Nonprofit hospitals face more questions

May 27, 2005 at 1:38 PM
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WASHINGTON, May 27 (UPI) -- Non-profit hospitals in the United States, which have spent the past year battling lawsuits alleging they failed to provide the charity healthcare required under their tax-exempt status, this week came under scrutiny by House and Senate leaders who also demanded they explain their business practices.

A day after Senate Finance Committee Chairman Charles Grassley, R-Iowa, asked for an investigation of the financial practices of 10 of the largest U.S. non-profit hospitals, House Ways and Means Chairman Rep. Bill Thomas, R-Calif., Thursday said.

"What is the taxpayer getting in return for the tens of billions of dollars per year in tax subsidy?" asked Thomas who discussed whether or not the definition should be changed for tax-exemption which would better serve where taxpayers money was going.

Grassley sent out a letter this month to 10 hospitals around the nations requesting information about billing practices, and joint ventures with for-profits.

"This is extremely troubling," said Grassley back in April. "Individuals are using supporting organizations to play fast and loose with the tax rules intended to help charities and encourage giving. It's clear Congress and the administration will have to take steps to stop this abuse and ensure that charitable donations benefit the needy. I'm deeply disturbed that with a good number of supporting organizations, people are taking multi-million dollar tax deductions for what they claim are contributions to charity, yet too often the result is a thimbleful of benefit to charity."

Non-profit hospitals around the country have had some success fighting lawsuits filed by a group of law firms led by Mississippi lawyer Richard Scruggs that allege they did not live up to their tax-exempt responsibilities. That has not, however, brought closure on the issue.

"It's increasingly difficult to differentiate for-profit from non-profit healthcare providers," Commissioner of Internal Revenue Mark W. Everson testified before Ways and Means.

During the hearing the IRS received some blame from lawmakers for widening its interpretation of "charitable" in its initial 1956 ruling on charitable tax exemption in 1969, which had been limited to providing relief to the poor.

"It was easy to change the IRS ruling, and that's why we are here today," Thomas said.

Stan Jenkins, chairman of the Champaign County Illinois Board of Review, said more federal oversight is needed for non-profit organizations that receive charitable tax exemption because county officials are intimidated by hospital politics or ill-equipped to adequately deal with such issues.

"It is not an inherent right," spoke Jenkins on hospitals abusing the system.

His group, through research, had found three central problems with two of the county's non-profit organizations: overpricing to the uninsured, billing and collection practices, and availability of charity care.

In 2001, Provena Covenant and Carle Foundation hospitals in Champaign County were stripped of their charitable tax-exempt status by the state Department of Revenue, Jenkins said. A county investigation found Provena Covenant operated non-profit and for-profit sectors under its umbrella. Provena Hospitals and Senior Services transferred $159.7 million to the parent corporation, Provena Health and Provena Health transferred $23.1 million to a for-profit Provena Ventures. Meanwhile, Carle Foundation was found to had over-charged patients and sued patients over medical debt, Jenkins said.

"A hospital has every legal right to pursue collections through the court system like any other business," Jenkins testified. "But they can't have it both ways. They can't act like any other business yet expect to enjoy tax-exempt status unlike any other business, especially if they hold themselves out to be charitable organizations under either federal or state law."

He suggested federal legislation should require hospitals to set up adequate debt repayment programs and set up reviews of the proliferation of for-profit businesses affiliated with non-profits to determine if joint ventures between the two are really necessary.

Professor John Colombo, of the University of Illinois's College of Law in Urbana-Champaign, said, "Hospitals have enjoyed exemption from the federal income tax virtually since the beginning of the income tax system."

Under current federal standard for exemption Rev. Rul 69-545, the Community Benefit Standard, requires non-profit healthcare organizations be governed by members of the community rather than financially interested individuals and that medical staff privileges in the hospital are available to all qualified physicians in the area. It also requires hospitals to provide for full-time emergency room to all patients, regardless of their ability to pay and requires excess funds be applied to the expansion and replacement of facilities and equipment, as well as training and research.

In addition, hospitals must meet other requirements including prohibitions on inurement and substantial private benefit.

"(There) is a lack of accountability for legal exemptions," Colombo said.

In Texas, lawmakers adopting specific charity care standards in the 1993 Nonprofit Hospital Community Benefits Law, which requires non-profit hospitals to provide community benefits equal to 5 percent of net patient revenue, of which 4 percent must be the cost of charity care and unreimbursed cost of government-sponsored healthcare programs while providing services in relation to the community's needs.

John T. Thomas, senior vice president of Baylor Health Care System in Texas, said Baylor conducts formal community needs assessments and non-profit hospitals submit annual reports detailing amount of charity care and community benefits provided.

Baylor files three separate reports for its two major facilities, Baylor University Medical Center and Our Children's House at Baylor, which satisfy the law requirements because of their heavy Medicaid patient load. A third report is a consolidated assessment of its network of non-profit hospitals. Thomas said Baylor Health Care System's total community benefit was $240 million in 2004.

Thomas testified, "Texas charity care law is a fair, objective standard for determining if a hospital is meeting its mission as a nonprofit organization."

A recent survey conducted by the PricewaterhouseCoopers' Health Research Institute, however, showed hospitals providing far more free care than the $25 billion they report annually. The study found the rising number of uninsured Americans are forcing hospitals to absorb higher levels of charity care and bad debt.

They found that it was difficult to report on the value of charity care because of inconsistencies as well as claimed that attacks were made on hospitals aggressively collecting money without consideration for discounts and various charges given to the uninsured.

"There is utmost no data to measure the full impact of charitable care and the demands," said Reatha Clark, a partner in the PricewaterhouseCoopers Healthcare Industry Group. "The survey was critical because not enough data has been collected for legislations, hospitals, insurance companies... for anybody. The real heart of the problem is people's access to care [and] whether it be charity care, bad debt, and billing practices that should be the second question. There are 44 million people who are uninsured. Senator Grassley's isn't asking the right question."

Still, for other non-profit and faith-based organizations, a review of the IRS rulings is necessary so that tax-exemptions are going to the right places, especially at a time when healthcare systems are competing for subsidies.

"Many non-profits have a weak structure," said Sister Carol Keehan, chairperson of the Board of Trustees of the Catholic Health Association of the United States. "We need to strengthen it, rather than tossing the non-profit structure out."

CHA, a faith-based organization that provides community health services, began the "Social Accountability Budget" and "The Community Benefit Inventor for Social Accountability" to plan, monitor, report and evaluate the community benefits activities in which the organization participates. The CHA hopes such standards could help non-profit hospitals better serve their communities.

The general consensus at Thursday's hearing was that more research on the charitable structure, economic impacts in different regions, and joint ventures was still needed for congressional leaders to come to opinion on the issue.

"We're not able to talk honestly about this issue," said Congresswoman Nancy Johnson of Connecticut's fifth district who spoke that there was no consistent definition in place. "We have to be conscious because we don't know what we're talking about."

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