How the Inflation Reduction Act can help decarbonize the health care industry

The climate crisis — the greatest threat to human health in history — is often framed “in ways that pay little attention to its health dimensions,” as the authors of The Lancet’s annual “Countdown: Tracking Progress on Health and Climate Change” report were forced to remind us.

This tragic reality was on display in Health Affairs, JAMA, Kaiser Health News, and The Lancet itself, among others, when they limited their reporting on the recently passed Inflation Reduction Act to its enhanced Affordable Care Act subsidies and drug cost reforms. They failed to highlight for the health care industry that the IRA’s tax credit provisions for renewable energy, formally called energy security, are for the first time refundable for tax-exempt entities. This means that the largest greenhouse gas polluters in the health care industry — the vast majority of hospitals that are nonprofit or tax exempt — can take advantage of these economic subsidies to reduce greenhouse gas emissions.

The IRA’s estimated $369 billion in tax credits come not a moment too soon. Health care, the largest industry in the largest economy in the world, emits an immense amount of greenhouse gas pollution. Though the U.S. health care system treats just 4% of the world’s people, it is is the most polluting health care system in the world accounting for approximately 25% of all global health care greenhouse gas emissions — approximately 500 million metric tons of carbon dioxide equivalents annually.

Yet “the vast majority of U.S. health care organizations remain uncommitted to timely action,” as Jodi Sherman, a Yale physician who is an internationally recognized researcher in sustainability in clinical care, testified recently before the U.S. House Ways and Means Committee.

This summer’s record setting heat waves, droughts, and floods, along with recent research, “shows climate impacts,” said U.N. Secretary General António Guterres, “heading into uncharted territory of destruction” in part because global warming has now reached the lower end of five end-game negative climate tipping points. That’s where warming effects, like the dissipation of the Greenland ice sheet, become irreversible. Despite these realities, the Department of Health and Human Services has never taken any regulatory action to curb the industry’s use of fossil fuels.

Simply put, IRA tax credits offer tax-exempt hospitals and other tax-exempt providers, including those run by state and local governments and Indian tribal governments, the opportunity to receive as direct pay the value of the specified tax credit. Among other tax credits, credit monetization applies to the clean energy production tax credit for providers who fund and own energy produced by solar, wind, hydro, and other related power sources. Tax-exempt entities can also monetize related credits for producing clean hydrogen and for developing “environmental justice solar and wind capacity” projects located in low-income communities and on tribal land.

There is also a clean electricity investment tax credit for facilities financed with tax-exempt bonds. In addition, tax-exempt entities can allocate tax credits for energy efficient commercial buildings to building designers and retrofit plans, and can also monetize these credits for buying qualified commercial clean vehicles.

Several of these tax credits can become even more valuable if activities meet certain labor, manufacturing, and other prerequisites.

Keep in mind that the IRA also provides $148 billion in direct appropriations to 16 federal departments, excluding HHS, and related federal entities to decarbonize the economy. This includes $41 billion to the EPA of which $27 billion goes to the agency’s Greenhouse Gas Reduction Fund.

While many specifics remain to be determined via regulatory rule writing, a preliminary description of these credits can be found in the Congressional Research Services’ Tax Provisions in the Inflation Reduction Act of 2022 (H.R. 5376) report.

With the exception of a methane emissions fee, the IRA, as has been widely reported, is all carrots. This is problematic for reforming a health care industry that has been recalcitrant to publicly report its greenhouse gas emissions. As Sherman, who is also a member of a National Academy of Medicine-HHS collaborative to decarbonize health care, concluded her Ways and Means testimony, because greenhouse gas pollution and the resulting anthropogenic warming are harming health and health care delivery and causing her and her colleagues “moral injury” by having to violate their Hippocratic Oath, “standardized carbon reporting and decarbonization targets and timelines must be mandated for all health care organizations.”

Though Sherman did not connect the dots between HHS regulations and IRA tax credits, the opportunity should be obvious. Both HHS and the health care industry should view the IRA as a $369 billion gift. Because these tax credits become available as soon as next year, the Centers for Medicare and Medicaid Services should immediately tie them to its value-based performance programs, specifically Medicare Part A’s Hospital Value-Based Purchasing Program and Part B’s physician Quality Payment Program. This includes tying them to quality performance benchmarking for Medicare Parts A and B, as well as to Part C or Medicare Advantage and Part D drug coverage. Why? After hospitals, pharmaceutical companies are the largest contributor of the health care industry’s greenhouse gas pollution.

Given the track record to date of the health care industry and federal regulators, and the fact that the climate crisis is rapidly headed toward utter carnage, CMS should work with single-minded purpose to exploit the IRA’s tax credits to break the U.S.’s largest industry of its carbon addiction. Considering the fact health care represents 20% of the country’s gross domestic product, decarbonizing the industry could represent a positive tipping point for the entire economy. HHS leadership could even find themselves driving a new health care ethic, in which there finally exists a thriving balance between human and planetary health.

David Introcaso is a Washington, D.C.-based health care research and policy consultant whose work increasingly focuses on the climate crisis.