An organization of not-for-profit hospitals is protesting Columbia/HCA Healthcare Corp.'s deal with a Roman Catholic healthcare system, calling for an Internal Revenue Service investigation of the deal.
The Volunteer Trustees of Not-for-Profit Hospitals, which represents 180 tax-exempt facilities, made a formal request to the IRS, asking officials to review Columbia's proposed 50-50 ownership deal with Cleveland-based Sisters of Charity of St. Augustine Health System, which owns four hospitals. In the last two months, the organization also has written attorneys general in eight states, raising concerns about community not-for-profit hospitals when they are sold to for-profit chains (May 8, p. 6).
"At heart, this deal is a win-win situation for Columbia/HCA and a high-risk proposition for the not-for-profit institutions and the communities they serve," said Linda Miller, president of Washington-based Volunteer Trustees of Not-for-Profit Hospitals, in a letter sent last week to IRS Assistant Commissioner James McGovern.
Miller's group raised questions about whether Columbia and the Sisters of Charity of St. Augustine were shirking their commitment to one of the communities in which the sisters owned a hospital. The sisters fired a dozen trustees on the Timken Mercy Medical Center board after trustees expressed opposition to the Columbia deal (May 29, p. 2).
Volunteer Trustees has several concerns related to private financial gain, fiduciary stewardship and disclosure, the group said in a three-page letter. Such deals between investor-owned chains and not-for-profits need oversight, Miller said.
"The IRS, as the regulator of the federal tax rules governing not-for-profit entities, needs to step in and investigate these unprecedented commercial arrangements between giant for-profit hospital companies and much smaller and, in many cases, outgunned not-for-profit hospitals," Miller said.
The IRS, citing confidentiality issues, wouldn't comment on whether it received the correspondence or whether there would be any investigation of Columbia's venture into Cleveland. An IRS spokesman said it's not uncommon for deals between investor-owned organizations and not-for-profits to be reviewed.
"We certainly have had conversions of charitable organizations to taxable status, and we do tend, from time to time, to look at these issues and see that an appropriate amount of consideration or payment has been paid to the charitable organization," said T.J. Sullivan, the IRS' special assistant for healthcare to McGovern.
Miller's group also is concerned about instances in which the price of a not-for-profit hospital is not disclosed.
"Subsequent to the transaction, the hospitals will be operated for the benefit of a for-profit enterprise-Columbia/HCA-even if the Sisters are promised a portion of the unknown future income stream," Miller said. "What is the legal justification for paying less than 100% of the fair market value of nonprofit entities as ongoing concerns that are required to be forever dedicated to charitable purposes?"