Where Most Needed

The New York Times (Robert Pear) reports on a new effort by the IRS to grapple with the concept of a "charity" hospital in today's healthcare environment.  Instead of a full audit, the service wants tax-exempt hospitals to complete an extensive questionnaire about their policies and practices. 

You can see the questionnaire (or should I say Form 13790) on the IRS web site and I've summarized the categories below.

The IRS is in a bind with charity hospitals.  Their last real guidance came out in 1969 (Revenue ruling 69-545) and provided just two blatantly obvious examples (to us) of hospitals that would and would not make the cut.  The loser "Hospital B" had a board controlled by five doctors who wouldn't allow other doctors to practice there. (Undoubtedly this represented a real scenario in 1969.) 

But the world of health care is much more complicated now, and questions have arisen outside the IRS as to what it means to be a charity hospital: 

• In recent years, there have emerged class action lawsuits challenging charity hospitals that charge higher rates to the uninsured, do not give enough free care, which engage in aggressive collection efforts, and which claim bad debt write off as their "charity care" contribution to the community.
• The attorney general of Illinois Lisa Madigan has proposed legislation that require charity hospitals to spend at least eight percent of their income on serving the uninsured. 
• The local taxing authority in Champaign, Illinois, denied property tax exemption to Provena Covenant Medical Center (Provena Hospitals EIN 36-4195126 Form 990) because, among other things, it had subcontracted the operation of many of the departments of the hospital to for-profit firms.  (Three years later, the hospital is still waiting for the decision on its appeal.) 
• There are also the pervasive charity issues of compensation and conflict of interest, which become acute in hospitals due to their huge budgets and the multiple business interests of attending physicians. 
• And in the wake of Sarbanes-Oxley, there are also concerns about the governance process within hospital boards. 

My take on this IRS questionnaire:

Good thing: Focusing on large organizations like hospitals that account for a substantial chunk of charity income and employment, rather than the million tiny nonprofits that don't.  The IRS only audited 375 out of 7,000 hospitals over the last ten years.  The survey approach can extend their reach.

Bad thing: The implication that only charity hospitals have to provide indigent care or community outreach.  All hospitals should be on an equal footing here and it should be part of the hospial accreditation process, not IRS review of charity status. 

Better thing:  The IRS should scrap the old "community benefit" rigamarole entirely.  It's incompatible with the level of resources available for enforcement.  It should be enough for charity hospitals that they don't pay dividends to stockholders, and the IRS review should primarily make sure that governance is adequate and compensation arrangements are disclosed, reviewed, and reasonable. 

What the questionnaire asks about:

• Patients (number of uninsured served, denied service)
• Emergency room (hours, trauma certification, availability to all, denial of service)
• Board of directors (number, background, frequency of meeting, attendance)
• Medical staff privileges (eligibility, denied applications)
• Medical research (spending, source of funding, public access to results, grants to others, medical trials)
• Professional medical education (spending, source of funding, grants for training)
• Uncompensated care (written policy, number served, spending, accounting for partially unreimbursed charges and bad debt as uncompensated care, amounts reported to state government, specific policies for inpatient, outpatient & ememrgency room, policy on when service is deemed uncompensated)
• Billing practices (requirement of prior payment arrangements, specific policies for inpatient, outpatient and emergency room, when bill is sent, how many notices before collection, use of collection agencies, installment or extended pay agreements, when bills are classed as bad debt)
• Pricing practices (different charges for different patients for same service)
• Community programs (medical screening, immunizations, community education, studies of unmet needs, programs to improve access to uninsured, community newsletters)
• Compensation (compensation of officers, directors, trustees and key employees, formal policy, who appproves, methods of determining compensation, factors used in comparability studies, use of other tax exempt hospitals, compensation within range of comparable)
• Business relationships between organization and officers, directors, trustees, & key employees