Podcast - Charity Care: A Discussion on Tax-Exempt Hospitals
Morgan Ribeiro: Welcome to Counsel That Cares. This is Morgan Ribeiro, the host of the podcast and a director in the firm's Healthcare Section. Today we are starting a two-part conversation regarding the criteria that establish hospitals' tax-exempt status, which has recently come under closer scrutiny with the bipartisan quartet of senators asking the IRS to ramp up its oversight of compliance with the community benefit standard. And joining me for part one of this conversation are Don Stuart and Chris Armstrong. Don is a partner in the firm's tax practice, and Chris is a partner in the firm's public policy practice. Don and Chris, welcome to the show.
Don Stuart: Thank you, Morgan. Appreciate the opportunity.
Chris Armstrong: Good to be here. Thank you, Morgan.
Morgan Ribeiro: Great. So before we jump into really the meat of our conversation, would love to just hear from each of you first a little more background on your practice. Don, first, can you tell our listeners more about your practice?
Don Stuart: Sure. So I'm a partner in Holland & Knight's Nashville office and practice in the tax area, primarily doing a lot of transactional work, but representing both for-profit and nonprofit companies on a variety of tax and business issues. I do spend a good deal of my time on healthcare and hospital transactions and sort of the complexities and nuances of the tax laws' sort of overlay on different transactions that healthcare companies and hospitals may participate in, sort of in a variety of agreements such as joint venturing and affiliation agreements. And always involved sort of from initial stages through closing and providing ongoing advice to companies. In particular with nonprofit organizations, I do advise them on board governance, conflict of interest, joint ventures, tax-exempt qualification. And then of course, the 501(r) regulations which are applicable to nonprofit hospitals, which I know we'll get into some detail in our conversation today.
Morgan Ribeiro: Great. Thank you. And Chris, can you share more about your practice?
Chris Armstrong: Sure. Thanks, Morgan. I'm a partner here in Washington, my practice focuses in part on representing entities, including lots of tax-exempt entities, in investigations by Congress. So I joined Holland & Knight after spending 12 years on the Hill working as an oversight counsel in Congress, in the House and the Senate. I worked in the House Ways and Means, and then on Senate Finance, which are the two tax writing entities in the Congress. On finance I was oversight counsel under Charles Grassley, who I think we'll talk about a lot in this podcast, as well as Orrin Hatch, he was the chairman of the committee.
Bipartisan Letter Calling for Increased Oversight
Morgan Ribeiro: That's great. Well, you will definitely have a lot of insight to bring to this conversation, given your, your background and where you were in a previous life. So I want to turn our attention now to the topic for today's conversation, which is around this letter that came out in August. A bipartisan group of senators, including Senators Bill Cassidy, Charles Grassley, who you've mentioned, Raphael Warnock and Elizabeth Warren, sent a letter to the IRS citing examples that purportedly show some "not-for-profit hospitals," quote unquote, may not be fulfilling their required obligation to provide reduced or free care to their most vulnerable patients. So this is not the first such pronouncement that's come from federal legislators and regulators calling for more oversight of tax-exempt hospitals. And the August letter really reflects the growing scrutiny of how much the nation's nonprofit hospitals spend and on what to then justify the billions in state and federal tax breaks that they receive. So in exchange for these savings, hospitals are supposed to be providing community benefits like care for those who can't afford it and free health screenings. And before we jump into the particulars of this most recent call for change that happened in August, I'd like for us to really take a step back and look at the history and kind of how we got here. Can you help us understand how we got here and a history of prior and similar conversations? And Chris, I'll start with you.
Chris Armstrong: Absolutely. If you look back at least at least 18 years now, oversight of tax-exempt hospitals has been a reoccurring oversight interest in Congress. This has been led in part by Senator Charles Grassley of Iowa, who has issued over the years, I think, dozens of letters on this matter. He's done investigations of hospitals on issues such as compensation, debt collection practices, charity care, overcharging patients. He's really kind of led the charge, and he's been joined over time by other members as well. So after years and years of investigations, inquiries, questionnaires, compliance checks, hearings, including changes to Section 501(r) and the Form 990, this issue remains of interest, and we'll talk more about that here in a bit. And we've seen that, I think, most recently by the hearing in April, by the House Ways and Means Committee, as well as the recent letter you mentioned. And so it's an ongoing interest in the Congress.
This has been led in part by Senator Charles Grassley of Iowa, who has issued over the years, I think, dozens of letters on this matter. He's done investigations of hospitals on issues such as compensation, debt collection practices, charity care, overcharging patients. He's really kind of led the charge, and he's been joined over time by other members as well.
