House bill would increase tax-exempt hospital reporting requirements

A bill that advanced out of a House committee Wednesday would add significant reporting requirements for tax-exempt hospitals.

As passed by the Ways and Means Committee, the Tax-Exempt Hospital Transparency Act includes increased reporting obligations in areas such as community benefit, charity care, the 340B Drug Pricing Program and service-line spending. Requirements would be more stringent for bigger hospitals.

“Tax-exempt status is a privilege, not a right,” said Rep. Jason Smith (R-Mo.), chair of the Ways and Means Committee. “The large hospital empires in this country that operate as nonprofits and enjoy lucrative tax benefits due to that status owe the American taxpayer more transparency and accountability.”

The bill passed on a party-line vote, 25-15, indicating its path to becoming law could face obstacles. Rep. Richard Neal (D-Mass.) ranking member of the committee, said he opposes the bill because it would create strain for hospitals without directly addressing costs.

“It piles on duplicative reporting requirements with no clear benefit,” Neal said.

Requirements for all not-for-profit hospitals

As described in a summary of the bill, Form 990 Schedule H reporting to the IRS would include disclosures on how hospitals are addressing the items identified in their most recent community health needs assessment under Section 501(r), along with which needs they are not addressing and the reasons those needs have not been addressed.

Charity care reporting would include the dollar value of financial assistance provided, along with data on financial assistance applications received and approved or denied.

These provisions and others would trigger “substantial administrative and financial burdens” affecting nearly two-thirds of hospitals, the American Hospital Association stated in a comment letter on the bill. Among the specific concerns are that “the focus on financial assistance, to the exclusion of other critical components of community benefit — like Medicaid shortfall — disregards tax-exempt hospitals’ already extensive reporting and the many other ways hospitals serve their communities.”

If some version of the bill becomes law, there would be a lag of two to three years for key provisions to take effect.

Requirements for bigger hospitals

Tax-exempt hospitals with more than 100 staffed inpatient beds would face additional requirements in reporting on community health needs.

Additional information to be reported by those hospitals would include spending and actions taken on three prioritized community health needs, along with the measured impact on community health. The reporting would have to be separated into quality-improvement spending and nonclinical spending (e.g., IT, billing, coding) as Congress seeks to pinpoint the share of spending that purportedly has direct community health benefits as opposed to administrative applications.

Reporting for these hospitals would have to take place at both the system and facility levels.

“Delineating system-wide overhead and ‘nonclinical programming’ from spending at individual facilities within a health system presents a cost-accounting hurdle,” the AHA wrote.

Requirements for high-revenue hospitals

Hospitals for which net patient revenue is more than $100 million per year would face extensive service-line-level reporting requirements, including gross revenues, costs and the hospital’s cost allocation methodology. This reporting would use a standardized taxonomy to be published by HHS within two years of the legislation’s enactment.

Hospitals in this category also would need to provide substantial information on 340B utilization, including:

• Number of 340B patients, categorized by insurance type
• Aggregate net payments
• Related costs

“Utilizing tax documents as a vehicle for 340B reporting is inappropriate because the 340B program is not a federal tax issue and has no bearing on 501(c)(3) or 501(r) status,” the AHA wrote.

The Association of American Medical Colleges (AAMC) referred to “misguided 340B reporting requirements that misrepresent and overstate the program’s financial value to participating hospitals without yielding meaningful data about how hospitals use the program to benefit patients and communities.”

Hospitals in the high-revenue category also would have to report allowable and unallowable advertising costs. The distinction depends on whether the spending is eligible to be included in Medicare cost reports.

“The legislation would impose burdensome reporting requirements based on an institution’s size and revenue while disregarding the unique, complex financial structures and mission-related costs inherent to academic medicine,” AAMC said in written comments. 

How the information would be applied

The information conveyed by hospitals would be analyzed in a mandatory report issued by the Government Accountability Office (GAO). Included in the report would be an estimate of how much the 25 largest not-for-profit hospitals would pay in tax if they were not exempt.

The GAO would also assess the compliance burden on hospitals from the legislation.