The U.S. Treasury Department's recently unveiled plan to increase oversight of tax-exempt organizations could give hospitals additional leverage in negotiating business arrangements with physicians, healthcare tax experts say.
The department released the plan during testimony last month before the House Ways and Means oversight subcommittee. Legislation implementing the plan is expected to be introduced soon.
Rep. Fortney "Pete" Stark (D-Calif.), who introduced similar legislation last year, and Rep. J.J. Pickle (D-Texas) have expressed support for such a plan, which would create so-called "intermediate sanctions" that the Internal Revenue Service could use to better enforce the provisions of the federal tax code that apply to tax-exempt organizations, including not-for-profit hospitals (Dec. 20/27, 1993, p. 17).
Mr. Stark is chairman of the Ways and Means health subcommittee, and Mr. Pickle heads the Ways and Means oversight subcommittee.
Under the department's plan, a new excise tax would be created to penalize "excess benefits" provided by an exempt organization to an organization "insider." Excess benefits include unreasonably high compensation, above-market payments for services or below-market charges for services.
Organization executives who approve the excess benefits and individuals who receive the benefits would be subject to the tax.
Currently, the earnings of a tax-exempt organization can't "inure" to the benefit of a private individual, but the only penalty available to the IRS is revoking the organization's exemption.
The Treasury Department's plan also beefed up the public disclosure requirements for tax-exempt organizations.
"The plan would be helpful to hospitals in negotiating transactions with insiders," said Elizabeth Mills, an attorney with McDermott, Will & Emery in Chicago. She said it would give hospitals leverage in avoiding overpayments to certain individuals, such as physicians, because they could point to the excise tax as a consequence of getting caught.
"This plan is more reasonable than the Stark plan, and it contains no cap or ceiling on compensation," said attorney Michael Peregrine with Gardner, Carton & Douglas in Chicago.
The legislation introduced last year by Mr. Stark also would assess excise taxes on "self-dealing" arrangements, which involve the inappropriate transfer of charitable monies from exempt organizations to individuals, such as a low- or no-interest loan by a hospital to a hospital executive. That provision is absent from the Treasury Department's plan.