Monday, January 2, 2012

Courtney: Hospitals' Tax-Exemption and Future Policymaking Considerations

Bobby A. Courtney (J.D./M.P.H. 2012, Indiana University-Indianapolis) has published "Hospital Tax-Exemption and the Community Benefit Standard:  Considerations for Future Policymaking," 8 Ind. Health L. Rev. 365 (2011) (Download).  Here is a short synposis of his note:

The issue of hospital tax-exemption is particularly important given the over 50 million citizens without health insurance in the United States.  Historically, the uninsured have relied on the charity of private hospitals (i.e., not government owned) for care.  These private hospitals are largely nonprofit; in fact "[o]f the 630,000 beds in Medicare-certified community hospitals in the United States in 2003, 68 percent were located in nonprofit hospitals, 16 percent were located in for-profit hospitals, and 15 percent were located in government (nonfederal) facilities."  Moreoever, the American Hospital Association notes that there are over 5,700 hospitals in the United States, more than 2,900 of which are nonprofit, non-governmental facilities.  Given both shrinking reimbursement by government and private payers, and increasingly competitive markets, the cost of unreimbursed care continues to mount and nonprofit hospitals are finding it more difficult to cross-subsidize indigent care (i.e., charity care) using revenues garnered from paying patients.  As such, a perception exists that many nonprofit hospitals do not warrant their tax-exempt status, since their direct charity care figures do not equal the financial benefit these entities receive from said exemption.

This note does not purport to analyze or recommend new constructs upon which charitable exemption should be based; rather, it offers a pragmatic discussion of elements that should be included when considering tax-exemption as applied to nonprofit hospitals.  To facilitate such a discussion, Part II addresses the evolutio of tax-exemption for nonprofit hospitals, criticism of the current standard, as well as State, Internal Revenue Service ("IRS"), and Congressional responses to the issue.  Part III suggests that any future standard should exclude a mandatory charity care percentage, yet include bad debt, the unreimbursed cost of Medicare, and hospital "community-building" activities.  Finally, Part IV recommends that the locus of control for defining the standard should remain with the IRS.


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