Should Your Hospital Get Nonprofit Status If It Doesn't Provide Enough Health Care for the Poor?

Nonprofit 501C-3 hospitals can lose their nonprofit status if they do not contribute enough of their revenue to charitable care in the communities they are supposed to serve. In 2017, a nonprofit hospital lost its tax-free status because it did not provide enough community benefit according to the Affordable Care Act Standards. The hospital, which was not named by the IRS, was deemed to have willfully flaunted the requirement that it maintain nonprofit status. (Wyland, 2017) Worse yet, this hospital was designated a disproportionate share facility, a designation which receives further federal government funding because they are located in communities with large populations of impoverished people. Disproportionate share hospitals are found in inner cities and include; Cook Hospital in Chicago, Harborview in Seattle, and Bellevue Hospital in New York City. Unfortunately, in this situation a nominal fine of $50,000 was levied to this hospital group, because that is all the statue allowed, which is coffee money for hospital corporations. Opportunism in large hospital corporations is a growing trend, but at least the Affordable Care Act finally provided some standards of proportionality for charitable care in order to actually be a nonprofit, nontax paying entity.

 Tracking Your Nonprofit Hospital’s Community Benefit

Boston-based Lown Institute even publishes an index that ranks community investments from hospitals and its’ latest report shows 72% of the 3.641 nonprofit hospitals  which participated actually received tax benefits in excess of their charity care and community investment. (Toleos, 2021) To determine how your local hospital ranked go to their site at https://lownhospitalsindex.org/rankings/

Lown Institute Rankings for Community Investment and Charitable Care (Lown Institute , 2022)

Standards	Hospital	Location
Most Charitable	Paradise Valley Hospital	National City, CA
2nd Most Charitable	Elmhurst Hospital Center	Elmhurst, NY
3rd Most Charitable	Queens Hospital Center	Jamaica, NY
3rd Least Charitable	University CA Medical Center	San Francisco, CA
2nd Least Charitable	New York Presbyterian Hospital	New York, NY
Least Charitable	Cleveland Clinic	Cleveland, OH

 Affordable Care Act Requirements for Nonprofit Hospitals

Under ACA mandates, hospitals must conduct a community health needs assessment (CHNA), create an action-based plan to meet objectives identified in the report, and widely disseminate the plan once it is approved. Additionally, the Internal Revenue Service has added section 501 (1) to the revenue code which has requirements for nonprofit hospital reporting and standards to demonstrate nonprofit status. (Internal Revenue Service, 2022) These requirements prohibit lobbying, political contributions, and election year issues. Further, if compensation paid to hospital executives is deemed excessive, they are taxed a 25% excise tax on each excess benefit, of which the executives are personally liable. The compensation deemed an excess must be paid back and if it is not, a 200% tax penalty is levied. A 10% tax may also be levied on the manager of the person(s) who are deemed to have received an excess benefit as well.  These penalties at least provide some teeth in the Revenue Service’s enforcement of tax code provisions which provide generous exclusions for nonprofit hospitals.

 Judge Ruled Hospital Corporation Is Non-Charitable Entity

Local communities have started to sue large hospital corporations and in Pennsylvania, a Chester County judge ruled that three local nonprofit hospitals, owned by Tower Health were not tax-exempt charities and thus subject to property taxes. This judge found these hospitals did not meet the 1997 statute for Institutions of Purely Public Charity Act. Further the court stipulated they did not provide adequate uncompensated care and declaring undercompensated care as charity care is not valid. This is a line in the sand which will reverberate throughout all nonprofit hospital groups, because they too use the undercompensated care standard tied to their “chargemaster.” This judge also decreed the chargemaster is meaningless because it has nothing to do with actual contracts or payment for services. (Johnson, 2022) As a former hospital finance department employee, I can state unequivocally that no one pays the charge master prices. Even the uninsured, who could be charged those rates can apply for charitable care or negotiate discounts. The chargemaster is in fact, a starting point in swap meet negotiation and hospitals never expect to receive reimbursements at those rates.

 Many municipalities and school districts are interested in taxing wealthy nonprofit organizations, whom may have extensive property in their communities. For example, in my state, the University of Washington is one of the largest real estate owners and landlords in pricey Seattle. Even in tiny Walla Walla, Whitman College is also one of the largest land owners in town. In the case of both of these educational institutions, they were established before Washington became a state and merely held onto their land grants.

 Communities can and should use the courts to redress exorbitant healthcare prices from hospital groups which pay no taxes and received a plethora of government financing. Perhaps when enough of the settlements cost enough money these money gouging hospital groups will start to care about the people in their communities more than their pocket books.

 And this is the healthpolicymaven signing off encouraging you not to sign blanket releases when agreeing to health care procedures, do stipulate that for which you consent and for which you decline. Roberta Winter is a healthcare analyst and freelance journalist who accepts no money from any sector of the healthcare industry for publication of this column.

 Works Cited

Internal Revenue Service. (2022, March 3). Non-profit Charitable Organizations Exemption Requirements. Retrieved from IRS.gov: https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations

Johnson, B. K. (2022, January 7). Non-Charitable Nonprofit Hospital Ordered to Start Paying Property Taxes. Retrieved from Bloomberg News.com: https://news.bloombergtax.com/tax-insights-and-community/non=charitable-nonprofit-hospital-ordered-to-start-paying-property-taxes

Lown Institute . (2022, March 3). Lown Institute Hospitals Index-2021 Rankings . Retrieved from Lown Hospitals Index.org: https://lownhospitalsindex.org/rankings/compare/?hospitals=050024,330128

Toleos, A. (2021, July 11). Most U.S. nonprofit hospitals neglect community investment obligation, analysis reveals. Retrieved March 3, 2022, from Lown Institute: https://lowninstitute.org/press-release-most-us-nonprofit-hospitals-neglect-community-investment-obligation-analysis-reveals/

Wyland, M. (2017, August 18). Hospital Loses IRS Tax Exemption for Noncompliance with ACA. Retrieved from Becker's Hospital Review: https://nonprofitquarterly.org/hospital-loses-irs-tax-exemption/