February 23, 2008
Miranda Perry Fleischer Posts Charitable Contributions in an Ideal Estate Tax
Miranda Perry Fleischer (University of Illinois) posted an abstract of her recently published article, Charitable Contributions in an Ideal Estate Tax, on the SSRN Nonprofit Law and Philanthropy Abstract Journal. Here is the abstract:
Charitable bequests have been fully deductible for federal estate tax purposes since 1918. The unlimited nature of the estate tax charitable deduction contrasts starkly with the income tax charitable deduction, which contains a complex maze of limits based on the donor's income, the nature of the donee organization, and the asset donated. Although many scholars have explored the income tax charitable deduction, few have considered the normative question of whether the estate tax should have a charitable deduction, and if so, whether any limits should apply.
This Article fills that void by exploring whether various conceptions of an ideal estate tax base should include a charitable deduction, and if so, what that deduction should look like. Most scholars agree that the primary goal of the estate tax is not solely to raise revenue but also to further one or more of the following social policies: (1) minimizing the accumulation of dynastic wealth, (2) enhancing equality of opportunity, (3) adding progressivity to the overall tax system, or (4) backstopping the income tax system. The ideal estate tax base differs depending on which of these goals the tax is intended to further. This Article examines each rationale in turn to determine whether charitable bequests should be included or excluded from a tax base designed to further that rationale. It concludes that although all four rationales justify some type of charitable deduction as a normative matter, only one (furthering progressivity) potentially justifies an unlimited deduction similar to the existing deduction. All other rationales for the tax suggest a more limited deduction.
For those who have access, this article was recently published in the 60 Tax L. Rev. 263 (2007) (Westlaw access required for this link).
Stanford Joins Other Universities in Plan to Raise Aid for Middle Class Students
Stanford joins Harvard, Yale and others that provide tuition breaks to middle class families. According to the New York Times, Stanford will not charge tuition to "families earning less than $100,000," and in addition, will not charge room and board to "families earning less than $60,000." Stanford's director of financial aid said that the university would increase its total financial aid by $21 million to $114 million to pay for these breaks, paid for through the university's endowment fund. These breaks, however, are not without a hitch. Students whose families earn less than $60,000 and who receive both tuition and room and board breaks will be expected to contribute $4,500 a year from summer earnings and on-campus work. For students whose families earn less than $100,000 and who receive a tuition break, the university will monitor family assets and other circumstances to determine eligibility for aid.
The article further explains that the recent actions of wealthy, elite colleges to raise aid to students in the middle class is spurred by activity in Congress wherein lawmakers have "raised the possibility of requiring [such] colleges, which benefit from tax exemptions on [charitable] donations, to spend at least 5 percent of their [swelling] endowments a year, as private foundations are required to do." The article further suggests that Senator Charles E. Grassley, the senior Republican on the Senate Finance Committee, hopes to see a shift in the thinking of well-funded schools. The article reports that Stanford’s endowment is $17 billion, the third largest of American universities. Stanford's increased funds allocated to this effort bring the annual endowment spent on financial aid by Stanford to 5.5 percent. The article, additionally, points out that the recent decisions to increase aid to middle class students could mean that attending some of the wealthiest and most elite private colleges in the United States could cost less than going to public universities.
See Article for more information.
Board of Directors of Catholic Hospital in London Forced to Resign in Ethics Dispute
The head of the Roman Catholic Church in England and Wales, Cardinal Comac Murphy-O’Connor, recently ordered the resignation of all members of the board of directors of the St. John & St. Elizabeth Hospital in London, England. The rift of the board of directors stemmed from an ethical dispute over the role Catholic beliefs should play in the dispensing of patient care at the Hospital. According to the article, tension arose between the board and the Catholic church when the cardinal imposed a new ethics code on the hospital. The cardinal urged the adoption of the new ethics code to ban perceived non-Catholic practices, such as, prescribing the morning after pill, referring patients for abortions, and performing sex-change operations. The cardinal, in 2005, wrote the then chairman of the board, Lord Bridgman, and said the following,
There must be clarity that the hospital, being a Catholic hospital with a distinct vision of what is truly in the interests of human persons, cannot offer its patients, non-Catholic or Catholic, the whole range of services routinely accepted by many in modern secular society as being in a patient’s best interest.
See Article for more information.