Hearing Held by the Oversight Subcommittee of the House Ways and Means Committee
Morgan Ribeiro: Yeah. And I think what we saw happen in April is certainly of interest, as you mentioned, that the oversight subcommittee of the Ways and Means Committee conducted that hearing. Can you all — and Chris, I'll start with you again — just can you tell us more about what happened during that that hearing?
Chris Armstrong: Well, the oversight subcommittee examined the practices of tax-exempt hospitals, including the value of benefits they provide versus the cost of their tax exemption, as well as how the IRS makes decisions around tax-exempt status and the question of if current reporting requirements are sufficient. I think the biggest takeaway I had is, in the hearing there was a large level of consensus, right? This is a oversight subcommittee that tends to handle a lot of partisan matters and there's not a lot of consensus. So, you know, while Republicans and Democrats at times had slightly separate focuses, there was clear consensus that bad actors might be out there. And there are also, though, at the same time, changes that have to be made. So, you know, this was not a, this was not a partisan hearing, and that's at times a rare thing on the Ways and Means. It's also interesting that while this is a topic that gets a lot of letters out of the Congress, it doesn't tend to be the topic of a lot of hearings. Senate Finance Committee held a hearing on this matter back in 2006. But there hasn't been a lot of actual hearings on this. So it was very interesting to see and to, to see how much interest in this area has become much more bipartisan over the years.
The oversight subcommittee examined the practices of tax-exempt hospitals, including the value of benefits they provide versus the cost of their tax exemption, as well as how the IRS makes decisions around tax-exempt status and the question of if current reporting requirements are sufficient. I think the biggest takeaway I had is, in the hearing there was a large level of consensus.
Morgan Ribeiro: And Don, from your perspective, as you mentioned in your introduction, you do a lot of work specifically in the healthcare space and with hospitals and health systems. So what do you take away from kind of this historical perspective? And in particular, what we saw happen back in the spring with the House hearing?
Don Stuart: Yeah, I looked at the House hearing as sort of the House coming and saying, educate us or, you know, bringing forth these witnesses and asking them to sort of educate us in terms of what nonprofit hospitals are doing to justify their tax exemption. There are you know, there's lots of reports out there about what nonprofit hospitals are doing, what for-profit hospitals are doing in terms of community benefit and charity care. And if you think about it, nonprofit hospitals and for-profit hospitals are basically providing similar services or competing for the same patients. They're subject to a lot of the same healthcare regulations. And so how do we distinguish a nonprofit hospital in terms of giving it tax exemption versus the for-profit hospital that's down the street that is paying taxes? And I think, you know, for our listeners, it would be probably helpful just to give a little bit of background in terms of where we started this, which was, you know, back in the 1950s when the IRS sort of looked at nonprofit hospitals. And being nonprofit doesn't mean you automatically get a tax exemption. There's a whole process and qualification that you need to go through. And so they adopted what they called the financial ability standard, that if you're a nonprofit organization operating a hospital and you want it to be tax-exempt, you had to meet this financial ability standard, which was basically operating to the extent of your financial ability to provide charity care. So basically everything was going, any excess was going to providing charity care. In the late '60s, when we sort of had Medicare and Medicaid and other programs coming out where the government was taking on some of that burden in terms of paying those costs of that type of charity care, hey came out with the community benefit standard, which is what is applicable today in terms of qualifying for tax exemption for a hospital. And this was sort of shifting away to not so much charity care, if it's providing what you're doing for the community you're serving in terms of those individuals that are in your community meeting the standard, which is really was just some facts and circumstances that the IRS provided. Nothing clear cut in terms of you have to meet these ones or these ones. It was sort of an open-ended standard to meet, and that's the one that's sort of getting a lot of questions. In 2010, they came out with 501(r), which was the result of the scrutiny that took place back in the early 2000s where they added another tier of requirements in addition to the community benefit standard that needed to be met, basically, you know, establishing a financial assistance policy, conducting community health needs assessments and making sort of reasonable efforts to ensure a patient is eligible for charity care before sort of debt collection practices. So there's 501(r) requirements, and the changes they made in bringing forth Schedule H, which we can talk about a little bit more too, that is all sort of come around now and, and I'm wondering where the direction is because we're hearing, well, the community benefits standard, you're doing things for the community and shifting away from charity care, but you've got other hospitals doing things for the community and providing more charity care. Where is the line now? And I think that's the part that they're trying to pin down in terms of a continued qualification for tax exemption. Where do they need to go? And is it doing a full circle back to some kind of mandated amount of charity care?
I looked at the House hearing as sort of the House coming and saying, educate us or, you know, bringing forth these witnesses and asking them to sort of educate us in terms of what nonprofit hospitals are doing to justify their tax exemption.
