Dive Brief:
- A group of bipartisan senators are ramping up scrutiny on nonprofit hospitals’ charity care spending, calling for a revision of federal auditing standards over concerns that hospitals abuse their tax-exempt status to avoid providing free and discounted care to communities and low-income populations.
- In a pair of letters sent to federal tax commissioners Monday, lawmakers including Sen. Elizabeth Warren, D-Mass., and Sen. Chuck Grassley, R-Iowa, urged a review of charity care tax regulations — which exempt nonprofit hospitals from paying federal taxes in exchange for subsidized care — arguing that current government oversight is “lax” and insufficient.
- Current auditing standards allow nonprofit hospitals to report the scope of their charity care in an open-ended structure, preventing transparency into nonprofits’ charity care for tax exemptions that one study estimated were worth over $28 billion in 2020, according to the letters.
Dive Insight:
The new letters follow a slew of recent reports and investigations targeting nonprofits’ charity care spending as U.S. healthcare debt continues to increase.
Although nonprofits are required to use exempted funds to pay for charity care, the Kaiser Family Foundation found that half of hospitals spent 1.4% or less of their operating expenses on community care in 2020.
Another report from the Lown Institute found 77% of hospitals spent less on community care than the value of their tax exemptions, with the deficit between charity care for hospitals rising to over $14 billion in 2020. In some states, like Massachusetts, Minnesota and Rhode Island, the charity care deficit exceeded the total amount of medical debt on credit reports.
Although the Internal Revenue Service updated nonprofits’ reporting standards in 2020 following probing from state and federal lawmakers, the group of senators argued this week that auditing standards are still insufficient and called for an additional review of nonprofit tax forms to increase oversight.
“We are alarmed by reports that despite their tax-exempt status, certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit’ and engaging in practices that are not in the best interest of the patient,” lawmakers said in the letter.
An investigation from the New York Times last year found that Providence, one of the nation’s largest health nonprofit systems, pressured patients into paying their medical bills, even though they were eligible for charity care financial assistance.
Other nonprofits have also faced criticism for aggressive billing practices. A 2021 report from the Community Service Society found that 56 New York nonprofit hospitals filed liens on almost 5,000 patients’ homes in 2017 and 2018.
Hospital groups argue that nonprofits’ community benefits far outweigh tax breaks, with hospitals providing financial assistance and unreimbursed Medicaid and other unspecified costs from government programs.