NONPROFIT HOSPITAL SALES: NEW FOUNDATIONS RAISE QUESTIONS
"As the pace of nonprofit-hospital takeovers has quickened,This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
so too has the creation of private foundations designed to spend
the proceeds," WALL STREET JOURNAL reports. The Council on
Foundations, a Washington, DC, trade group, notes that over the
past two years, the conversion of nonprofit hospitals has led to
the creation of more than 100 charities. According to some
estimates, these foundations "control as much as $5 billion in
assets."
LOADS OF TROUBLE: JOURNAL reports that the establishment of
the foundations "has sparked feverish debates among health care
professionals, lawmakers, the hospitals' communities and the
foundations themselves." The new philanthropies, "[w]ith
virtually no philanthropic track record ... are scrambling to
come up with new missions, new ways of operating and new staffs."
Critics charge that some of the foundations are abandoning their
"original mission of providing medical care to indigent
patients," and spending the money on non-health care related
community projects. Judith Bell, co-director of a project by
Consumers Union to monitor nonprofit hospital sales, said,
"Nontaxable charitable moneys that were held in trust for health
care shouldn't be used for symphonies, French or aeronautic
lessons." However, some foundations say that the "very size of
their holdings ... means they can't ignore the larger needs of
the communities."
BIG MONEY: JOURNAL reports that when Lancaster, SC-based
Elliot White Springs Memorial Hospital was sold to a for-profit
company, "the resulting foundation, with $50 million in assets,
overnight became the state's biggest charitable foundation." The
foundation recently donated $1 million to build a science wing
for a building on the Lancaster campus of the University of South
Carolina. JOURNAL reports that while some foundations are
holding to their health care missions, "enough foundations are
changing, or considering changing, their focus to have drawn the
attention of regulators." Attorneys general's offices in both
California and Florida are placing increased scrutiny on the
proceeds of for-profit conversions, JOURNAL reports
(Jaffe/Langley, 11/6).
THE TAX MAN: MEDICINE & HEALTH reports that the Internal
Revenue Service "is quietly beefing up its surveillance of health
care deals, partly in response to complaints that hospital and
HMO executives and investors are benefiting improperly from
buyouts and conversions of nonprofit health plans and hospitals."
Marcus Owens, director of the IRS exempt organizations division,
said, "There seems to be a sense that ... a lot of money is
changing hands in ways that are not proper." MEDICINE & HEALTH
reports that 20 revenue agents from the IRS' Washington, DC,
headquarters are currently traveling around the country "to
instruct field offices on how to conduct exhaustive team audits
of health care deals, to which the division plans to devote 15%
of its resources in the coming year."
ADDITIONAL EFFORTS: The IRS is also implementing
"intermediate sanctions" that will "increase the number of
remedies the IRS can bring to bear when individuals or firms are
found to have violated the ban on inurement of charitable, tax-
exempt assets for private gain, adding a variety of excise taxes
that can be imposed after the fact to existing penalties,
including revocation of exempt status and criminal prosecution."
MEDICINE & HEALTH reports that the audits "can take two years or
more" and will utilize a "broad-spectrum, coordinated approach to
examinations" due to the size and complexity of some health
systems (11/4 issue).
INTERVENTION: The Treasury Department is planning to
address "technical tax issues that arise when a nonprofit health
care organization forms a joint venture with a for-profit
entity," according to Treasury attorney/adviser Catherine
Livingstone. One of the areas that Treasury is expected to
examine is whether "the continuing operation of the charitable
assets will be consistent with the exemption requirements." In
addition, Treasury is expected to examine "whether transferring
assets to a for-profit is consistent with tax-exemption
requirements," especially whether "the organization gets the fair
market value for its assets (TAX NOTES, 11/4 issue).