There has been a growing concern about the tax breaks provided to not-for-profit hospitals (a state law designation) who receive tax-exempt status for federal income tax purposes yet appear to operate business as usual very similar to, if not identical to, hospitals that do not have tax exempt status. Areas of concern include billing practices, executive compensation, and provision of unreimbursed care to those who are not insured or cannot pay. See, e.g., Non-Profit Hospitals' Tax Exempt Status Under Fire, Journal of the Business Law Society, University of Illinois, October 2006; National City, The Tax Status of Not-for-Profit Hospitals Under Siege (White Paper); Appleby, Hospital Lawsuits Fall Flat, but Debate Rages, USA Today (April 24, 2005); Hospitals: How Much is Too Much?, Health Care Blog (Feb. 7, 2007) (discussing high executive compensation at hospitals); Lagnado, Hospital Found 'Not Charitable' Loses Exempt Status, Wall St. Journal (Feb. 2004); Unland, Not-for-profit Community Hospital's exempt status at issue in charity care controversy, Journal of Health Care Finance (Aspen 2004) (discussing the revocation of the state not-for-profit status for Provena-Covenant Hospital in Urbana, Illinois and other states' concerns about failed charity care); Gloria Bazzoli, The Corporatization of American Hospitals, 29 Journal of Health Politics, Policy and Law, 885 (2004), John Colombo, a professor at the University of Illinois School of Law, testified before the House Ways and Means Committee on the questions about the basis for tax-exemption for such hospitals whose businesses are scarcely different from that of for-profit hospitals, indicating that "the [new] community benefit standard for exemption has proven to be an unmitigated disaster both as tax law and as health care policy." Read full testimony here. Other authors see real benefits for communities from not-for-profit hospitals, using local accountability standards. Schlesinger & Gray, How NonProfits Matter and What to Do About it, 25 Health Affairs 287 (2006). See also Hyman & Sage, Subsidizing Health Providers Through the Tax Code: Status or Conduct? Health Affairs website.
Sen. Grassley, ranking member of the Senate Finance Committee, wrote today to ask the Government Accountability office to further study uncompensated care and other community benefits provided by nonprofit hospitals. His letter to David Walker, the comptroller general, notes the IRS's change from requiring hospitals to provide charity care to the vague "community benefit" standard in 1969 and raises questions about inconsistent reporting of charity care because of varying standards set by hospitals on eligibility and practices for collecting on bad debts. Letter available in BNA at http://op.bna.com/dt.nsf/r?Open=gker-6zys4b. The letter also notes concern about hospital executive compensation, "lavish lifestyle[s]", and conflicts of interest because of "involvement in for-profit business ventures with the nonprofit hospitals."
The GAO study should provide useful information. It should be done quickly and Congress should deal with this issue in a timely manner once it has the detailed study. Tax exemption that does not result in significant public service is not merited.
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