Safety in Numbers

The debate surrounding nonprofit hospitals’ tax-exempt status erupted three years ago and hasn’t abated since. As public inquiries of nonprofits have continued to broaden, one state’s hospitals hope an agreement designed to standardize pricing and debt collection for the uninsured will help nonprofits rest a little easier.

Scrutiny of nonprofits’ tax-exempt status began amid questions overbilling and collection practices for uninsured patients, chargemaster list prices, community benefit and executive compensation (see “Do Nonprofit Hospitals Deserve Their Tax-Exempt Status?” HealthLeaders, December 2004). The issue garnered additional attention when Provena Covenant Medical Center in Urbana, Ill., lost its property tax exemption in February 2004 after state regulators ruled it wasn’t a charitable institution. Nonprofit hospitals across the country soon began re-evaluating their own billing and collections practices and community benefit policies.

So did public officials. In May 2005, Rep. Bill Thomas (R-Calif.), Ways and Means Committee chairman, held hearings investigating nonprofit hospitals’ tax exemptions. In March 2006, Sen. Charles E. Grassley (R-Iowa), Senate Finance Committee chairman, urged the American Hospital Association to take a more active role in the discussion of nonprofits’ pricing and debt collection policies, charity care and community benefit. The issue heightened in May when the Internal Revenue Service requested information from more than 550 tax-exempt healthcare organizations about their operations and community benefit services. And at the state level, Illinois Attorney General Lisa Madigan introduced two bills in early 2006—one of which would require nonprofit hospitals to devote a minimum of 8 percent of their operating costs to charity care.

Nonprofit hospitals clearly are under more scrutiny today than in the past, says David R. Page, president and CEO of Fairview Health Services, a seven-hospital system in Minneapolis. “There is a lack of a clear set of guidelines as to how tax exemptions are earned and maintained. The language in the IRS code is very vague, so without explicit guidelines, the performance ranges are great,” he says.

Fairview and other Minnesota hospitals hope an agreement with Attorney General Mike Hatch will relieve at least a little of the confusion, however. Signed by every hospital in Minnesota in 2005, the agreements established a community standard for payments from uninsured people with a family income of less than $125,000, says Bruce Rueben, president of the Minnesota Hospital Association. Hospitals agreed to charge the uninsured the same amount for services as patients covered by a given hospital’s largest dollar volume commercial insurer. “It’s different for every hospital, so it’s flexible but makes sense for the community,” Reuben says. The arrangement also included charity care and debt collection standards.

State hospital associations across the country should agree on standardization and how they approach charity care for their members, says Page. “I hope this would be done in a fashion that doesn’t yield a patchwork quilt of 50 different versions. They don’t have to be exactly alike, but they have to be more alike than different.”

Still one more battleground in the nonprofit debate may be forming in the suburbs. As hospitals open satellite facilities in neighboring communities, some county officials are questioning whether such facilities provide enough of a community benefit to warrant a property tax exemption.

This development has surfaced in Ohio, Massachusetts, Michigan and Illinois, says James Unland, president of The Health Capital Group in Chicago. Currently, many county boards don’t have the sophistication to want to tackle the issue, he says, adding that one reason the Provena case is being followed closely nationwide is because property tax law is similar state to state. “The Provena case was instigated by the county board, and if Provena is required to pay property taxes and the county board is upheld, that will cause a tremendous amount of attention, if not action, on the part of other county tax boards.”

—Carrie Vaughan