Calif. bill challenges tax exemption for profitable not-for-profits

California hospitals are decrying a bill supported by organized labor that threatens to strip tax exemptions from profitable not-for-profit hospitals in the state.

Officials with the California Nurses Association say the proposed law—AB 975—is an attempt to bring more accountability to money-making hospitals that use tax exemptions to turn tidy profits and give hefty salaries to executives. Hospital officials say the law seeks to impose a misguided “one-size-fits-all” approach to community benefits that will punish the most-charitable hospitals and harm programs for the poor by taking away tax exemptions.

The first hearing on the bill is slated for April 2 before the Assembly Health Committee. But the proposal has been amended more than once, and the precise language of the requirements was still in flux late Friday, when the most recent amendment was made. Past versions of the bill would have mandated defined levels of spending on care for the poor and focused intense tax scrutiny on hospitals with operating profit margins of more than 10%.

“This is less about good public policy than it is about politics,” said Michael Hunn, chief executive for southern California hospitals at Providence Health & Services, which has five hospitals in the state. “I would hate to see a political agenda further harm those that are marginalized in society,” Hunn said. “No matter what the legislative and political process is, we need to keep in mind the human beings that it is our responsibility to care for.”

Charles Idelson, spokesman for the California Nurses Association, said many profitable tax-exempt hospitals have lost the public's trust in recent years by making profits their top mission and paying salaries that allow executives to buy yachts while “chipping away” at less-profitable services for women, children, the poor and mentally ill.

“What this bill does is, it really is an effort to increase transparency and make hospitals more accountable to the communities that they purport to serve,” Idelson said. “Hospitals that are meeting their charity care obligation should welcome this process and understand that it is an opportunity to rebuild some of the public trust that they have lost through their other policies and practices.”

Existing state law already requires not-for-profit hospitals to submit community needs assessments every three years proving that the hospitals are using their tax exemptions to benefit the public.

Jan Emerson-Shea, spokesman for the California Hospital Association, said the bill's union backers were hiding their real agenda with “red herring” issues like highly compensated executives and the superficial dissonance of not-for-profit organizations with healthy margins.

“'Not-for-profit hospital' doesn't mean that you don't make a profit--all hospitals need to make a profit to keep the doors open,” Emerson-Shea said. “This is about one labor union that is unsuccessful at organizing labor unions at some of these larger hospitals, so they are going to try to smear the reputations of the hospitals through corporate campaign tactics.”