With latest Grassley probe, hospitals can expect invitations to talk
A powerful nonprofit hospital critic, Republican Chairman of the Senate Finance Committee Chuck Grassley, is asking the IRS to probe whether the hospitals are living up to their charitable obligations. Hospitals can bet they'll be called next.
The Iowa Senator is also inquiring about the IRS's own oversight of these hospitals, he wrote in a letter dated Feb. 19. Grassley has long been interested in the health system's tax-exempt designations, calling on the IRS several times to gather information about whether hospitals are able to show they meet the criteria for a tax-exempt status. He also helped enact requirements included in the Affordable Care Act and set standards for nonprofit hospitals and information they're required to disclose.
Those standards include, for example, requiring hospitals to assess the health needs of their communities every three years and having a financial assistance policy for patients that's readily available. Regulations also stipulate that before engaging in any extraordinary collection efforts against a patient, the hospital is supposed to determine whether that patient qualifies for financial assistance under its own policy.
"I think, in a sense, what Sen. Grassley is saying is: 'OK, now, we've had two or three years of the regulations being out and the hospitals knowing what they’re required to do, are they doing it?' He's asking the IRS to report back," T.J. Sullivan, partner with law firm Drinker, Biddle & Reath in Washington, D.C., told Healthcare Dive. Sullivan previously served in the office of the IRS general counsel.
Grassley is not alone in his questioning of nonprofit hospitals. A high-profile legal fight is underway in Pennsylvania, where state Attorney General Josh Shapiro is suing one of the state's largest providers, UPMC, alleging it's not living up to its charitable mission by refusing to contract with its rival Highmark.
Legal experts said the latest letter from Grassley, dated Feb. 19, exerts public and political pressure on the agency to make oversight of these institutions a priority, and also likely signals this will be an area of interest for the Finance Committee throughout the duration of his chairmanship.
"He wrote publicly to exert sort of public pressure on the IRS. The IRS pays a lot of attention to the priorities of the chairman of the Finance Committee and the chairman of the Ways and Means Committee," Christopher Armstrong, partner at Holland & Knight in Washington, told Healthcare Dive. Armstrong previously served as the chief oversight counsel for the committee.
As the IRS has less resources than it did a few years ago due to budget cuts, Sullivan said, this letter essentially asks the IRS to please keep the efforts up on studying what's going on in tax-exempt facilities.
Hospitals should expect to hear from the senator as well. Once the IRS answers Grassley's questions, he will almost certainly call on health systems to answer additional inquiries about how they are complying with the tax requirements he helped draft, Sullivan said.
"I think this is very much a desire by Sen. Grassley to make sure that his efforts of drafting that statute and gathering that information [from the regulations] is for a good purpose or is implemented in a fashion that it has the desired result," Sullivan said.
Nonprofit hospitals are typically quick to defend their tax-exempt status, usually citing the dollar amount of uncompensated care they provide in a given year.
Melinda Hatton, general counsel for the American Hospital Association, told Healthcare Dive in a statement the community benefit activities nonprofit hospitals provide outweigh the value of the tax-exemptions. She cited a report by Ernst and Young that AHA commissioned.
She added that in 2015, "13.3 percent of tax-exempt hospitals and health systems total expenses were devoted to community benefits programs, and that half of that spending was attributable to expenditures for providing financial assistance to needy patients and absorbing losses from Medicaid and other means-tested government program underpayments."
- Senator Grassley Letter from Sen. Grassley to IRS