Congress Examines Nonprofit Hospitals

05/27/2005

WASHINGTON (AP) - Congress should review tax exemptions for nonprofit hospitals to determine whether the community benefit justifies the expense, the chairman of the tax-writing House Ways and Means Committee said Thursday.

“We really can’t tell the difference, all that much, between a for-profit and a not-for-profit,” said Rep. Bill Thomas, R-Calif. “What is the taxpayer getting in return for the tens of billions of dollars per year in tax subsidy?”

The committee opened its inquiry a day after the Senate Finance Committee began its own look at nonprofit hospitals, asking 10 of the nation’s largest for answers to detailed questions about their operations.

“It’s also my job to make sure charities are earning their generous tax breaks,” the chairman of the Senate committee, Republican Charles Grassley of Iowa, said in a statement. “Tax-exempt status is a privilege.”

Both committees are looking broadly at the tax breaks given to charitable organizations and possible abuses.

Thomas said he picked hospitals for a detailed examination because they are the largest single type of charitable organization.

David Walker, comptroller general at the Government Accountability Office, told the House committee a review of hospitals in five states showed that government hospitals cared for substantially more poor patients who could not pay for medical care.

Differences between for-profit and nonprofit hospitals in providing unreimbursed care were small, on average.

Hospitals reported operating other community programs such as parenting classes, health fairs, smoking cessation programs, health screening and neighborhood clinics.

“There is no clear distinction among the government, not-for-profit or for-profit hospital groups with regard to these community benefits,” Walker said.

Sister Carol Keehan, chairwoman of the Catholic Health Association of the United States, told the committee that nonprofit hospitals do fill voids in medical coverage but that their impact cannot be measured only in the value of unreimbursed care.

“It is important to look at the organization as a whole and the benefits it provides to the community,” she said. Her organization has developed methods to measure those benefits and urges hospitals to use them to illustrate their community benefits.

The commissioner of the Internal Revenue Service, Mark Everson, said the agency grants an exemption to hospitals that show evidence of community benefit. That includes whether they are run by a community board, operate a full-time emergency room and channel profits back into health operations.

But the line between hospitals operating for profit and for charitable purposes has blurred.

“We at the IRS are now faced with a health care industry in which it is increasingly difficult to differentiate for-profit from nonprofit health care providers,” Everson said.

IRS reviews have turned up questions about excessive executive compensation, complex ventures with profitable companies, employment taxes and operations benefiting a private, not public good.

The tax agency audits about 0.5 percent of nonprofit hospitals each year and rarely revokes exemptions.

Some lawmakers cautioned against rushing to change the rules for nonprofit hospitals until more is known about their operations and the communities they serve.

“We have to be cautious because we don’t actually know what we’re talking about,” said Rep. Nancy Johnson, R-Conn.

Rep. Clay Shaw, R-Fla., said the hearing was “really opening up a bucket of worms here.”

“I thought I knew what a nonprofit hospital was until I started listening this morning, and now I’m convinced that nobody really has a good definition,” he said.