{"id":1469,"date":"2023-07-11T09:24:38","date_gmt":"2023-07-11T09:24:38","guid":{"rendered":"https:\/\/healthynewsusa.com\/?p=1469"},"modified":"2023-07-11T09:24:41","modified_gmt":"2023-07-11T09:24:41","slug":"as-nonprofit-hospitals-reap-big-tax-breaks-states-scrutinize-their-required-charity-spending","status":"publish","type":"post","link":"https:\/\/healthynewsusa.com\/?p=1469","title":{"rendered":"As Nonprofit Hospitals Reap Big Tax Breaks, States Scrutinize Their Required Charity Spending"},"content":{"rendered":"
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POTTSTOWN, Pa. \u2014 The public school system here had to scramble in 2018 when the local hospital, newly purchased, was converted to a tax-exempt nonprofit entity.<\/p>\n

The takeover by Tower Health meant the 219-bed Pottstown Hospital no longer had to pay federal and state taxes. It also no longer had to pay local property taxes, taking away more than $900,000 a year from the already underfunded Pottstown School District, school officials said.<\/p>\n

The district, about an hour\u2019s drive from Philadelphia, had no choice but to trim expenses. It cut teacher aide positions and eliminated middle school foreign language classes.<\/p>\n

\u201cWe have less curriculum, less coaches, less transportation,\u201d said Superintendent Stephen Rodriguez.<\/p>\n

The school system appealed Pottstown Hospital\u2019s new nonprofit status, and earlier this year a state court struck down<\/a> the facility\u2019s property tax break. It cited the \u201ceye-popping\u201d compensation for multiple Tower Health executives as contrary to how Pennsylvania law defines a charity.<\/p>\n

The court decision, which Tower Health is appealing, stunned the nonprofit hospital industry, which includes roughly 3,000 nongovernment tax-exempt hospitals<\/a> nationwide.<\/p>\n

\u201cThe ruling sent a warning shot to all nonprofit hospitals, highlighting that their state and local tax exemptions, which are often greater than their federal income tax exemptions, can be challenged by state and local courts,\u201d said Ge Bai, a health policy expert at Johns Hopkins University.<\/p>\n

The Pottstown case reflects the growing scrutiny of how much the nation\u2019s nonprofit hospitals spend \u2014 and on what \u2014 to justify billions in state and federal tax breaks. In exchange for these savings, hospitals are supposed to provide community benefits, like care for those who can\u2019t afford it and free health screenings.<\/p>\n

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More than a dozen states have considered or passed legislation to better define charity care, to increase transparency about the benefits hospitals provide, or, in some cases, to set minimum financial thresholds for charitable help to their communities.<\/p>\n

The growing interest in how tax-exempt hospitals operate \u2014 from lawmakers, the public, and the media \u2014 has coincided with a stubborn increase in consumers\u2019 medical debt. KFF Health News reported last year<\/a> that more than 100 million Americans are saddled with medical bills they can\u2019t pay, and has documented aggressive bill-collection practices<\/a> by hospitals, many of them nonprofits.<\/p>\n

In 2019, Oregon passed legislation to set floors on community benefit spending largely based on each hospital\u2019s past expenditures as well as its operating profit margin. Illinois and Utah created spending requirements for hospitals based on the property taxes they would have been assessed as for-profit organizations.<\/p>\n

And a congressional committee in April heard testimony on the issue<\/a>.<\/p>\n

\u201cStates have a general interest in understanding how much is being spent on community benefit and, increasingly, understanding what those expenditures are targeted at,\u201d said Maureen Hensley-Quinn, a senior director at the National Academy for State Health Policy. \u201cIt\u2019s not a blue or red state issue. It really is across the board that we\u2019ve been seeing inquiries on this.\u201d<\/p>\n

Besides providing federal, state, and local tax breaks, nonprofit status also lets hospitals benefit from tax-exempt bond financing and receive charitable contributions that are tax-deductible for the donors. Policy analysts at KFF estimated<\/a> the total value of nonprofit hospitals\u2019 exemptions in 2020 at about $28 billion, much higher than the $16 billion in free or discounted services they provided through the charity care portion of their community benefits.<\/p>\n

Federal law defines the sort of spending that can qualify as a community benefit but does not stipulate how much hospitals need to spend. The range of community benefit activities, reported by hospitals on IRS forms<\/a>, varies considerably by organization. The spending typically includes charity care \u2014 broadly defined as free or discounted care to eligible patients. But it can also include underpayments from public health plans, as well as the costs of training medical professionals and doing research.<\/p>\n

Hospitals also claim as community benefits the difference between what it costs to provide a service and what Medicaid pays them, known as the Medicaid shortfall. But some states and policy experts argue that shouldn\u2019t count because higher payments from commercial insurance companies and uninsured patients paying cash cover those costs.<\/p>\n

Bai, of Johns Hopkins, collaborated on a 2021 study<\/a> that found for every $100 in total spending, nonprofit hospitals provided $2.30 in charity care, while for-profit hospitals provided $3.80.<\/p>\n

Last month, another study in Health Affairs reported substantial growth<\/a> in nonprofit hospitals\u2019 operating profits and cash reserves from 2012 to 2019 \u201cbut no corresponding increase in charity care.\u201d<\/p>\n