February 22, 2008
Financial Times Analyzes Pitfalls of Nonprofit-For Profit Joint Ventures in Wake of One Laptop Per Child Debacle
The Financial Times has published an interesting story regarding the problems and concerns attendant to joint ventures between for-profit and nonprofit entities.
For companies, such partnerships are a chance to boost their citizenship credentials by tackling social and environmental issues. However, both parties need to agree on ways to share the commercial benefits that result from their joint initiatives. “There will soon come a time when people become more sceptical of companies entering partnerships, and that’s the last thing you want,” says Sonila Cook, partner at Dalberg Global Development Advisors. Ms Cook believes that mechanisms are needed “by which NGOs are reassured that the companies they’re working with are not in it purely for commercial reasons but because they also want to make a difference”.
Balderdash, madam! Of course companies are in it for purely commercial reasons. The whole point of the dadgum joint venture is to harness the greedy motives of capitalists for the public good of society. And dadgummit, the U.S. IRS is far too restrictive in its approach to joint ventures. See, Revenue Ruling 98-15. Note in the quote above, the implicit and quite sensible assumption that there are inevitable commercial benefits to any "mixed race" joint venture. That's no reason to prohibit the lot of them. Adam Smith pointed out a long long time ago that private profit is the best provider of the public good. And there are some goods for which there is insufficient hope of private profit to stimulate the occurence of that good. Tax subsidies are necessary not only to remedy that "market failure," they are also economically efficient as intended substitutes for the hope of private profit. It cost less to allow an affordable housing joint venture between for-profit and nonprofit even if a few people become conspicuously wealthy than it cost to build and maintain a public housing project, for example. The real problem with the whole joint venture analysis under U.S. law is that it is being developed in context of health care involving joint ventures between what are essentially two for-profit entities, notwithstanding the nominal grant of tax exemption to one of those joint venturers. Bad facts make very bad law and hashing out the law of joint ventures in the context of health care is "bad facts." Dadgummit!
Institute of Peace Releases Special Report on Religion in World Affairs
The United States Institute on Peace has released Special Report 201, Religion in World Affairs -- Its Role in Conflict and Peace. In the report, the Institute describes itself as "an independent, nonpartisan institution established and funded by the United States Congress [aiming] to help prevent and resolve violent conflicts, promote post-conflict peacebuilding, and increase conflict-management tools, capacity, and intellectual capital worldwide." The Institute maintains that it seeks to achieve these goals "by empowering others with knowledge, skills, and resources, as well as by its direct involvement in conflict zones around the globe."
The Special Report, prepared by the Institute's Religion and Peacemaking program, begins with the following summary of its contents:
February 21, 2008
Nonprofits Face Staggering Interest Costs as Bond Insurers Balk
Today's Boston Globe reports that universities and other institutions are currently grappling with an unexpected problem: bond insurers who will not let them off the hook. The Globe article specifically mentions Bentley College in Waltham, MA, where treasurer Paul Clemente expects he will soon have to pay $500,000 to refinance a debt with soaring interest costs. If his bond insurer would let him convert from an auction-rate bond to a different type of variable-rate bond, his cost would drop to around $50,000. Alas, Clemente reports, the bond insurer has stopped returning his calls.
Other institutions identified by the Globe as having similar problems are Worcester Polytechnic Institute (in Worcester, MA) and Bentley University located in Smithfield, RI. According to the Globe, like Bentley College, these two institutions would like to convert their auction-rate bonds into variable rate bonds. This, though, is easier said than done.
This situation has resulted from the spread of the problems with subprime mortgages to nonprofit institutions such as hospitals and universities whose bonds were previously considered to be safe, conservative investments. Many of these institutions paid millions of dollars to bond insurers to make their bonds more appealing to investors.
Since last month, however, the largest insurers have been downgraded or put under review by major credit rating agencies because of the subprime holdings in their portfolios. This in turn has caused many borrowers to stop bidding on auction-rate bonds (i.e., bonds whose interest rates are set in periodic auctions). When no one bids on these bonds, their interest rates reset at levels specified in contract documents, sometimes to as high as 20 percent! This requires the institutions to pay much more in interest costs than they had originally expected to. The Globe reports, for example, that Bentley College had to pay 7.8 percent interest last week on bonds that paid around 3.5 percent in November, adding an extra $60,000 a week to the college's interest costs.
