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Senate Considering Nonprofit Hospital Reforms

(Nov. 5, 2007) Republican staff for the Senate Finance Committee has developed a series of proposed reforms related to governance, meeting community needs and levels of charitable care.

Sen. Charles Grassley (R-Iowa), the ranking member of the Finance Committee, has become increasingly concerned about how much nonprofit hospitals spend on charitable care in exchange for the billions of dollars of tax breaks they receive.

The most controversial provision of the proposed reforms requires nonprofit hospitals to dedicate a minimum of 5 percent of their annual patient operating expenses or revenues to charity care in order to maintain their tax-exempt status. Other recommendations and requirements relate to:

  • Publicized charity-care policies
  • Charity-care policies for 501(c)(3) entities involved in joint ventures
  • Community needs assessment and community benefit
  • Governance for tax-exempt hospitals
  • Transparency and reporting
  • Sanctions in the form of excise taxes for noncompliance

The minority staff discussion draft was introduced earlier this summer and is available on the Senate Finance Committee website.

Questionnaire Drove Reforms

The draft proposals coincided with an interim report by the Internal Revenue Service (IRS) summarizing responses from almost 500 tax-exempt hospitals to a May 2006 questionnaire about how they provide and report benefits to the community. The interim report gave rise to the IRS’ creation of Schedule H on the Form 990 redesign, which would require greater reporting about the financial operations of hospitals.

Sen. Grassley found the interim report troubling. “The report makes clear that we need to change business as usual at many of our nation’s nonprofit hospitals,” he said at an Oct. 30 hearing about the proposed reforms. “These are self-reported numbers and often include inflated costs or bad debt. It’s troubling that even the overly broad figures paint a bad picture of a significant number of nonprofit hospitals doing very little charity care.”

Also during the hearing, Grassley expressed his concerns that some charities were lobbying against his reforms and trying to water down the requirements contained in Schedule H. He stated that he’d like to see his reforms accepted voluntarily by the nonprofit hospital community, but would move to see more stringent legislation enacted if they weren’t.

AFP continues to work closely with Congress and the IRS with regard to the proposed new Form 990. AFP’s comments on the new form can be found here.

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