U.S. Senator Mulls Tougher Rules for Not-for-Profit Hospitals

Sen. Chuck Grassley (R-Iowa) on Tuesday said he might seek stricter requirements on not-for-profit hospitals' tax-exempt status if they continue to oppose efforts to increase transparency of the community benefits they provide, the Contra Costa Times reports.

The Internal Revenue Service has proposed changing some tax forms, which would require hospitals to provide more detailed descriptions about their charity care and community benefits (Kleffman, Contra Costa Times, 11/1). More than 100 hospitals filed comments opposing the change because they claim it would create an overly narrow definition of charity care, according to CQ HealthBeat.

The American Hospital Association also opposes the IRS policy, as well as Grassley's efforts to increase transparency.

At a meeting Tuesday with experts and Senate Finance Committee staff, Grassley discussed a draft version of legislation that would require hospitals to allocate 5% of their annual operating expenses to charity care before hospitals could qualify as not-for-profit.

Under the draft bill, hospitals would be required to survey low-income residents in their communities every three years to determine what health care needs the hospitals should be fulfilling. Programs that would be considered charitable under the draft legislation include no-cost care for low-income residents; an emergency department open to all residents regardless of their ability to pay; burn units; trauma centers; health profession education and training; and health research, along with other programs deemed necessary after community evaluations.

In addition, hospitals would be prohibited from charging uninsured or underinsured patients more than the rate paid by Medicare or Medicaid or the actual cost to the hospital.

Grassley said he has not "made any decisions about whether legislation is necessary," but he is concerned some hospitals would never adequately police themselves or revise their charity care standards unless forced to do so by Congress (Lubbes, CQ HealthBeat, 10/31).

Grassley said, "While everyone talks about the need for sunshine, there are a few tax-exempt hospitals in the shadows that are bent on pulling the blinds and closing the drapes." He added, "If these hospitals continue to press for keeping the public in the dark about how they justify $50 billion in tax breaks a year, that will greatly color my views about the need for legislation."

Some not-for-profit hospital officials argued that the proposed changes would create an undo burden on the hospitals and be too restrictive in the definition of community service. According to the Times, "Hospital leaders argue that they should not be judged on charity care alone" as "they provide an array of community services, from mobile health and dental vans to free screenings, educational programs, research and support for community clinics" (Contra Costa Times, 11/1).

Hospital group spokespeople also said Medicare cost shortfalls that result in losses to hospitals should be considered charity work (CQ HealthBeat, 10/31).