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US Tax Exempt Hospitals Come Under Grassley's Microscope

by Leroy Baker, Tax-News.com, New York

25 July 2007


A tighter definition of charity care is needed to ensure that taxpayers can have confidence that nonprofit hospitals are providing benefits commensurate with the billions of dollars in tax breaks they receive every year, according to Sen. Chuck Grassley (R- Iowa).

Grassley's comments came after the Internal Revenue Service released an interim report summarizing responses from almost 500 tax-exempt hospitals to a May 2006 questionnaire about how they provide and report benefits to the community.

Providing community benefit is required for hospitals seeking and retaining tax-exempt status as charities.

According to the report, nearly all hospitals reported that they provided various types of community benefit that were the subject of the questionnaire. Although 97% of responding hospitals said they have a written uncompensated care policy, no uniform definition of what constitutes “uncompensated care” emerged from the responses. Further, there appear to be significant differences in the way other components of community benefit are reported.

“The report makes clear that we need to change business as usual at many of our nation’s nonprofit hospitals," observed Grassley, ranking member of the Senate Finance Committee.

He continued:

"These are self-reported numbers and often include inflated costs or bad debt. It’s troubling that even the overly broad figures paint a bad picture of a significant number of nonprofit hospitals doing very little charity care. The report highlights that 22% of the nonprofit hospitals spend less than 1% of total revenue on uncompensated care and that 21.6% of hospitals reported spending less than 2% on community benefit as a percentage of total revenue. The report also shows that it’s possible for hospitals to provide generous support to those in need, with 20% of the hospitals providing over 10% of total revenues for uncompensated care. The question we have to answer is how to get the poor performers to do as good of a job helping provide medical care to vulnerable populations as the best performers. The newly released staff discussion draft of ideas begins to seek answers to that important question."

“The responses from the nonprofit hospitals make clear that the hospitals are all over the map in defining charity care. We need common terms and measurements so taxpayers can have confidence that nonprofit hospitals are providing benefits commensurate with the billions of dollars in tax breaks they receive every year. I’m especially troubled by the reporting by some hospitals that they do little to nothing to inform or promote charity care policies to their patients. These policies shouldn’t be hidden under a bushel. They should be in the light for all to know and see."

Grassley is reviewing tax-exempt hospitals’ practices as part of a longstanding interest in making sure tax-exempt groups justify their extensive tax breaks with public service, and to protect nonprofits from those who might exploit them for personal gain. His staff recently released a discussion draft on possible reforms to non-profit hospitals.

Commenting on the report, Lois G. Lerner, director of the IRS’s Exempt Organizations division stated:

“This is an important first step in our ongoing review of community benefit and tax-exempt hospitals. As the report states, this project gives the IRS a unique and valuable insight into the manner in which hospitals report on and attempt to meet the community benefit standard."

“The lack of consistency or uniformity in classifying and reporting uncompensated care and various types of community benefit often makes it difficult to assess whether a hospital is in compliance with current law,” Lerner added. “That’s one reason more analysis is needed.”


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