On February 15, 2018, Senate Finance Committee Chairman Orrin Hatch and senior committee member Senator Charles Grassley sent a letter to David Kautter, acting commissioner of the Internal Revenue Service (IRS), requesting information on how the IRS oversees nonprofit hospitals that qualify as charitable organizations. Specifically, the senators requested information as to (1) how the IRS evaluates nonprofit hospitals’ tax Form 990 Schedule H, (2) what guidance (if any) the IRS is providing to nonprofit hospitals in determining community needs, and (3) the number of nonprofit hospitals the IRS has reviewed for compliance with statutory financial assistance policy requirements and the results of those examinations. The senators also requested that the IRS update its report to Congress as to private tax-exempt, taxable, and government-owned hospitals. The senators cited recent media reports as “br[inging] forward questions about whether some nonprofit hospitals were meeting the criteria for tax-exempt status, serving their communities appropriately and serving individuals in need regardless of ability to pay.” The senators requested a response by March 26, 2018.
Nonprofit hospitals that qualify for charitable status have access to a number of Federal, State and sometimes even local benefits. Most notably, these nonprofit hospitals are exempt from Federal income tax, as well as certain other state/local taxes. Nonprofit hospitals may also collect donations, which are in turn tax-deductible by the donor. Lastly, nonprofit hospitals have access to tax-exempt bond financing for capital projects. Although one version of the House of Representative’s GOP tax bill last year included elimination of private activity bonds, the finalized version did not.
Nonetheless, nonprofit hospitals have been subjected to additional scrutiny in the last few years. The Affordable Care Act (ACA) added additional requirements for hospitals to maintain their tax-exempt status. Under the ACA’s new 26 U.S.C. § 501(r), hospitals must conduct a “community health needs assessment” (CHNA) and adopt an implementation strategy at least every three years, establish written financial assistance policies (FAPs) and emergency care policies, limit certain hospital charges to individuals eligible under the financial assistance policy, and, prior to engaging in “extraordinary collection actions” against a patient, use “reasonable” efforts to determine whether that patient qualifies under the FAP.
Although nonprofit hospitals were required to annually submit IRS Form 990 Schedule H starting in 2009, that form now collects additional information related to Section 501(r). Specifically, the form collects data related to hospitals’ unreimbursed charity care under their FAPs (i.e., related to the provision of free or discounted services for qualified patients), bad debt, Medicare shortfall, and collections practices. Hospitals are also required to provide information on their most recent CHNA.
Senators Hatch and Grassley are requesting information on what the IRS is doing with that reported information, and whether nonprofit hospitals are being held accountable, not just on their reporting obligations, but on their underlying statutory obligations around FAPs and CHNAs. With this increased scrutiny, say the senators, “it is important to examine what information the new transparency requirements have shown and the degree to which nonprofit hospitals are benefiting their communities.”
The senators’ press release and the text of their letter to the IRS are available here.
