Bruce A. Nelson
Vice President, SearchAmerica
You might say hospitals have been “forced” to automate charity processing by recent federal government action. IRS questionnaires were recently sent to approximately 550 tax-exempt hospitals and healthcare organizations across the nation. This is because government is now looking seriously at the level of community benefits provided in exchange for tax-exempt bond financing and other benefits. The "compliance check" questionnaire includes sections on uncompensated care, billing practices, community programs, the board of directors and executive compensation. The stated goal is to increase voluntary compliance with the law. It's part of an investigation into tax-exempt entities that the IRS has conducted for the past year. Industry experts also see this action by federal regulators as a response to changes in the healthcare industry and allegations of unfair billing and aggressive collection practices by hospitals.
Lois G. Lerner, director of the exempt organizations division of the IRS, is quoted in The New York Times as saying the questionnaires could be used in deciding whether standards for nonprofit hospitals should be changed or clarified. The current standards, with little changed since 1969, rely on a vaguely defined concept of “community benefit.” While reviewing the questionnaires, Lerner said, the agency may decide to conduct formal audits of some hospitals, with a full-scale examination of their records. The IRS lists about 7,000 entities as nonprofit hospitals and healthcare organizations; in the last 10 years, it has audited 375 of them. “Our audit rates are too low,” said Mark W. Everson, the commissioner of internal revenue, also quotes in the Times. One tax lawyer, who previously worked at the IRS, was quoted as saying the survey showed that the agency saw “a need for greater monitoring of what hospitals do in return for their tax exemptions.”
The survey “piles on” at a time when nonprofit hospitals are receiving closer scrutiny from Congress and state officials. Lawmakers of both political parties say that in today’s fiercely competitive healthcare marketplace, many nonprofit hospitals operate like investor owned, profit-making institutions. Uninsured patients have filed class-action lawsuits, accusing nonprofit hospitals of overcharging them. Several states have found that nonprofit hospitals abused their state tax exemptions.
The complexity of the recent questionnaire was overwhelming to many hospitals.
The IRS asked many 80 detailed questions including:
- Did your hospital deny medical services to any individuals with private insurance? Medicare? Medicaid? No insurance?
- How many individuals received uncompensated care? How much did the hospital spend on such care? If an insurer pays less than the hospital charges, is the difference counted as uncompensated care?
- Did the hospital charge higher prices to uninsured patients than to those with Medicare, Medicaid or private insurance?
- Did your hospital’s emergency room deny services to any individuals that requested such services?
- Did your hospital limit public access to the findings or results from any of its medical research?
- How were the salaries and benefits of top executives set? Does the hospital have business relationships with any of its officers, directors or trustees?
No matter what new IRS standards or other regulations may be in the offing, the IRS questionnaire is a wake-up call that hospitals need a method to prospectively ensure that their charity care practices are uniform and consistent with their published charity care policies. And that requires attention to staff training, charity care billing processes, and technology to enable those processes.
