Senate Finance Comm. hearings scheduled on nonprofit hospitals and community benefit

From AHLA's Tax and Finance Practice Group comes this e-mail alert:

To: Tax and Finance Practice Group Members
From: Linda S. Moroney, Chair; John B. Beard, Vice Chair, Membership; James R. King, Vice Chair, Educational Programs; Stephen P. Nash, Vice Chair, Publications; Thomas J. Schenkelberg, Vice Chair, Research
Date: September 8, 2006

Under the leadership of Chairman Chuck Grassley, the Senate Finance Committee has scheduled a new hearing regarding tax-exempt hospitals. Entitled "Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals," the hearing is scheduled for September 13, 2006, at 10:00 a.m. in 215 Dirksen Senate Office Building [link]. The current slate of witnesses includes the Kansas Attorney General (who has opened up investigations of the billing and collection practices of nonprofit hospitals after complaints from consumers), an employee union representative, and a Legal Aid Society official; it is anticipated that the foregoing will relate certain "horror stories" from indigent individuals who either did not receive care or got involved in billing disputes over care with tax-exempt hospitals. Other witnesses are anticipated to present the hospital perspective, including leaders from the Catholic Health Association and the American Hospital Association, in addition to a rural hospital administrator.

Senator Grassley has for several years conducted an aggressive examination of the entire charitable sector, with increased scrutiny on tax-exempt hospitals. Grassley conducted his first hearing on tax-exempt organizations back in 2004 [link]with a primary focus on governance and best practices of charities [staff discussion draft]. In 2005, the Senate Finance Committee held a second hearing on the nonprofit sector [link] in which Grassley indicated that it was time for comprehensive reforms for charitable organizations. Following that hearing, Grassley sent letters to ten nonprofit hospitals asking forty-five questions about their charity care and communitybenefit, as well as compensation, billing and debt collection practices (press release and copy of letter]. In March 2006, as part of his continued examination of nonprofit hospitals and their tax-exempt status, Grassley sent letters to the American Hospital Association [link] and the Catholic Health Association [link] requesting information from those organizations on a variety of issues, including community benefit, charity care, and certain nonprofit hospital practices [related hearing]. In June of this year, Grassley sent letters to the Chief Counsel of the IRS and Commissioner for Tax Exempt and Governmental Entities, calling for increased scrutiny of the nonprofit sector, particularly tax-exempt hospitals [link]. In July, Grassley, at the nomination hearing for Eric Solomon (nominee for deputy Treasury secretary for tax policy), raised the issue of the current rules governing charitable hospitals and requested that Treasury and the IRS revise those rules. Grassley criticized the 1969 IRS rules that established the "community benefit standard" and asked Solomon to commit to a timetable for review and proposals for reform of those rules [link]. That same month, Grassley harshly criticized the lack of response by the hospitals selected by the GAO for its survey on executive compensation and questioned certain compensation practices of those hospitals that did respond to the survey [link].

This latest action to schedule a new Senate Finance Committee hearing and the witnesses selected to testify demonstrate that Grassley, perhaps due to his dissatisfaction with the overall response from the nonprofit hospital community to his inquiries, is looking to keep the heat on nonprofit hospitals and continue the debate on their tax-exempt status. Any thoughts that the remainder of this year would be relatively calm as far as congressional activity on nonprofit hospitals are now in doubt.

The AHLA Tax and Finance Practice Group would like to thank Don Stuart, Esq. (Waller Lansden Dortch & Davis, LLP, Nashville, TN) for providing us with this email alert.

Imagine how Sen. Grassley's blood boils when he reads stories like this (from the Boston Globe): "Hospital CEOs join the $1m club":

Chief executives at charitable hospitals in Massachusetts received substantial pay and benefit increases in fiscal year 2005, for the first time boosting their overall compensation to more than $1 million at most of the largest institutions.

Also, the highest-paid hospital executive in the state, Partners HealthCare chief executive James J. Mongan, broke the $2 million barrier, another significant milestone.