House Committee Holds First Hearing on Not-For-Profit Hospitals
Congress should look at what taxpayers are "getting in return for the tens of billion of dollars per year" in tax subsidies that not-for-profit hospitals receive because of their status as charitable organizations, House Ways and Means Committee Chair Bill Thomas (R-Calif.) said Thursday at the committee's first hearing on the issue, the Baltimore Sun reports (Baltimore Sun, 5/27). The hearing is part of a larger, ongoing congressional inquiry into the practices of the tax-exempt sector, of which hospitals and health care organizations make up the largest portion, according to CQ HealthBeat (CQ HealthBeat, 5/26).
The House hearing comes one day after Senate Finance Committee Chair Chuck Grassley (R-Iowa) announced that he sent letters to 10 not-for-profit hospitals asking for information about their billing practices, charitable activities and business with for-profit companies (Miller, Atlanta Journal-Constitution, 5/27).
A Government Accountability Office report presented at the Ways and Means Committee hearing found that in four of the five states studied, state and locally owned hospitals provided an average of twice as much uncompensated care as either not-for-profit or for-profit hospitals. In addition, the report found that in four of the states -- Florida, Georgia, Indiana and Texas -- not-for-profit hospitals provided more uncompensated care than for-profit hospitals.
However, "the difference was small," GAO Comptroller General David Walker said. In California, for-profit hospitals provided more uncompensated care than not-for-profit hospitals, according to the report (Rovner, CongressDaily, 5/26). In 2002, the average percentage of uncompensated care at not-for-profit hospitals was 4.4%, compared with 4.5% at for-profit hospitals, according to data from the American Hospital Association, Thomas said (CQ HealthBeat, 5/26). He added, "We really can't tell the difference, all that much, between a for-profit and a not-for-profit" (Baltimore Sun, 5/27).
Hospitals receive tax-exemption in exchange for providing a community benefit, Internal Revenue Service Commissioner Mark Everson told the committee. Community benefit can mean that hospitals are run by a community board, operate a full-time emergency department and shift profit back into health operations, Everson said (Baltimore Sun, 5/27). The IRS has found "complex joint ventures with profit-making companies, excessive executive compensation, operating for the benefit of private interests rather than the public good, unrelated business income and employment practices" by not-for-profit hospitals, Everson said (CongressDaily, 5/26).
CMS Administrator Mark McClellan said hospitals receive tens of billions of dollars from disproportionate share hospital payments, indirect medical education, bad debt payments and Medicare and Medicaid funding to pay for uncompensated care, in addition to the money saved because of tax exemptions. "The question that should be asked is whether the funding mechanisms I have mentioned most effectively target those funds to the programs and settings that provide the best value in terms of the type of care they provide," McClellan said.
Jill Horwitz, an assistant professor at the University of Michigan Law School, said the differences between not-for-profit and for-profit hospitals "depends on where you look." John Colombo, a professor at the University of Illinois College of Law, said, "Empirical studies on quality of care, costs of care and free care for the poor show decidedly mixed results. So if we are looking to empirical evidence to justify the 'trust me' approach of community benefit, the evidence simply isn't there" (CQ HealthBeat, 5/26).
However, Sister Carol Keehan, chair of the Catholic Health Association of the United States, said, "It is important to look at the organization as a whole and the benefits it provides to the community," adding that examining only uncompensated care spending by not-for-profit facilities does not fully measure their community benefit (Baltimore Sun, 5/27). In a statement, AHA said tax exemption for not-for-profit hospitals is the "key to community care" and "an essential ingredient" to providing access to health care for the uninsured (CQ HealthBeat, 5/26).
According to CongressDaily, some Democrats contend that Thomas was "unfairly singling out" hospitals from the rest of the not-for-profit sector. Committee ranking member Rep. Charles Rangel (D-N.Y.) said, "Why are you picking on hospitals?" (CongressDaily, 5/26). Rangel said there is "no answer" to that question, adding "clearly there's been no evidence of wrongdoing" (CQ HealthBeat, 5/26). Thomas said hospitals are being investigated because they are the largest type of not-for-profit organization (Baltimore Sun, 5/27).
Hospitals account for three-fourths of the health sector, he said (CongressDaily, 5/26). The GAO report is available online. Note: You will need Adobe Acrobat Reader to view the report.