June 4, 2009 | Read Time: 2 minutes
The two top members of the Senate Finance Committee have made public ideas lawmakers may want to consider to revamp the nation’s health-care system, including a change in how the tax-exempt status of nonprofit hospitals would be handled under federal law.
Under the proposal, many nonprofit hospitals would be required to “regularly conduct a community needs analysis, provide a minimum annual level of charitable patient care, not refuse service based on a patient’s inability to pay, and follow certain procedures before instituting collection actions against patients.”
Hospitals that did not meet those requirements could be subject to a new excise tax that “could be imposed, for example, in situations where revocation of tax-exempt status is viewed as inappropriate,” according to the proposal.
The proposal also “includes provisions designed to ensure proper reporting and transparency of operations.”
Sen. Max Baucus, the Montana Democrat who chairs the Finance Committee, and Sen. Charles E. Grassley, the Iowa lawmaker who is its senior Republican member, said the committee soon will begin to draft legislation to change the country’s health-care system and could consider this proposal.
The Internal Revenue Service currently uses a “community benefit” standard to determine a hospital’s nonprofit eligibility.
Under a 40-year-old IRS ruling, nonprofit hospitals must show that they provide benefits to the people and neighborhoods in the region they serve. The ruling listed five ways that hospitals can show they qualify. Among them: They can make a full-time emergency room open to all people regardless of their ability to pay. Or they can use surplus revenue to improve patient care and for medical training.
The ruling said that a hospital need not use all five methods and that its tax-exempt status would be determined by an analysis of all “facts and circumstances” involved.
Before its 1969 ruling, the IRS required that nonprofit hospitals provide charity care: free or discounted care to people who cannot afford to pay. Today, IRS officials say that, while hospitals do not have to provide charity care, doing so is considered a benefit to the community.
Mr. Grassley has said the community-benefit standard is “weak” and that the IRS needs a “bright-line test” to determine whether hospitals are doing enough to earn nonprofit status. Members of Mr. Grassley’s staff in the past have suggested in a background paper that a nonprofit hospital should generally be required to dedicate “a minimum of 5 percent of its annual patient operating expenses or revenues to charity care, whichever is greater.”
To read the committee’s policy options: Go to http://finance.senate.gov/sitepages/Policy%20option%20report.html.