It appears that a solution will eventually be found to the current crisis. According to the Globe article:
Yesterday, Massachusetts Secretary of State William F. Galvin launched an investigation into auction-rate bonds, asking several mutual-fund firms that hold these bonds for information. "The failures in these auctions cause many and diverse problems," Galvin said, and the impact "can be daunting for the investor who has sought a safe and dependable harbor for life savings."
Meanwhile, some of the bond insurers are reporting that they are working with their clients to find satisfactory solutions.
Columbo and Horwitz Speak Up on Dispute Re: Hospital Charity Care
Yesterday's New York Times includes an article regarding the proper measure of nonprofit charity care. According to the article, "the 1.9-million-member Service Employees International, argues that a Boston hospital, Beth Israel Deaconess Medical Center, violated [Sarbanes Oxley accounting] standards by including its losses from bad debts in its tally of the charity care it provides." Beth Israel is the teaching hospital for the very well endowed (indicating a measly $3.6 Billion endowment, no wonder uncollected bad debt is charity!) Harvard Medical School, by the way. SEIU acknowledges that Sarbanes Oxley does not literally apply to nonprofit hospitals but it still argues that counting uncollected hospital bad debt as "charity" care is misleading. The article quotes two prominent tax law professors, John Columbo (Illinois) and Jill Horwitz (Michigan) as confirming that Sarbox is generally inapplicable to nonprofit boards. Still, Horwitz seems to applaud the "creative" efforts SEIU is using to encourage further discussion by nonprofit hospital boards.
Massachusetts law, said Jill R. Horwitz, a law professor at the University of Michigan, does not require nonprofits’ directors to behave exactly like directors of for-profit companies, although it does require them to apply their knowledge in a general manner. Still, Professor Horwitz said, the union’s approach is “very aggressive, creative lawyering, and once they’ve sent the letter, I think the board members do have a duty to discuss the issues it raises with the executives of the hospital to make sure everything is in order.”
Human Rights Watch Accuses Russian Government of Suppressing NGO's
In a report released yesterday entitled, “Choking on Bureaucracy: State Curbs on Independent Civil Society Activism,” Human Rights Watch accused the Russian government of seeking to suppress nonprofit organizations whose views or activities are at odds with government policies. Here is an excerpt from the summary:
Over the past eight years, the Russian government under President Vladimir Putin has engaged in efforts to weaken beyond recognition the checks and balances inherent in a truly democratic political system. A recent aspect of these efforts has been a policy to subject Russia’s vibrant civil society to greater scrutiny and control, through a 2006 law that gives the government broad powers to regulate the activities of nongovernmental organizations (NGOs). The government has also used other measures, such as the amended 2002 anti-extremism law and a variety of administrative regulations, to target organizations that work on controversial issues, may be capable of galvanizing public dissent, or that receive foreign funding. This report documents the corrosive impact the 2006 law and other government measures have had on civil society in Russia. It demonstrates how these policies are aimed at weakening critical voices in Russia and have profoundly undermined independent activism.
In a related press release, Human Rights Watch Executive Director Kennoth Roth said “with the new rules, NGOs live under a looming threat of harassment, and this is a serious threat to freedom of expression in Russia.”
Iowa Legislature Considering "Audit Fee" For Public Charities
According to the The Daily Iowan, the Iowa legislature is considering a bill that would impose an annual fee on state nonprofits.
In an effort to increase oversight of nonprofit organizations, the Iowa Senate is discussing a bill that would take an estimated $150,000 away from nonprofit organizations. The attorney general would use this funding to hire another attorney and support staff to focus on problems nonprofit groups may run into - such as conflicts of interest, executive compensation, and their use of authority.UI law Professor Willard "Sandy" Boyd said general feelings are that the state has not been as active as it should be.
"To have no staff to carry out the basic responsibility of the attorney general for oversight of nonprofits organizations is a great deficiency," he said. "Sort of like if we had a university but no funds to hire faculty."
If passed, the extra money would come in the form of a $25 to $30 fee every two years from local nonprofits, excluding those considered mutual-enefit organizations - such as credit unions, co-ops, and trade associations.