Input from the American Hospital Association (AHA)
Morgan Ribeiro: That's really helpful. And yes, we will definitely get into Schedule H and some of these other kind of requirements that are around the tax exemption. Don, in April, the American Hospital Association contributed to the testimony at that hearing, and they've issued a lot of commentary, understandably so, on this topic. Their organization's membership is largely made up of tax-exempt hospitals. Can you tell us more about the AHA stance? I really see that as a reflection of its membership and its overall kind of stance on this issue. But would love to hear just sort of your take on, on their commentary.
Don Stuart: Well, I think, the last I saw there were maybe 5,000 members of the American Hospital Association, and they do represent both nonprofit and for-profit hospitals. And this is just one of the many issues that, that hospital or association is, you know, providing guidance and helping members with. I mean, we could go through pages and pages of other areas where regulations and other things that hospitals need to be addressing. But from a tax-exempt nonprofit perspective, the AHA has been heavily involved. Even going back to sort of the discussions that were taking place when 501(r) came out. And sort of trying to put something in negotiating some kind of legislation that would sort of be something that their member hospitals could meet, but also something that I think had flexibility. And I think that's where they ended up, is, you know, they like the standard to be flexible. And, you know, whether it's a hospital in a rural, you know, single rural hospital versus a multi-hospital system, you know, and these are nonprofits, but, you know, with hospitals all throughout the country. I think their position is that, you know, they want the community benefit to still stay in place, that standard. They want it to be flexible. They do believe the hospitals are meeting the community benefits standard in terms of what they're reporting. And I believe they had their own study done in terms of showing the amount of dollars. And again, this is sort of putting forth buckets of where dollars are spent in community benefit and charity care and comparing those buckets, adding them up or singling them out into different categories and comparing that to sort of the benefit they're receiving in this tax exemption, i.e., being sort of, they're not paying taxes or they're getting a better rate on the bonds they're issuing, property and sales taxes are other things, that if you add all of that up, are they providing enough to the community to sort of balance out the benefit that they're receiving? Because I think the, you know, the government looks like this was our burden. We've shifted the burden to you to provide this charity care and community benefit. But the benefit to you is you don't have to pay taxes. I do think that the hospital association, at least in hearing some of the testimony, they're willing to engage in discussions and hear about making Schedule H more user friendly. You know, what other benefit can be reported in terms of what is done in the communities? I do think that they are trying to avoid having any sort of minimum thresholds established in terms of a percentage amount of charity care that needs to be fulfilled by each hospital. Years ago we were hearing, you know, there was a 5 percent threshold that was sort of put out there, that the hospitals have to spend 5 percent of their revenues or expenses and some sort of quantified amount to sort of be eligible for exemption. And I think the hospital association is saying, look, you know, our hospitals are so different. They're located in different locations. One may be doing this, one may be doing that, that having some kind of threshold category that needs to be met for struggling hospitals could put them out of business. And for others that just may make the numbers shifting around that, it's hard to even pin down what hospitals are doing, and those that are going above the number may end up just decreasing the amount they do because they just have to meet this minimum now and others are going to have to climb up the ladder. So it's, it's something they're trying to avoid getting into.
But from a tax-exempt nonprofit perspective, the AHA has been heavily involved. Even going back to sort of the discussions that were taking place when 501(r) came out. And sort of trying to put something in negotiating some kind of legislation that would sort of be something that their member hospitals could meet, but also something that I think had flexibility.
Defining the Standards and Requirements for Tax-Exempt Status
Morgan Ribeiro: OK. So before we get back to sort of current day and what we see happening in D.C. at the moment, I think this might be a good time to pause and maybe give some definition around some of these terms that we've been using and some of these requirements. Right, you've got Schedule H, 501(r), community benefit reports, community health needs assessments, like all of these sort of areas that these hospitals need to be thinking about and the requirements that come with the tax exemption. So, Don, what are some things that — I've mentioned a few, but if you want to give some, some definition around that terminology and what hospitals really need to be thinking about.
