A not-for-profit hospital group wants the Internal Revenue Service to review hospital lease deals, specifically one that Columbia/HCA Healthcare Corp. has with a not-for-profit system in Memphis, Tenn.
The president of Washington-based Volunteer Trustees of Not-For-Profit Hospitals asked for the review in a letter last week to Marcus Owens, head of the IRS' exempt organizations division.
In the letter, Linda Miller, the group's president, said lease agreements between for-profits and not-for-profits "raise serious questions as to whether the nonprofit lessee warrants tax-exempt status."
Miller and her group have been frequent critics of Columbia and not-for-profit hospital conversions.
In the letter, the group spells out two concerns:
While the IRS gives not-for-profit status to the leased institutions, they are being run for the private benefit of the for-profit landlord.
Excessive lease and other payments made to for-profit hospital companies are "inappropriate uses of charitable assets-and community healthcare dollars-and constitute private inurement."
Miller could not be reached for comment by deadline.
The only lease deal mentioned by name in the group's letter is one between Nashville-based Columbia and Methodist Healthcare, a 15-hospital system based in Memphis.
The two signed a definitive agreement earlier this summer under which two Columbia hospitals in western Tennessee became part of the Methodist system through a 44-year lease (June 1, p. 4).
"I was really just kind of flabbergasted that she would send a letter like that without talking to us," said Maurice Elliott, chief executive officer of Methodist Healthcare. "The points she makes are way off base."
Miller wrote in the letter that its intent is not to impugn Methodist's motives. Instead, her group wants the IRS to consider when such arrangements deserve tax-exempt status and "when, in truth, they are primarily vehicles for enriching for-profit companies and their stockholders."
Elliott said Methodist hasn't been contacted by the IRS about its lease deal.
"They may look at us; we're not concerned," Elliott said. "We try to operate our business so we don't have to be concerned if they look at us."
Citing a confidentiality agreement, neither Elliott nor a Columbia spokesman would elaborate on the terms of the lease.
However a copy of the lease agreement filed with the Tennessee Health Facilities Commission shows that Methodist is paying a base rent of $12.3 million per year for the hospitals. Methodist will make additional payments based on the hospitals' profitability.
Columbia spokesman Jeff Prescott said the lease deal is not exorbitant.
"We are very confident that rent we are receiving from Methodist for those two hospitals is not beyond fair market value," he said.
