Grassley revived his oversight push last month with a letter to IRS Commissioner Charles Rettig, asking for a briefing on the full scope of the agency’s audits.
“Making sure that tax-exempt hospitals abide by their community benefit standards is a very important issue for me,” Grassley wrote on Feb. 25. “This issue is still just as important to me now that I am chairman of the Senate Finance Committee.”
A former Grassley aide who conducted similar deep-dive investigations said the committee is likely to act quickly. Not only is the clock ticking on Grassley’s tenure as head of the committee, but the 2020 presidential election means that hefty congressional business will need to mostly wrap up this year.
The senator has assigned committee staff to receive IRS findings on levels of charity care hospitals offer and whether providers are widely advertising the availability of financial assistance for poor patients who would qualify. The IRS was asked to submit its findings by April 1.
The letter is the first step. What follows will depend on what the IRS reports to him, Grassley told Modern Healthcare. He said he doubts Congress will need to take additional legislative action, so long as the IRS is implementing the expanded Schedule H provisions as intended.
Not-for-profit hospitals are required to assess community health needs every three years and set a strategy to address them. Hospitals also must set financial aid policies and not set prices for people receiving financial help that are higher than the prices billed to insurers.
“If the administration just carries it out, we’re going to be able to tell whether or not they are meeting their community benefit standards,” Grassley said. “Unless someone in the bureaucracy would tell me that the law needs to be changed, I think it’s the enforcement of the law, and that’s what we’re having the investigation for, and the letters we wrote, to make sure the law is enforced.”
A clear warning followed.
“I think we have pretty good legislation, but it’s up to the IRS to enforce it—and to deny them (a hospital) tax-exempt status if they’re not doing their job,” Grassley said. “If you do that once you’re going to send a message to the whole profession. That’ll straighten things out.”
This has happened before. In 2010, in a case closely watched by the industry, the Illinois Supreme Court ruled that Provena Covenant Medical Center in Urbana, Ill., (now part of OSF HealthCare) did not give enough charity care to qualify for a property tax exemption. Grassley, then the ranking member of the Finance Committee, welcomed the ruling when it came.
Zerbe said that as the current investigation progresses it could produce similar downstream effects at the state and local levels where officials have their own levers—through property taxes for instance—to tamp down on potential abuse of exempt status.
“I think more and more folks on both sides are recognizing that we’re not looking enough at hospitals, or looking at what we are getting for their $20 billion to $30 billion in tax benefits,” he said. “What are they doing for the poor? This is setting the stage” for that discussion.
The hospital industry frames the issue very differently. “In 2015, an AHA analysis of Schedule H filings reported that 13.3% of tax-exempt hospitals and health systems total expenses were devoted to community benefit programs, and that half of that spending was attributable to expenditures for providing financial assistance to needy patients and absorbing losses from Medicaid and other means-tested government program underpayments,” Melinda Hatton, general counsel for the American Hospital Association, said in a statement.
Hatton also referred to an analysis by Ernst & Young that found “health systems’ community benefit activities outweigh the value of their federal tax exemption by a factor of 11 to one.”
“According to the report, non-profit hospitals in 2013 were exempt from an estimated $6 billion in federal taxes and provided an estimated $67.4 billion in community benefits,” she said.