The effort seems motivated by sensational stories of large salaries and lack of tuition assistance for college students. Tax Exempt wonks know that IRC 4946 already imposes such an oversight fee on private foundations at the federal level. I've read anecdotal reports that the money collected via that provision has never really been earmarked for federal oversight of private foundations but has instead but diverted to general purposes. If Iowa does pass such a bill there ought to be a specific requirement that it be forever used to fund its intended purpose.
February 20, 2008
Nonprofits Cash In On Questionable Political Contributions
According to a February 20, 2008, report in NPT Weekly, nonprofit organizations have been benefiting from questionable political contributions made to this election's presidential candidates. As campaigns have sought to distance themselves from donors who have found themselves beset with legal troubles, these campaigns have been turning the contributions over to nonprofit organizations.
Almost a dozen nonprofits have already benefited from a controversy involving a donor to the campaign of Sen. Hillary Clinton. The New Jersey State Democratic Committee has donated almost $50,000 received from Norman Hsu -- who was sentenced to three years in prison in a 1992 fraud case -- to various nonprofit entities. Meanwhile, the Clinton campaign has divested $850,000 that Hsu raised for the campaign.
As regards Sen. Clinton's rival for the Democratic Party nomination, the campaign of Sen. Barack Obama has said it would donate more than $40,000 -- contributions received from a former friend and fundraiser who pleaded not guilty to fraud charges -- to nonprofit organizations.
Need for Prison Ministry Increases as Prison Population Rises
According to a press release posted on the Religion News Service Website, the current record-high global prison population and the costs of incarcerating so many people justify the existence of Kairos Prison Ministry International, Inc., a non-profit ecumenical prison ministry based in Winter Park, Florida. Kairos is the parent organization of several ministries addressing the spiritual needs of incarcerated men, women and children, while also ministering to the families of incarcerated individuals and to those who work in the prison environment.
Kairos is widely recognized for its success in changing attitudes and life-long behavior in men and women incarcerated in jails and prisons in the United States and is countries such as the United Kingdom, Australia, South Africa, Canada, Costa Rica, Honduras and Nicaragua where the ministry has a presence. According to the RNS report:
Kairos leaders work with prison officials to identify key inmates, most often those considered leaders among their prison populations, to participate in a Kairos three-day weekend. The inmates work in small groups with trained Kairos volunteers participating in discussions, meditation and ministry education. After their weekend experience, Kairos participants receive on-site follow-up visits with Kairos volunteers. The Kairos participants also are encouraged to meet in small groups for continued growth and support on a more frequent basis.
In addition to its core program of prison ministry, Kairos offers programs for family members and loved ones of the incarcerated (Kairos Outside) and programs for youthful offenders (Kairos Torch).
Does Small Government Mean Big Civil Society?
I ran across an interesting, late 90's era document from the Cato Insitute entitled "Restoring Civil Society." What fascinated me about it is the notion that big government and vibrant civil society are somewhat mutually exclusive. It reads like a 90's era Newt style manifesto; it makes some provocative points. Here is an excerpt from the full document:
The Condition of Civil Society
Restoring civil society is a moral imperative. There is no more important issue on the political agenda today. The picture, however, is not an entirely bleak one, for the retreat of civil society in the face of advancing political society has been uneven. In some areas, civil society has even advanced, as political society has been restrained and pushed back; notable examples are the partial but progressive deregulation in recent decades of telecommunications, which has opened up so many opportunities for people to communicate and form new communities, and of financial services, which has allowed individuals and families greater control over their own investments. Despite all the advances of political society in recent decades, America still has a vigorous and robust civil society that provides employment for nearly 130 million persons, generates $7.5 trillion in annual production, and brings forth technological innovation on a daily basis. And charity and mutual aid are also growing in civil society; Americans gave $125 billion to private charities last year, and mutual aid organizations from Alcoholics Anonymous to the Promise Keepers to shelters for battered women offer mutual support to help individuals become stronger and more virtuous and to resist the temptations of irresponsible or self-destructive behavior.
The overall thrust of the document is that "political society" or government sponsored efforts to deal with social problems and inequalities are bad, grass roots movements to do the same are good. I wonder if it is really just a sophisticated and disguised argument against redistributive policies.
