September 28, 2006 | Read Time: 3 minutes
TAX WATCH
A key Senate committee is considering whether the federal government should require nonprofit hospitals to justify their tax-exempt status by providing a minimum level of free health care and other services in the regions where they are located.
“Nonprofit hospitals receive billions in tax breaks at the federal, state, and local level,” Sen. Charles E. Grassley, Republican of Iowa and chairman of the Senate Finance Committee, said at a hearing held by the committee this month. “The public has a right to expect significant, measurable benefits in return.”
Mr. Grassley said the committee intends to make sure that hospitals provide those benefits.
He said the Internal Revenue Service is preparing a form that hospitals will be required to submit to the tax agency, along with their federal informational tax returns, to show how much care for the poor and uninsured they give each year, as well as to explain other benefits they provide.
The senator said that legislation to force nonprofit hospitals to provide more charitable benefits is also a possibility.
Studies suggest that most nonprofit hospitals spend less on caring for the poor than the amount they save through their tax exemptions, Nancy M. Kane, a professor at the Harvard School of Public Health, said at the hearing.
Over all, nonprofit hospitals annually receive some $40-billion worth of tax breaks and other benefits, she said. Estimates of the value of charity care vary, she said, in part because hospitals report it using different methods.
Senators at the hearing pointed to guidelines by the Catholic Health Association as a possible model for all nonprofit hospitals. Those guidelines require hospitals to publicize financial aid they offer to uninsured patients, follow uniform methods for reporting the benefits they provide to the public, and make hospital leaders accountable to their boards for providing adequate benefits.
Hospitals should be strict about what they count as benefits to the public, said Sister Carol Keehan, president of the Catholic association, who testified at the hearing.
For example, they should not include unpaid bills a hospital has written off as bad debt, or the amount they may lose when the government’s reimbursements for patients on Medicare, the federal health program for the elderly, are insufficient to cover the hospital’s costs. Such expenses should be treated as a cost of doing business, she said.
Kevin E. Lofton, chairman-elect of the American Hospital Association, disagreed. Many nonprofit hospitals believe bad debts and unreimbursed spending on Medicare patients should be considered public benefits, he told senators.
Mr. Grassley said Finance Committee staff members will put together a report identifying possible new rules for nonprofit hospitals, upon which the hospitals, government officials, and others may submit comments.
Just a day before the hearing was held, the committee’s staff members released a report that said hospitals overcharge their poorest patients.
The report also found that hospitals have widely different rules for reporting charity care, and that several for-profit hospitals are providing at least as much charity care as some nonprofit hospitals.
In addition, the report said that nonprofit hospitals give their executives generous compensation packages and perks such as country-club memberships that are comparable to those offered to the leaders of for-profit hospitals.
