Senator Questions Operating Practices of Nonprofit Hospitals, Asks for Changes

By Elizabeth Schwinn

Amid growing concern about whether nonprofit hospitals are doing enough to justify their tax exemptions, a key member of Congress has called on such hospitals to make changes in their practices and policies. The scrutiny could result in legislation to impose new regulations on nonprofit hospitals this year, according to a Senate aide.

In a letter to the American Hospital Association last week, Charles E. Grassley, chairman of the Senate Finance Committee, asked the organization for recommendations on how Congress should define what constitutes "charity care" — the subsidies hospitals provide to care for the needy — and regulate billing and debt-collection practices, executive pay, and profit-making activities, among other issues. Senator Grassley last year began looking into nonprofit hospitals, which represent 41 percent of the nonprofit world's revenue, as part of a broader inquiry into possible abuses by nonprofit organizations.

Many lawmakers are concerned about the plight of the uninsured in the wake of recent news-media reports that some people who lack health insurance have been bankrupted by their medical bills, according to a Senate Finance Committee staff member who declined to be named. Congress could pass new rules outlining the responsibility of nonprofit hospitals to provide charity care or discounted fees for the uninsured could become year, he said.

At issue is how a nonprofit hospital defines its mission. Until 1969 nonprofit hospitals were required to provide charity care to qualify for tax-exempt status. Since then, they have been able to qualify by providing other types of benefits to the locations they serve, such as emergency care and health education. Some politicians and members of the public now question whether such benefits are enough.

The American Hospital Association began working with the Senate Finance Committee in January to answer questions, such as how much "community benefit" charity hospitals should provide and what prices they should charge low-income, uninsured patients, said Thomas Nickels, the association's senior vice president for federal relations. Mr. Grassley's letter "is asking us to spell out some ideas," he said.

Senator Grassley's concerns echo those raised by Rep. Bill Thomas, Republican of California, who has announced that he will not seek re-election this fall. Mr. Thomas, chairman of the House Ways and Means Committee, began investigating nonprofit hospitals two years ago, and has questioned whether they deserve tax-exempt status (The Chronicle, July 22, 2004).

Scrutiny of charity hospitals continues on other fronts as well: The Internal Revenue Service, the courts, and state regulators are also examining the organizations.

IRS officials say that they are investigating pay at nonprofit hospitals to see whether it is excessive. At the same time, they are checking to see if the hospitals provide benefits to society that set them apart from for-profit hospitals and justify their tax-exempt status.

States are looking into whether to impose stricter requirements on charity hospitals. Illinois Attorney General Lisa Madigan in January proposed a law that would require the hospitals to spend at least 8 percent of their total operating costs on charity care each year to retain their state tax exemptions. Officials in Minnesota and Kansas have also expressed concern about the level of charity care provided by nonprofit hospitals and about their billing and debt-collection practices.

Some low-income patients have sued nonprofit hospitals, saying that the hospitals failed in their charitable mission by overcharging the poor for services. Some of the lawsuits have been dismissed by federal courts. Others are pending.

The American Hospital Association's Mr. Nickels said hospitals are now providing $27-billion worth of free care annually in addition to many other benefits to the cities and towns where they are located. He said that hospitals need make sure that their billing practices are well understood and make sure that low-income people who lack health insurance are not saddled with excessive bills.

But he warned that Congress needs to be careful not to go too far in writing new laws. A third of the nation's hospitals are losing money, he said, adding that federal payments for health care for the very poor and elderly are often not enough to cover the hospitals' costs of treating them. "You already have hospitals in dire financial condition," Mr. Nickels said. Imposing more requirements on them could put some out of business, he said.