• Are Non Profit Hospital Tax Exemptions Relevant or Needed?
  • July 20, 2010
  • Law Firm: Holland Hart LLP - Denver Office
  • The principal justification for the extension of billions of dollars of tax exemptions to non-profit hospitals has been their self proclaimed charitable mission.  While many of these hospitals have in the past struggled mightily to provide health care services to those uninsured in extreme need without resources, others have provided little more charitable care than for profit facilities, content with equating bad debt with charitable mission.   With the expansion of access to health care insurance under the recent health care reform legislation, the PPACA, the question of the utility and relevance of tax exemptions moves into high relief.

        Sen. Charles E. Grassley of Iowa has long questioned the need for non-profit tax exemptions for hospitals. Sen Grassley, who opposed the PPACA nevertheless had significant input in the drafting of the statute. In particular he pushed for Sec. 9007 which created a new section 504(r) of the Internal Revenue Code providing additional requirements for charitable hospitals.  The new rule requires non-profit hospitals to;

    • have a community needs assessment every three years and to implement a strategy to respond to the identified needs.
    • clearly define eligibility criteria for patients in need of assistance.
    • develop and publicize a financial assistance policy with free or reduced rates to eligible, needy patients and to provide emergency care to all without discrimination.
    • limit the amount those eligible are charged for emergency or medically necessary care.
    • refrain from engagement in extraordinary collection actions before determining whether the patient is eligible for financial assistance.

        This is likely to be just the start of the challenge to non-profits to justify their existence.  Recent compensation survey’s for non profit CEOs in California are not likely to be helpful.  The average compensation for non-profit hospital CEOs in California in 2007 and 2008 was about $732,000 based upon Form 990 IRS fillings. Sixteen executives made over $1 million dollars. In the case of eleven hospitals, the CEO compensation exceeded the entirety of the hospital’s identified charitable care. This perhaps gives new meaning to the concept of charity starting at home.

        In the meantime these hospitals were receiving between 12 and 20 billion dollars worth of tax exemptions.   In New Hampshire, the state attorney general Michael Delaney has undertaken an investigation of CEO compensation in that state after the disclosure of some non profit CEOs  earning well over a million dollars a year. It may be time to bring back the nuns if there are any left with a vow of poverty.  If not, non profits are going to need to find new ways to address the fundamental issues as to why they should be treated differently than for profit enterprises.  That may be one of the major challenges of health care reform.