CRA Issues Proposed Guidelines and Request for Comments Regarding Exempt Research Organizations
The Canadian Revenue Agency recently issued proposed guidelines outlining the requirements for tax exemption as a charitable research organization:
This document sets out the proposed policy of the Charities Directorate, Canada Revenue Agency (CRA) concerning the legal and administrative requirements a registered charity is expected to fulfil in order to conduct or fund research as a charitable activity. The CRA wants to hear from charities, individuals involved in charitable work, government departments, and the general public. We would like your opinion about how easy these guidelines are to understand and apply, and we welcome your comments about any aspects of the proposed guidelines. Please feel free to forward this information to groups who may not be regular visitors to our site, but who may be interested in contributing their views. We will consider all of the comments that we receive by February 29, 2008.
The thorniest issue in the U.S. and other places too, obviously, regarding exempt scientific organizations is the extent to which the organization's activities convey a private benefit. Compare 1.501(c)(3)-1(d)(5). In other words, granting tax exemption to organizations that exist to discover new cures, methods, etc., all of which are very likely to make at least one individual pretty rich, magnificantly focuses attention on the notion that people should not get rich from tax exempt supported ideas. We want to support research into the discovery of cancer or HIV, but whoever toils away in a tax exempt supported university lab or scientific organization is bound to get rich. There are other areas of tax exemption that struggle to draw the line between public benefit and private wealth. I rather agree with Adam Smith's observation that the individual struggle and attainment of wealth inures to the benefit of us all. It follows, that though we should be careful about tax exemption being intentionally diverted to private wealth, we should not worry so much if achieving a public good has the foreseeable but unintentional effect of making someone rich. The Canadian proposed guidelines, too, struggle with that issue.
UK Civil Society in "Rude" Health, earning more than all utilities combined
According to the Third Sector, a UK online focusing on nonprofits, civil society in the UK is in "rude" health, collecting 109 billion pounds annually. That's $216 billion in Oprah currency.
It paints a picture of a society in rude health, consisting of 865,000 organisations employing 1.35 million people and with combined assets of £196bn, 3 per cent of the UK asset base. This does not include the value of religious buildings or assets such as London's Tower Bridge, which cannot be sold. "Civil society organisations have a unique place in securing the nation's heritage, over and above their substantial asset base," the 120-page almanac says. The volume also suggests that the idea that charities develop out of need is a myth: they are more likely to be found in affluent areas, it says.
Rude health indeed.
February 19, 2008
Results Released of Study on Foundation Expenses and Compensation
The nonpartisan Urban Institute has published the results of a three-year-long study on foundation expenses and compensation. The report titled What Drives Foundation Expenses and Compensation?: Results of a Three-Year Study, presents the results of a systematic study of independent, corporate, and community foundations' expense and compensation patterns and the factors behind them. The study documents the varying characteristics of the 10,000 largest U.S. grantmaking foundations, and finds that these differences — including foundation type, size, and operating activities — are essential for understanding foundation finances. The study's abstract reads:
This brief presents key findings from the latest report on the Foundation Expenses and Compensation Project – the first large-scale, long-term, systematic study of independent, corporate, and community foundations' expenses and compensation patterns and the factors behind them. It documents how differences in type, size, and operating activities of foundations affect their finances and charitable administrative expenses.
According to the study, its
goals are to inform public policy debates and foundation practices by documenting administrative expenses reported by foundations for their grants and other charitable activities, examining compensation levels of their executive staff and board members, and assessing the factors that drive both types of expenditures. The focus is specifically on charitable administrative expenses, those expenses that relate exclusively to programs and count as qualifying distributions toward the 5 percent payout requirement for private foundations.
Huckabee Endorsement Results in IRS Investigation
According to a report published on the American Baptist Press ("ABP") Website and the Los Angeles Times, the IRS has opened an investigation of First Southern Baptist Church of Buena Park, California, for violating the political campaigning prohibitions of IRC § 501(c)(3). The IRS charges that the church's pastor, Wiley Drake, violated the law by using church resources to endorse Republican presidential candidate, former Arkansas Governor Mike Huckabee.
According to the ABP report, Pastor Drake made the endorsements in August 2007. In a press release printed on church letterhead, Pastor Drake stated:
After very serious prayer and consideration, I announce today that I am going to personally endorse Mike Huckabee. I ask all of my Southern Baptist brothers and sisters to consider getting behind Mike and helping him all you can.