And an April report by the Lown Institute, a health care think tank, said more than 1,350 nonprofit hospitals have \u201cfair share\u201d deficits<\/a>, meaning the value of their community investments fails to equal the value of their tax breaks.<\/p>\n

\u201cWith so many Americans struggling with medical debt and access to care, the need for hospitals to give back as much as they take grows stronger every day,\u201d said Vikas Saini, president of the institute.<\/p>\n

The Lown Institute does not count compensating for the Medicaid shortfall, spending on research, or training medical professionals as part of hospitals\u2019 \u201cfair share.\u201d<\/p>\n

Hospitals have long argued they need to charge private insurance plans higher rates to make up for the Medicaid shortfall. But a recent state report<\/a> from Colorado found that, even after accounting for low Medicaid and Medicare rates, hospitals get enough from private health insurance plans to provide more charity care and community benefits than they do currently and still turn a profit.<\/p>\n

The American Hospital Association strongly disagrees with the Lown and Johns Hopkins analyses.<\/p>\n

Pottstown School District has been chronically underfunded, says its superintendent, Stephen Rodriguez. The school system appealed the local hospital\u2019s change to nonprofit status, which qualified the facility for tax breaks. (Andy Miller\/KFF Health News)<\/span><\/figcaption><\/figure>\n

For many hospitals \u2014 after dozens of closures over the past 20 years \u2014 \u201cjust keeping your doors open is a clear community benefit,\u201d said Melinda Reid Hatton, general counsel for the AHA. \u201cYou can\u2019t focus entirely on charity care\u201d as a measure of community benefit. Hospitals deliver nine times the community benefit for every dollar of federal tax avoided, Hatton said.<\/p>\n

The 2010 Affordable Care Act, she noted, imposed additional community benefit mandates. Tax-exempt hospitals must conduct a community health needs assessment at least once every three years; establish a written financial assistance policy; and limit what they charge individuals eligible for that help. And they must make a reasonable attempt to determine if a patient is eligible for financial assistance before they take \u201cextraordinary collection actions,\u201d such as reporting people to the credit bureaus or placing a lien on their property.<\/p>\n

Still, the Government Accountability Office, a congressional watchdog agency, argues that community benefit is poorly defined.<\/p>\n

\u201cThey\u2019re not requirements,\u201d said Jessica Lucas-Judy, a GAO director. \u201cIt\u2019s not clear what a hospital has to do to justify a tax exemption. What\u2019s a sufficient benefit for one hospital may not be a sufficient benefit for another.\u201d The GAO, in a 2020 report<\/a>, said it found 30 nonprofit hospitals that got tax breaks in 2016 despite reporting no spending on community benefits.<\/p>\n

The GAO then recommended Congress consider specifying the services and activities that demonstrate sufficient community benefit.<\/p>\n

The tax and benefit question has become a bipartisan issue: Democrats criticize what they see as scant charity care, while Republicans wonder why nonprofit hospitals get a tax break.<\/p>\n

In Georgia, Democratic lawmakers and the NAACP spearheaded the filing of a complaint to the IRS about Wellstar Health System\u2019s nonprofit status after it closed two Atlanta-area hospitals in 2022. The complaint noted the system\u2019s proposed merger with Augusta University Health, under which Wellstar would open a new hospital in an affluent suburban county.<\/p>\n

\u201cI understand you pledged over $800 million\u201d in the deal with AU Health, state Sen. Nan Orrock, an Atlanta Democrat, told Wellstar executives at a recent legislative hearing, citing the system\u2019s disinvestment in Atlanta. \u201cDoesn\u2019t sound like a nonprofit. It sounds like a for-profit approach.\u201d<\/p>\n

Wellstar said it provides more uncompensated health care services than any other system in Georgia, and that its 2022 community benefit totaled $1.2 billion. Wellstar attributed the closures to chronic financial losses and an inability to find a partner or buyer for the inner-city hospitals, which served a disproportionately large African American population.<\/p>\n

In North Carolina, a Republican candidate for governor, state Treasurer Dale Folwell, said many hospitals \u201chave disguised themselves as nonprofits.\u201d<\/p>\n

\u201cThey\u2019re not doing the job. It should be patients over profits<\/a>. It\u2019s always now profits over patients,\u201d he said.<\/p>\n

Ideas for reforms, though, have run up against powerful hospital opposition.<\/p>\n

Montana\u2019s state health department proposed developing standards for community benefit spending after a 2020 legislative audit found nonprofit hospitals\u2019 reporting vague and inconsistent<\/a>. But the Montana Hospital Association opposed the plan<\/a>, and the idea was dropped from the bill that passed.<\/p>\n

Pennsylvania, though, has a unique but strong law, Bai said, requiring hospitals to prove they are a \u201cpurely public charity\u201d and pass a five-pronged test. That may make the state an easier place to challenge tax exemptions, Bai said.<\/p>\n

This year, the Pittsburgh mayor challenged the University of Pittsburgh Medical Center over the tax-exempt status of some of its properties.<\/p>\n

Nationally, Bai said, \u201cI don\u2019t think hospitals will lose tax exemptions in the short run.\u201d<\/p>\n

But, she added, \u201cthere will likely be more pressure from the public and policymakers for hospitals to provide more community benefit.\u201d<\/p>\n

Mountain States editor Matt Volz contributed to this report.<\/em><\/p>\n