Congress wants to know what it's getting in return for rewarding tax benefits to not-for-profit hospitals. It also wants to know, "What is a not-for-profit hospital?"
Those questions have been at the heart of a series of hearings on the subject, the most recent held last week by the House Ways and Means Committee.
"We really can't tell the difference all that much between a for-profit and a not-for-profit hospital 1/4 and that is a distinction that affects tens of billions of dollars," House Ways and Means Committee Chairman Bill Thomas (R-Calif.) said at the hearing. "What is the taxpayer getting in return?" Thomas remarked that hospitals account for the "lion's share of revenue lost to the federal treasury" through tax exemptions.
With more hearings to follow this summer, many healthcare insiders say a bill is likely to be introduced, though no one has predicted when or what it might say.
"It's clear they are serious and are ready to create some sort of legislation to set nationwide standards," said Jim Unland, president of the Health Capital Group, a consulting firm for hospital-physician negotiations. "The mood seems to be getting intense because it's a matter of lost revenue. An educated guess is that there will be some specific standards set forth to qualify for tax exemption. I think there will be standards on nonprofit practices as well."
Unland said national hospital associations missed an opportunity two years ago to avoid the scrutiny their members face today over tax-exemption issues.
"As someone who's been watching the subject closely, it seems that if the American Hospital Association and the Catholic Health Association would have stepped up and showed leadership on these matters in 2003, we would not be watching these hearings on Capitol Hill today," he said.
In the winter and spring of 2003, consumer groups and the media began reporting on issues of hospital pricing, collection and charity-care practices with respect to the uninsured and underinsured. The reports suggested hospitals were charging "list prices" to the uninsured, were using aggressive collection tactics against low-income patients and were not providing enough charity care.
The AHA disagrees that the current situation is a result of recent controversy. One of its officials pointed out that Congress has admitted it hasn't really looked at the hospital issue in 15 years and that lawmakers are looking at not-for-profits as a whole, including educational institutions, credit unions and others.
"I don't think any one event in 2003 should have led us to the point where legislators are; it's not that they're looking at hospitals and pointing their fingers," said Tom Nickels, the AHA's senior vice president of federal relations.
Nickels, whose organization has about 5,000 member hospitals, said he doesn't believe legislators will revoke the tax-exempt status of not-for-profit hospitals. "They may add requirements and set forth a standard set of guidelines, and that's a reasonable thing."
Roughly 85% of the 5,000 hospitals in the U.S. are not-for-profits and receive tax breaks.
A survey by PricewaterhouseCoopers' Health Research Institute released two days before the hearing suggested that hospitals are providing more free care than they re-port and are absorbing higher levels of bad debt. The report also said nearly seven out of 10 hospitals revised their charity-care policy within the past year, often raising the federal poverty level percentage to expand eligibility for free care.
Kelly Barnes, a partner with PricewaterhouseCoopers' Health Industries Group, said the study shows that the availability of free medical care for uninsured people in the U.S. is "masking the scope of the uninsured problem."
On wherethemoneygoes.com, a private watchdog-like Web site that claims to "shine the light on abuses by not-for-profit hospitals," authors took testimony from the hearing and ran with it. As for the PricewaterhouseCoopers survey finding that "76% of hospitals calculate charity care in terms of charges, not costs," the Web site posted: "That's what we have been saying all along." At deadline, Modern Healthcare's attempts to determine who sponsors the Web site were unsuccessful, although the editor claims to be independent.
"Our research says that not-for-profit hospitals report (on the average) 5% of revenue goes to charity care. If that is based on charges, not actual costs, then we calculate that not-for-profit hospitals are actually spending (on the average) only 2% of their revenue on charity care," the Web site said, adding, "That means not-for-profit hospitals (on the average) keep more in tax benefits than they give back in charity care." The latest available AHA data show not-for-profit hospitals' average uncompensated care in 2002 was 4.4% of expenditures, while for-profits' was 4.5%.
"I think there really needs to be more data and further study before any (legislation) is written," Nickels said. "I don't think we know enough about how communities would be affected by new laws governing the nonprofit sector."
Internal Revenue Service Commissioner Mark Everson said at the Ways and Means hearing that the IRS grants an exemption to hospitals that show evidence of community benefit, but that the line between hospitals operating for profit and for charity has blurred. "We at the IRS are now faced with a healthcare industry in which it is increasingly difficult to differentiate for-profit from non-profit healthcare providers," he said.
A Government Accountability Office study released at the hearing shows government hospitals provide more charity care than not-for-profit and for-profit hospitals.
The study also found that some not-for-profit hospitals provided more charitable care than others, meaning that a small number of not-for-profit hospitals account for more of the uncompensated-care burden than others that enjoy the same tax preference.
Along with the Ways and Means panel, the Senate Finance Committee is also taking an interest in the topic. Chuck Grassley (R-Iowa), the committee's chairman, wrote 10 of the country's largest not-for-profit hospitals last week seeking information about their charitable activities.
"It's my job to make sure charities are earning their generous tax breaks," Grassley said in a statement. "Tax-exempt status is a privilege."
In general, lawmakers cautioned against changing the rules for not-for-profit hospitals on a whim. "We have to be cautious because we don't actually know what we're talking about," said Rep. Nancy Johnson (R-Conn.).
Thomas said another hearing on the tax-exempt status of hospitals would be held within weeks.
