Big Changes Urged in Rules for Charity Hospitals

Nonprofit hospitals would be required to allocate at least 5 percent of their annual budgets to providing charity care or lose their tax-exempt status, under a proposal released last week by Republican staff members of the Senate Finance Committee.

The proposal is the latest in a series of efforts by lawmakers and consumer advocates to make sure nonprofit hospitals do more to serve the uninsured and to justify the estimated $40-billion the federal government loses each year by offering hospitals tax-exempt status.

One of the most prominent critics on the operations of nonprofit hospitals, Sen. Charles Grassley, directed his staff last September to put together proposals that would serve as a possible starting point for legislation aimed at tightening the rules for nonprofit hospitals.

“[This] is the beginning of a discussion, not the end,” said Iowa’s Mr. Grassley, who is the senior Republican on the Finance Committee. “While many nonprofit hospitals do good work, too many nonprofit hospitals get big tax breaks but provide small benefits to those in need.”

Among the other proposals:

• Each hospital would be required to develop and promote a written policy for providing charity care.
• Hospitals could not charge needy patients who lack insurance more than the hospital spent on their treatment and care.
• Each hospital would be required to conduct an assessment of local needs every three years to determine whether its services are reaching vulnerable populations.
• Less than 25 percent of the members of a hospital’s board of directors could be employed by the hospital or benefit financially either directly or indirectly from its activities.
• Government would provide greater oversight of what happens to an institution’s assets when nonprofit hospitals transfer those assets to for-profit entities.

But the most substantial — and controversial — requirement would be the 5-percent threshold for charity care.

Today, nonprofit hospitals do not have to prove they have dedicated a specific percentage of their budgets to charity care. Many hospitals say they serve their communities in other ways that go beyond the amount of charity care they provide — and that they deserve their tax-exempt status because they provide other types of benefits, such as emergency care and health education.

The proposal would also prohibit hospitals from including “bad debt” when they calculate how much charity care they provide. Some nonprofit hospitals currently bill patients for care and, when payment is not received, reclassify that debt as charity care.