Tax Exempt Organizations

Hospitals push back on Senate report that calls out lack of spending on charity care

Regardless of the merits of the findings, the report is the latest indication that Congress is keen to address hospitals’ tax exemption in some manner.

October 12, 2023 1:00 pm

Not-for-profit (NFP) hospitals continue to be the subject of congressional scrutiny, with the chair of a key Senate committee issuing a report that questions whether they provide levels of charity care that are commensurate with their tax exemption.

The report was released Oct. 10 by Senator Bernie Sanders (I-Vt.), chair of the Senate Health, Education, Labor and Pension (HELP) Committee, which plays a leading role in crafting congressional healthcare policy.

Among the data in the report is a listing of 16 large health systems and the amount of charity care they provided as a percentage of revenue in 2021. Using the IRS 990 forms filed by the health systems, committee analysts concluded that 12 of the 16 organizations dedicated less than 2% of total revenue to charity care.

Possible policy responses, according to the report, include tying a hospital’s tax break directly to the value of the community benefit it provides. Other actions could entail strengthening standards for financial assistance programs and requiring hospitals to respond to the findings of their community health needs assessments (CHNAs) in a more targeted way.

Considerations for reporting requirements

The report says the IRS also could take administrative action that would be easier to implement compared with getting legislation passed in Congress. Such steps could involve making Schedule H of Form 990 more precise in the information it requires about community benefits, including by requiring such reporting at the individual-hospital level rather than by health systems.

“This requirement would not be particularly burdensome, as nonprofit hospitals already collect and report facility-level data in order to conduct CHNAs and develop an implementation plan,” the report states.

However, the IRS has said such a change would not significantly improve assessments of whether hospitals are providing a level of community benefit that warrants their tax exemption. That’s because the tax exemption is issued at the system level.

Although the newly issued report was produced specifically for Sanders and does not necessarily represent the views of the HELP Committee, the focus on community benefit reporting seems to have bipartisan interest.

In August, Sen. Bill Cassidy, MD (R-La.), ranking member of the committee, was one of four senators who sent a letter to the IRS calling out issues with the agency’s oversight of community benefit reporting. The senators suggested Schedule H should be modified to ensure reported information on community benefits is as clear and identifiable possible. In the current format, they said, some of the reporting on the form tends to be qualitative or narrative in nature rather than specific about funding.

The recommendation echoed findings in a 2020 report by the Government Accountability Office (GAO) that received a lot of attention among policymakers. In the report, GAO said Congress should be more prescriptive about the community benefit requirement and that the IRS should step up its oversight of the hospital tax exemption.

Putting the new findings in context

The Sanders report’s primary focus on charity care does not capture the big picture, healthcare stakeholders said.

HFMA’s Rick Gundling, FHFMA, CMA, senior vice president for content and professional practice guidance, said NFP hospitals provide uncompensated services to their communities in ways that aren’t highlighted in the report.

“There is so much more community benefit provided by tax-exempt hospitals than solely charity care,” Gundling said. “Though charity care is of paramount importance, there are many other attributes of service, including medical research, the funding of governmental underpayments and addressing unmet human needs.”

Similarly, the American Hospital Association responded to the report in a blog post by Rick Pollack, president and CEO, who wrote that the analysis was “just plain wrong.”

The reported levels of charity care do not account for “the wide range of community benefits that hospitals provide,” Pollack wrote. “This tunnel-visioned ‘research’ neglects to consider that under the law community benefit is defined by much more than charity care and includes patient financial aid, health education programs and housing assistance, just to name a few.”

A report prepared by EY on behalf of AHA found that taxpayers receive $9 in community benefit for every $1 of tax exemption.

“This is a remarkable return by any standard,” Pollack wrote.

In an April congressional hearing, Rep. David Schweikert (R-Ariz.), chair of the House Ways and Means Committee’s Oversight Subcommittee, noted “a wide variance” in industry reports on the level of community benefit provided by tax-exempt hospitals.

The discrepancy “seems to come from the lack of guidelines and also what we’ve done here in Congress, and the IRS now in its definition of community benefits,” he said.


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