In the most recent legal battle pitting healthcare providers against their hometown governments, two Pennsylvania municipal agencies last month sued two not-for-profit hospital systems. The goal was to regain property taxes by proving the not-for-profits operate very much like for-profits.
It's played out in state after state. Cash-strapped local officials eye the behemoths taking up blocks of valuable land while paying zero taxes year after year, despite turning a profit. They start questioning what those hospital systems have done for them lately. Health fairs usually don't cut it.
In Allentown, Pa., the Salisbury Township School District filed a complaint demanding Lehigh Valley Health Network pay more than $5 million a year in taxes. In Pittsburgh, two local school districts filed similar complaints against St. Luke's University Hospital and Abington-Jefferson Health.
Attorney Aaron J. Freiwald told a local newspaper that Salisbury needs money and “mega healthcare corporations are not paying their fair share.”
Freiwald and the school district argue that Lehigh Valley did not provide documents showing it met the requirements to avoid paying local property taxes. Lehigh Valley points to its $547 million in community benefit spending last year as proof of its designation.
In December, my colleagues Alex Kacik, Tara Bannow and Tim Broderick reported on the abject failure of the community benefit spending label, which covers every indirect healthcare-related effort from medical education to marketing materials for those health fairs. It's not simply charity care.
If hospitals don't have specific instructions on what interventions qualify as a community benefit, or how much they need to spend, they will define and report those dollars and programs in ways that can be challenged by public officials and community leaders.
For example, in December we identified one Chicago system as having the highest level of negative net community spending in 2015 among 100 hospitals we analyzed. But the system had simply followed Internal Revenue Service rules to omit a Medicaid surplus in its Form 990 that would have worked in its favor in the ranking.
After talking with officials from Sinai Health System, we were obligated to tell their story. Providers have few chances to share details of community-benefit programs that involve local partners and address things like childhood asthma or job training. Part of the Form 990 allows for a narrative account of programs and spending, but nowhere are organizations asked for the programs' impact.
The IRS and hospital groups have gone back and forth on exactly how to report community benefit. IRS officials told us they cited 388 hospitals out of 1,193 analyzed in fiscal 2017 for issues with their reporting. But when you consider that only one not-for-profit hospital has ever lost its tax-exempt status, you have to wonder whether it even matters.
Experts say staffing cuts at the federal agency are to blame. At best, no one is paying attention—either to those forms or to the antiquated definition of not-for-profit.
“We continue to put not-for-profit hospitals between a rock and a hard place,” said Gary Young, director of Northeastern University's Center for Health Policy and Healthcare Research. In expecting the nation's hospitals—nearly 60% of which are not-for-profits—to pretend they are not in the business of putting heads in beds, we set up hospitals to fail their communities, he adds.
Providers should not be penalized for being smart about finding ways to keep the doors open, including creating profit-generating arms that support their mission when patient volumes and payments fall.
But their leaders must invest in improving the lives of the people who previously only came to them for sick care. Here's the good news. Given the push for population health, by prioritizing programs in a quantifiable way, giving back to communities should be easy.
