Reform bill does not include 'bright line' test

Iowa Sen. Chuck Grassley, ranking Republican on the Senate Finance Committee, said reform proposals included in health reform legislation unveiled by Sen. Max Baucus (D-Mont.) will go a long way toward getting tough on not-for-profit hospitals that don't do enough to benefit their local communities.

The Senate proposal would force hospitals that are exempt from federal taxes to conduct regular reviews of what services their communities need, to scale back “abusive” billing and collections on low-income patients, and to “widely publicize” their charity-care policies.

But the proposed bill pointedly does not include a “bright line” test for the amount of charity care that not-for-profit hospitals would have to provide in order to justify their favored tax status. For years, Grassley has had staff studying proposals to require a specific amount of net patient revenue—a target of 5% is often mentioned—for free care for low-income residents.

In a written statement, Grassley said he has been persuaded that such a policy could have negative side effects, specifically citing lobbying from the Catholic Health Association. Sister Carol Keehan, president and CEO and of the CHA, said the association has told Grassley that a 5% “bright line” for charity care would actually decrease the amount of community benefit activities at the many hospitals that already exceed that amount.

“If you say you have to do 5%, that becomes a target,” Keehan said. “This would say, ‘Shoot for 5%, and when you get to that, you've done enough and just keep the rest.' ”

At the same time, hospitals in rural areas often run on such slim margins that “just staying open is a mammoth community benefit” that would be negated if they were forced to close by strict charity-care spending laws, Keehan said.

Rather than mandating a uniform percentage of charity care spending, Grassley said he would like to develop some type of formula that could “maximize expenditures for charitable purposes.” For that purpose, the CMS and the Internal Revenue Service are collecting data on not-for-profit hospitals and the amount of charity care they're providing.

Grassley has long pushed for tighter restrictions on not-for-profit hospitals, which are exempt from federal taxes and are eligible for tax-exempt borrowing. Federal tax exemption is worth about $6 billion a year across the industry, according to recent estimates from the Joint Committee on Taxation.

Although Grassley's statement claimed credit for the inclusion of the not-for-profit hospital provisions in the reform proposal, he has said he cannot vote for the law as it was outlined in a draft released Wednesday by Senate Finance Committee Chairman Max Baucus (D-Mont.) because it does not address the issues affordability and accessibility strongly enough.