October 30, 2008 | Read Time: 2 minutes
While nonprofit hospitals largely agree on what should and shouldn’t count as a “community benefit” when justifying their tax-exempt status, there are large disparities in the way they measure and report that information, according to a new report from the Government Accountability Office, the Congressional investigative unit.
Nonprofit hospitals are generally willing to include charity care for the uninsured and the unreimbursed costs of Medicaid for low-income patients to meet their obligations as tax-exempt organizations, the report found.
But the study of more than 400 hospitals in California, Indiana, Massachusetts, and Texas also noted significant differences in how the institutions said they value such expenses.
In 2006, nearly 60 percent of the nation’s hospitals had nonprofit status, which requires them to provide a “community benefit.”
This benefit often includes having an emergency room that is open to everyone regardless of ability to pay, and inpatient care for those able to pay or who receive Medicare or Medicaid, among other things.
Fifteen states also have community-benefit standards for nonprofit hospitals.
But the hospitals have come under increasing scrutiny from both the Internal Revenue Service and Congress, especially from Sen. Charles E. Grassley, the senior Republican on the Senate Finance Committee, who has questioned whether the hospitals are too concerned with earning profits.
In 2006, the Internal Revenue Service sent a questionnaire to more than 500 tax-exempt hospitals, and found that 79 percent spent 10 percent or less of their revenue to provide care for those who could not or did not pay.
In response to the report, the IRS said that although the hospitals used a wide variety of methods to report their activities, the agency could still use its power to enforce tougher restrictions on what qualifies as a community benefit.
In addition, the agency expects the reporting requirements on the new Form 990 will make hospital finances clearer to federal regulators and the public.
In September, Senator Grassley announced that he had sent an 11-page letter to the M.D. Anderson Cancer Center, in Houston, and the University of Chicago Medical Center with detailed questions about their business practices.
The senator said he was responding to news accounts that the hospitals had not treated poor patients equitably or had refused to care for them at all.
Senator Grassley said the Government Accountablity Office study showed that hospitals still had too much leeway in defining how they operate and report their information.
“As long as there’s such uncertainty and inconsistency in the definition of community benefit, it’ll be impossible to gauge whether the public is getting a fair return for the billions of tax dollars that tax-exempt hospitals don’t pay,” he said.
“While the new IRS Form 990 will help,” he added, “Congress may need to fill in the blanks since hospitals still get to choose how they calculate their costs.”
