The largest single group of hospitals in the country is composed of private nonprofit hospitals, which are exempt from taxation under the Internal Revenue Code. The second largest group of hospitals consists of for-profit hospital corporations. The third and fourth largest groups are, respectively, municipal hospitals and state and federal specialty hospitals, such as mental health facilities and public health hospitals.
Although the idea of hospitals engaging in business activities used to arouse scorn, the concept has now gained acceptance. This change began in the late 196Os, when the enactment of the Medicare and Medicaid programs forced hospitals to become more so phisticated in handling reimbursement issues, certification-of-need, unrelated business income, and productivity.
By 1981, the percentage of hospital charges reimbursed by the Medicare system had declined to 68.7 percent, from its 1974 level of 75.4 percent. In 1982, with the signing of the Tax Equity and Fiscal Responsibility Art (TEFRA), hospitals were essentially told that they must find their own solution to the problem of inadequate funding.