The American Hospital Association and the Coalition for Nonprofit Health Care last week asked the Treasury Department for prospective guidance on acquisition financing by not-for-profit hospitals.
The two provider organizations said pending Internal Revenue Service investigations of at least seven not-for-profit hospital bond issues have created an "atmosphere of uncertainty" in the bond market that has limited access to capital and increased financing costs for all not-for-profit hospitals.
In a letter to Assistant Treasury Secretary Mark Weinberger and two IRS officials, the groups also urged the agency to take into account how its position affected hospitals' and healthcare systems' ability to merge.
Acquisition financing has been used to consolidate and refinance debt in connection with several health system consolidations. IRS officials want to make sure that such deals do not constitute illegal advance refundings, which could jeopardize tax exemptions for the bonds.
It is expected to take months or even years for the IRS to complete all of its reviews. Meanwhile, consolidating healthcare systems have looked for alternative financing strategies.
Separately last week, the Michigan Health and Hospital Association issued a report that said Michigan's not-for-profit hospitals provided almost $910 million in community benefits in 1999. The report follows by less than a month new IRS guidance on charity care.
In a major policy development for not-for-profit hospitals, the IRS said last month that hospitals must prove they give free care to the poor to keep their tax-exempt status. Simply having policies on indigent care doesn't satisfy the community-benefit standard tax-exempt hospitals must meet, according to the agency (March 19, p. 4).
The $910 million in community benefits that Michigan hospitals provided in 1999 included $823 million in uncompensated care, defined as charity care plus bad debt, and $86.5 million in free or discounted programs and services. The Michigan health association's report is based on a survey of 126 of the state's 145 not-for-profit hospitals.
In 1998, Michigan's not-for-profit hospitals provided $658 million in uncompensated care. However, a year-to-year comparison is misleading because the number of hospitals surveyed was different.