involving xylazine, according to a Tampa Bay Times analysis of medical examiner data from 2022, the first year state officials began tracking the substance. Numbers for 2023 haven’t been published.

The death toll reflects xylazine’s spread into the nation’s illicit drug supply. Federal regulators approved the tranquilizer for animals in the early 1970s and it’s used to sedate horses for procedures like oral exams and colic treatment, said Todd Holbrook, an equine medicine specialist at the University of Florida. Reports of people using xylazine emerged in Philadelphia, then the drug spread south and west.

What’s not clear is exactly what role the sedative plays in overdose deaths, because the Florida data shows no one fatally overdosed on xylazine alone. The painkiller fentanyl was partly to blame in all but two cases in which the veterinary drug was included as a cause of death, according to the Times analysis. Cocaine or alcohol played roles in the cases in which fentanyl was not involved.

Fentanyl is generally the “800-pound gorilla,” according to Lewis Nelson, chair of the emergency medicine department at Rutgers New Jersey Medical School, and xylazine may increase the risk of overdose, though not substantially.

But xylazine appears to complicate the response to opioid overdoses when they do happen and makes it harder to save people. Xylazine can slow breathing to dangerous levels, according to federal health officials, and it doesn’t respond to the overdose reversal drug naloxone, often known by the brand name Narcan. Part of the problem is that many people may not know they are taking the horse tranquilizer when they use other drugs, so they aren’t aware of the additional risks.

Lawmakers in Tallahassee made xylazine a Schedule 1 drug like heroin or ecstasy in 2016, and several other states including Pennsylvania, Ohio, and West Virginia have taken action to classify it as a scheduled substance, too. But it’s not prohibited at the federal level. Legislation pending in Congress would criminalize illicit xylazine use nationwide.

The White House in April designated the combination of fentanyl and xylazine, often called “tranq dope,” as an emerging drug threat. A study of 20 states and Washington, D.C., found that overdose deaths attributed to both illicit fentanyl and xylazine exploded from January 2019 to June 2022, jumping from 12 a month to 188.

“We really need to continue to be proactive,” said Amanda Bonham-Lovett, program director of a syringe exchange in St. Petersburg, “and not wait until this is a bigger issue.”

‘A Good Business Model’

There are few definitive answers about why xylazine use has spread — and its impact on people who consume it.

The U.S. Drug Enforcement Administration in September said the tranquilizer is entering the country in several ways, including from China and in fentanyl brought across the southwestern border. The Florida attorney general’s office is prosecuting an Orange County drug trafficking case that involves xylazine from a New Jersey supplier.

Bonham-Lovett, who runs IDEA Exchange Pinellas, the county’s anonymous needle exchange, said some local residents who use drugs are not seeking out xylazine — and don’t know they’re consuming it.

One theory is that dealers are mixing xylazine into fentanyl because it’s cheap and also affects the brain, Nelson said.

“It’s conceivable that if you add a psychoactive agent to the fentanyl, you can put less fentanyl in and still get the same kick,” he said. “It’s a good business model.”

In Florida, men accounted for three-quarters of fatal overdoses involving xylazine, according to the Times analysis. Almost 80% of those who died were white. The median age was 42.

Counties on Florida’s eastern coast saw the highest death tolls. Duval County topped the list with 46 overdoses. Tampa Bay recorded 19 fatalities.

Cocaine was also a cause in more than 80 cases, including McClave’s, the Times found. The DEA in 2018 warned of cocaine laced with fentanyl in Florida.

In McClave’s case, Treasure Island police found what appeared to be marijuana and a small plastic bag with white residue in his room, according to a police report. His family still questions how he took the powerful drugs and is grappling with his death.

He was an avid fisherman, catching snook and grouper in the Gulf of Mexico, said his sister, Ashley McClave. He dreamed of being a charter boat captain.

“I feel like I’ve lost everything,” his sister said. “My son won’t be able to learn how to fish from his uncle.”

Mysterious Wounds

Another vexing challenge for health officials is the link between chronic xylazine use and open wounds.

The wounds are showing up across Tampa Bay, needle exchange leaders said. The telltale sign is blackened, crusty tissue, Bonham-Lovett said. Though the injuries may start small — the size of a dime — they can grow and “take over someone’s whole limb,” she said.

Even those who snort fentanyl, instead of injecting it, can develop them. The phenomenon is unexplained, Nelson said, and is not seen in animals.

IDEA Exchange Pinellas has recorded at least 10 cases since opening last February, Bonham-Lovett said, and has a successful treatment plan. Staffers wash the wounds with soap and water, then dress them.

One person required hospitalization partly due to xylazine’s effects, Bonham-Lovett said. A 31-year-old St. Petersburg woman, who asked not to be named due to concerns over her safety and the stigma of drug use, said she was admitted to St. Anthony’s Hospital in 2023. The woman, who said she uses fentanyl daily, had a years-long staph infection resistant to some antibiotics, and a wound recently spread across half her thigh.

The woman hadn’t heard of xylazine until IDEA Exchange Pinellas told her about the drug. She’s thankful she found out in time to get care.

“I probably would have lost my leg,” she said.

This article was produced in partnership with the Tampa Bay Times.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

Subscribe to KFF Health News’ free Morning Briefing.