Tightening the standards of tax-exemption for not-for-profit hospitals could push many of them out of the tax-exempt bond market, significantly raising their costs for capital.
That was the warning issued last week in Washington by the Public Securities Association at a hearing by the House Ways and Means Select Revenue Measures subcommittee. The PSA is an international association representing municipal securities dealers. The hearing focused on the tax implications of President Clinton's Health Security Act.
Testifying for the PSA, Stephen Claiborn, managing director of Lehman Brothers in Houston, said efforts to impose stricter "community benefit standards" on charity care could make it more difficult and costly for hospitals to restructure.
Members of Congress have questioned the need to preserve the tax-exempt status of not-for-profit hospitals when one of the goals of healthcare reform is to eliminate the need for charity care. Rep. Fortney "Pete" Stark (D-Calif.), chairman of the House Ways and Means health subcommittee, has proposed giving the Internal Revenue Service the authority to assess excise taxes against tax-exempt providers that abuse their tax status.
In addition, the PSA and other municipal healthcare finance groups said current restrictions on tax-exempt financing could impede implementation of healthcare reform. If such restrictions aren't eased, healthcare providers may have difficulty implementing more efficient systems of care and reducing costs, said representatives of the National Council of Health Facilities Authorities, which represents the nation's 23 state healthcare bond-issuing agencies.
For example, under the Internal Revenue Code, tax-exempt hospitals may only advance refund their bonds once. That restriction is a barrier to hospitals that seek to merge and consolidate their debt by refunding, the council maintains. Many hospitals already have refinanced their debt to take advantage of lower interest rates.
Inner-city hospitals' concerns also were addressed at the hearing. Leon S. Malmud, M.D., chief executive officer of Temple University Hospital in Philadelphia, commended the administration's proposed tax incentives aimed at attracting physicians to impoverished, inner-city areas, but he said more is needed.