Senators pressure IRS to reign in hospitals

A bipartisan group of U.S. senators is asking the Internal Revenue Service to clarify regulations that govern nearly 3,000 hospitals in the country operating as privately owned, not-for-profit organizations.

The total number of hospitals in the U.S. is just over 6,100, per the American Hospital Association.  Not-for-profit hospitals are exempt from paying most federal and state taxes, can issue tax-exempt bonds and can receive tax-deductible contributions. In exchange for existing as tax-exempt entities the hospitals are responsible for providing community benefits to their patients.  

The lawmakers have sent two letters to IRS Commissioners Daniel Werfel, Edward T. Killen, and Treasury Inspector General, J. Russell George. The letters express concerns that "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."  

The signing Senators include Elizabeth Warren D-Mass., Raphael Warnock, D – Ga., Bill Cassidy, R-La., and Chuck Grassley R- Iowa. The letters cite specific examples of not-for-profit hospitals attaching liens to property owned by patients with unpaid medical bills, charging patients for services that should have been free, and garnishing patients' wages. 

In addition to increasing Senate oversight, the accusations of hospital malfeasance has attracted wide media coverage and warnings from healthcare financial policy leaders.

"Federal and state policy should be more prescriptive to channel community benefit programs toward evidence-based interventions that fill real community needs," said Emily Gee, SVP, inclusive growth, Center for American Progress. "One way to do that would be syncing the timing of hospitals' required community health needs assessments to better align with local public health departments' assessments." 

The Senators are asking the Tax Exempt and Government Entities Division of the IRS to tighten up the regulations on Form 990, Schedule H, which is the paperwork not- for-profit hospitals file that "reports information on community benefits, community building activities, collection practices, management structure, and facilities." 

The standards for the community benefits were enacted in 1969 and relies on "10 holistically analyzed metrics," that the Senators believe are "arguably insufficient in its current form to guarantee protection and services to the communities hosting these hospitals."  

The letter provides a detailed list of questions to the agency designed to make sure the federal government is getting a fair return for providing the hospitals with tax exempt status. In June, Health Affairs published a report quoting statistics showing "that 86% of nonprofit hospitals did not provide more charity care than the value of their tax exemption."  

Last October, Gee authored a report for CAP calling for non-profit hospitals to participate in public health programs and empowering the Federal Trade Commission to regulate nonprofit hospital conduct. 

The not-for-profit healthcare industry has been on a rollercoaster ride since the pandemic.  Earlier this week, Hazel Hawkins Memorial Hospital in San Benito County, Calif., revealed they are in the process of striking a deal with American Advanced Management. AAM is a small Modesto-based chain of hospitals that is hoping to keep Hazel Hawkins open as it navigates bankruptcy. The San Benito Health District is currently sitting on $38 million in outstanding bond debt. 

In Iowa City legal remedies are being sought for a default related to $44.6 million of health facilities revenue bonds sold through the city in 2011, followed by $41.76 million of unrated bonds sold in 2018. Moody's attributed the hospital's problems to budgetary aftershocks from the pandemic. Last year the industry was also reeling from credit rating hits, supply chain issues, labor shortages, and consolidations.