Shortly after he released the written statement, Pastor Drake also endorsed Governor Huckabee on an Internet-based radio show the church sponsors. On that show, the pastor stated:
Yes, I endorsed him personally and, yes, we use the First Southern Baptist Church. Everything we do is under the auspices of the church.
The IRS announced its investigation after Americans United for Separation of Church and State filed a complaint alleging that Pastor Drake and the First Southern Baptist Church had violated the law. When informed about the complaint, Pastor Drake reportedly told the Los Angeles Times that he was not worried about federal tax regulators. “They don't scare me,” he said. “I don't give a rip about the IRS. I don't believe in the separation of church and state, and I believe the IRS should stay out of church business.”
Pastor Drake's statements notwithstanding, his attorney told the Associated Press that his client did not violate federal tax law by endorsing Huckabee because it was a personal endorsement, not done on behalf of the church. Said the attorney:
Our position on this is that ... churches and pastors have First Amendment rights just like anybody else, and that includes the right to speak out. They can feel free to personally endorse candidates. It was not a church endorsement, and he made that very clear.
Colleges and Universities Resist Calls for Higher Endowment Spending on "All Things Considered"
Intermediate Sanctions, Perhaps Revocation, On the Horizon in the Big Apple
According to a New York Daily News article, a tax exempt organization in Brooklyn has set itself up as the poster-child for private inurement and excess benefit transactions. Insiders at the Evelyn Douglin Center for Serving People in Need, including CEO Siebert Phillips, are in big trouble if the the following allegations prove true:
In 2006, Phillips gave himself a salary of nearly $300,000 as the head of SPIN and its sister group, the Evelyn Douglin Center for Children's Services - far more than top managers earned at similar nonprofits.
Phillips gave SPIN staffer Carlos Ortiz - with whom he was having a "personal relationship," the report stated - a $100,000-a-year, no-show job, a $51,000 company car and health and pension benefits. Reached by The News, Ortiz had no comment.
On Staff Day 2005, the agency doled out more than $60,000 for 11 flat-panel TVs, 34 iPods and other gifts.
A dozen top staffers got luxury cars - from Phillips' $51,475 GMC Denali to property manager Raymond Wynne's $62,370 Lincoln Navigator. "This appears to be well in excess of what is necessary and inconsistent with proper stewardship of taxpayer funding," investigators wrote.
Phillips and two colleagues spent $11,634 on a two-day conference in Chicago, where they paid $3,502.73 for lodging, including room service.
Phillips' son, who lives in Atlanta, allegedly racked up nearly $18,000 in gas charges on an agency credit card.
On top of all that, the article recounts that one staffer was fired for blowing the whistle and that most of the board members are friends of the CEO. Boy, what a case study! A follow-up article in today's New York Daily News indicates that the Attorney General and the Brooklyn District Attorney have started an investigation. It should be only a matter of time before the IRS starts sniffing around.
Should Exempt Hospitals Offer Bundled Discounts or Otherwise Engage in Competitive Behavior?
There is a knock-down, drag-out fight going on between two nonprofit hospitals out in Lane County, Oregon that provokes me to ask whether nonprofit hospitals ought to so blithely imitate the cut-throat [read "efficient"] competitive behaviors of their for-profit cousins. The fight has been ongoing since 2003 when a Lane County jury awarded McKenzie-Willamette Hospital (now known as Cascade Health Solutions) $16 million in damages after finding that another nonprofit hospital, PeaceHealth attempted to monopolize the health care market in Lane County by offering what is known in the antitrust world as "bundled discounts". For an analysis of the antitrust concerns related to bundled discounts see Thomas A. Lambert, Evaluating Bundled Discounts, 89 Minn. L. Rev. 1688 (2005). The most ironic thing is that this most competitive, profit-seeking issue is being sorted out in the nonprofit world. Indeed, the case is being written about (reprint of National Law Journal Article) as though it will eventually settle the murky law of bundled discounts.
Last year, the 9th Circuit vacated the jury award and then on February 1, 2008, the 9th Circuit certified the antitrust question to the Oregon Supreme Court. As far as I can tell, nobody has yet raised the question whether legal or illegal (the question awaits the Oregon Supreme Court opinion) bundling by a nonprofit hospital, to the specific detriment of another nonprofit hospital, ought to cause the revocation or at least questioning of the cut-throat competitor's tax exempt status.
