Recently, a bipartisan group of United States Senators sent a letter to the Internal Revenue Service (IRS) and the Treasury Inspector General for Tax Administration, asking for an investigation into whether hospitals are in compliance with nonprofit requirements. In the letter, Senators Bill Cassidy, MD, Chuck Grassley, Raphael Warnock, and Elizabeth Warren, note that more than half of the community hospitals in the United States operate as private nonprofit organizations and that tax exemptions by nonprofit hospitals may be worth as much as $28 billion (or more), according to a 2020 study. To be considered a nonprofit hospital that qualifies for the tax exemptions, the hospital must provide “benefits to a class of persons that is broad enough to benefit the community.”
The Senators refer to “reports that despite their tax-exempt status, certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit’ and engaging in practices that are not in the best interest of the patient,” which may have “allowed some nonprofit hospitals to avoid providing essential care in the community for those who need it most.”
One of those reports is a report published by the Community Service Society that found 56 nonprofit hospitals in New York filed liens on almost 5,000 patient homes in 2017 and 2018, primarily in poor and rural areas. According to the report, nearly 80% of the liens were in counties with median incomes below 300% of the poverty line. Another example is that of Mosaic Life Care of St. Joseph, where uninsured patients were charged full price for health care services they should have received for free or for a discounted rate. Another example included a New York Times report that Allina Health System “has a policy of denying care from patients who have unpaid medical bills,” which often leaves patients with few options, particularly in the rural areas that Allina is the dominant health system.
The Senators note that the community benefit standard is meant to represent “what nonprofit hospitals contribute to their communities in lieu of paying federal taxes” but that the current standard “is arguably insufficient in its current form to guarantee protection and services to the communities hosting these hospitals.” The Senators also refer to a study that found that 77% of hospitals (reviewed in the subject study) spent less on charity care and community investment than the estimated value of their tax breaks, with an estimated total deficit of charity care for nonprofit hospitals of $14.2 billion in 2020. That study also found that in Massachusetts, Minnesota, Rhode Island, and Washington, DC, the deficits exceeded the amount of medical debt on credit repots in each state.
Additionally, while the IRS is supposed to review hospitals’ community benefit activities at least once every three years, there is a “lack of clarity” around what is considered a community benefit, which makes the ITS oversight “challenging.” The Government Accountability Office (GAO) issued a report in 2020 that included specific recommendations for the IRS to increase transparency and better ensure nonprofit hospitals are meeting their required community obligations, some of which have been implemented by the IRS.
However, the Senators believe that more is needed to help ensure the community benefit information is “standardized, consistent and easily identifiable,” with a top recommendation being to update Form 990 Schedule H (the form the hospitals use to report their community benefit). One potential revision to the Schedule may include changing the way hospitals report the scope of community benefit to a more uniform way, not the narrative format currently in place.
The Senators posed several questions that they are seeking answers to, no later than 60 days after the date of the letter (eight questions to the IRS, nine to the Treasury Inspector General for Tax Administration). Only time will tell if the responses are sufficient for the Senators, or if an additional investigation will follow.