Friday, December 19, 2008

Grassley to Propose Minimum Charity Care Requirements for Nonprofit Hospitals

According to a report in the Wall Street Journal yesterday, Senator Charles Grassley is considering proposing legislation that would impose excise taxes on nonprofit hospitals that fail to provide a minimum level of charity care:

The legislation would require nonprofit hospitals to spend a minimum amount on free care for the poor, also known as charity care, and set curbs on executive compensation and conflicts of interest, according to staff members for Mr. Grassley, ranking Republican on the Senate Finance Committee.  Under the new legislation, penalties would be imposed on nonprofit hospitals that fail to meet the new requirements, Sen. Grassley's aides said. The penalties could escalate from taxes and fines to stripping a hospital of its federal-tax exemption if it continues to misbehave, they say.  Sen. Grassley is working on the proposed legislation with several Senate colleagues, including New Mexico Democrat Jeff Bingaman, and is hoping to capitalize on the momentum for health-care change in Washington. But he is likely to run into stiff resistance from the hospital industry's powerful lobby, making the chances that such a bill would pass difficult to handicap.

Needless to say, the voices of "big healthcare are none too thrilled with the idea:

Alicia Mitchell, a spokeswoman for the American Hospital Association, said such legislation would be premature given that nonprofit hospitals haven't had a chance to demonstrate their goodwill under new Internal Revenue Service reporting requirements. "Hospitals do more to assist the poor, the sick and the elderly than any other part of the health-care system," she said.

As I noted just a few days ago in "The Rich and Poor of Nonprofit Hospitals", it is not a good idea to impose a sort of "one size fits all" legislative mandate on any part of the nonprofit sector.  On the other hand, tax laws must necessarily deal in generalities.  Another point, of course, is that the poor nonprofit hospitals are poor precisely because they provide so much uncompensated care that any such legislation is probably no threat to them.  And then finally, my cynical mind tells me that even the rich nonprofit hospitals will easily avoid any penalties under the tax by, ironically, paying more fees to their lawyers who are able to articulate even the most uncharitable expenditure as "charity care."  Perhaps the only real solution is to better define and enforce the commerciaality doctrine so that nonprofit hospitals that evolve into for-profit empires eventually lose tax exempt status regardless of how good they are at dressing up profit centers as charity care.

dkj

http://lawprofessors.typepad.com/nonprofit/2008/12/grassley-to-pro.html

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