I'll give readers a "summary of the case for anti-trust dummies" (like myself). McKenzie-Willamette, and PeaceHealth are both nonprofit hospitals operating in Lane County. In fact, no other hospitals serve the area. PeaceHealth is much larger than McKenzie-Willamette. Both hospitals offer primary and secondary care but at the time the lawsuit was filed, only PeaceHealth offered "tiertiary care" -- basically more complex surgical procedures. In an apparent effort to corner the market, PeaceHealth offered to provide tiertiary care at a discount if the third party payment provider (BlueCross BlueShield) would also agreed to make PeaceHealth its exclusive hospital for primary and secondary care. In the antitrust world, PeaceHealth offered a "bundled discount" -- in other words, "buy [exclusively] all my services at a discount or get each of my services at a higher price". McKenzie-Willamette actually argued that PeaceHealth was demanding that the insurance providers "buy all services from PeaceHealth, or none at all." Since PeaceHealth was the only nonprofit hospital to offer tiertiary care, it had significant leverage and, theoretically at least, could force insurers into exclusive provider contracts and thereby eliminate alternative providers (somehow the world "competitors" doesn't seem right in the nonprofit world). Here is an excerpt from the February 1, 2008 opinion better explaining and, in the process, illuminating the problem:
McKenzie asserts that PeaceHealth offered insurers discounts of 35% to 40% on tertiary services if the insurers made PeaceHealth their sole preferred provider for all services--primary, secondary, and tertiary. In 2001, for example, PeaceHealth was the only preferred provider of hospital care under the preferred provider plan ("PPP") of Regence BlueCross BlueShield of Oregon ("Regence"). At that time, Regence was paying PeaceHealth a 76% reimbursement rate for all of PeaceHealth's medical services, including primary, secondary, and tertiary services. Around that time, pursuant to McKenzie's request, Regence considered adding McKenzie to the PPP as a preferred provider of primary and secondary services. When Regence's contract with PeaceHealth came up for its annual renewal, Regence solicited two proposals from PeaceHealth. Under one proposal, PeaceHealth would remain the only preferred provider. Under the other proposal, McKenzie would be added as a preferred provider. PeaceHealth offered an 85% reimbursement rate for all services if it remained Regence's sole preferred provider of primary, secondary, and tertiary services, and a 90% reimbursement rate if McKenzie was added as a preferred provider of primary and secondary services. Regence thereafter declined to include McKenzie as a preferred provider. [emphasis added]
In effect, Peacehealth's pricing practices precluded McKenzie-Willamette from the market, perhaps even reducing the availability of charitable health care in Lane County. McKenzie-Willamette was already suffering financial losses at the time and eventually merged with Cascade Health Solutions. Practically speaking, at least, the crushing of another nonprofit hospital through predatory pricing is decidedly non-charitable. We know, too, that health care, even health care that is not necessarily geared towards those unable to pay, is very nearly "charitable, per se." See Rev. Rul. 83-157, 1983-2 C.B. 94 (holding that a nonprofit hospital could be tax exempt even though it did not treat indigent patients, so long as there were sufficient alternatives for indigent health care in the relevant community). It gained that status -- like education and religion -- from the idea that expanding the availability of health care is itself charitable. Is it appropriate, then, for one tax exempt hospital to enter into a contract the purpose or effect of which is to cause third party payors to refuse to pay for care provided by another nonprofit hospital and thereby necessarily reduce the amount of available health care in a given community? I suppose PeaceHealth could argue that consolidation is ultimately good for the market and through some strange twist assures a minimal level of service, but that is a for-profit argument.
Osteen Steers Clear of Politics
According to report appearing in Christian Post, Joel Osteen, best-selling author and pastor of the 47,000-member Lakewood Church in Houston, Texas, has a strict policy of not allowing any politician or government office holder to speak in his church about politics. Osteen is reported as saying that while he would introduce from the pulpit any political candidate or office holder visiting his church, his comments would be limited to "only a brief introducion and a thank you for their service."
Pastor Osteen's view contrasts with those of many pastors across America who have allowed or invited the 2008 presidential candidates to speak in their pulpits. The Christian Post report concludes that
In a presidential race where being religious is an emblem of honor, candidates in both parties will surely continue to knock on the doors of pastors and their churches, although perhaps not at Osteen’s church.