Don Stuart: Sure, and we went through a little bit of the history on the standards, you know, where we are today with primarily with the— and again, we're talking from a federal perspective — the community benefits standard and then the requirements under 501(r), which were regulations that were adopted based on the scrutiny that took place, you know, several years ago, that they layered on this other set of requirements. Even stepping back further, all tax-exempt organizations need to file a what they call a Form 990, which is a, it's an annual return that basically reports their revenue expenses, assets, liabilities, operations, executive compensation. So every hospital that's a 501(c)(3) organization is filing that return. Part of what came out through 501(r) and all the discussions too was that they added a new schedule to the 990 return, and that is what we refer to as Schedule H, and that's the part where hospitals are having to disclose all of this information about their financial assistance policies, listing out where the dollars are being spent in terms of community benefit or community building activities. It's a 10-page form. So it's a form that is sort of a lot of open-ended questions. You can supplement responses. So Schedule H is the one that the IRS is looking at in terms of when they're scrutinizing and reviewing hospitals, and they've been charged to review them every three years. So they've got 3000 nonprofit tax-exempt hospitals. The IRS is sort of mandated through that 501(r) rule to review about 1,000 hospitals a year. And what they're looking at are the 990s and the Schedule Hs, but they're also looking at, you know, the Wall Street Journal articles and The New York Times articles and sort of all these other issues that are coming up in terms of bad debt and collection practices. So Schedule H, I think it's a critical form that has to go through board approval, the 990 needs to be approved by the board. It's also a forum that I think hospitals should use to get their story out. And so that's not a form that's tucked away in the 990, that's something that is sort of a PR piece because the 990 and the Schedule H are public information. I can get onto the websites and pull off those Schedule Hs, and I can review them. So this is not something that you want to be sort of putting information in there, but not just sort of the least you can do. This is something where you have the opportunity to present your best case in terms of what you're doing for the community. So I think with the Schedule H, there is some issue about people think it's too qualitative, that it doesn't really give us some bright lines that sort of distinguish hospital by hospital, and they want to make it more quantitative that you're putting in. You know, is there going to be an additional line added that they are going to want to say, here's how much we're saving in taxes and all the benefits we're receiving. And here's the other line where here is all the community benefit and charity care we're providing, that could be something you might see if they, you know, there are calls for updating the Schedule H. And I know the GAO in that House testimony is, is calling for more revisions to Schedule H to make it clearer and identify information easily.
Part of what came out through 501(r) and all the discussions too was that they added a new schedule to the 990 return, and that is what we refer to as Schedule H, and that's the part where hospitals are having to disclose all of this information about their financial assistance policies, listing out where the dollars are being spent in terms of community benefit or community building activities.
Congressional Call for Change
Morgan Ribeiro: Great. Well, thank you for that. And now, Chris, I want to turn it back to you. So obviously, recent call for change has occurred in August. What exactly is happening here, and why is this so noteworthy for this particular call for change?
Chris Armstrong: Absolutely. So in August of this year, Democratic Senators Warren and Warnock and Republican Senators Cassidy and again Grassley wrote to the IRS as well as inspector general and cited examples that courts show that certain not-for-profit hospitals aren't fulfilling their obligations in their tax-exempt status. They had examples in there, such as liens on the patients' homes over debt, issues regarding low-income patients who are uninsured paying full price, as well as just around debt as a whole. They also took issues with the current reporting regime that have been highlighted, as Don talked about, by GAO and how the IRS is really struggling to actually verify tax-exempt compliance. I think what makes this really, really interesting and rare is the mix of members that were on this letter, right? Senators Warren and Warnock are two of the most liberal members of the Senate and Senators Cassidy and Grassley, obviously very conservative, but they came together on this issue in a way that I have not seen happen before in the Congress. It's also interesting that these senators aren't directly challenging tax-exempt status. They're calling for transparency. They're calling for consistency, and they're calling for comprehensive, helpful reporting regimes. If you combine this request with the Ways and Means hearing, it really does show how this issue has evolved in the Congress.
It's also interesting that these senators aren't directly challenging tax-exempt status. They're calling for transparency. They're calling for consistency, and they're calling for comprehensive, helpful reporting regimes.
Morgan Ribeiro: Don, anything else you want to add on what we're seeing in August? I'm curious from your perspective, just given what you've covered already, what are they asking for in terms of specifics around reporting?
Don Stuart: Well, so, you know, like we mentioned that the House hearing was sort of a educate us type of hearing. And I think that the letters from the senators here are more sort of, the tone is a little different in terms of, you know, there's abuse and they're alarmed by reports and, you know, are you engaging in bad practices? A lot of this is revolving around the concern about the amount of medical debt, which I think is an issue that, you know, hospitals need to sort of spend more time focusing on in terms of collection practices. But what they are asking for was sort of twofold. One is, is really they look and you know, there's a letter to the IRS, to the commissioner of the IRS, and they want more detail that's very similar to a letter that was sent a couple of years ago by Grassley. You know, and it's like we want numbers and names and statistics about what the IRS is doing. How many hospitals have they referred for an audit? How many 990 forms were rejected? Who have they identified as hospitals at risk for noncompliance with the rules? So it's very much, you know, give us the facts and the numbers and the information. And the IRS, you know, they went through this process with Grassley a few years ago, and the IRS sent them a nice letter back saying, you know, here's all the information you requested. I don't know if they're just continuing to gather this information, if they're seeing sort of the IRS not really doing what it's supposed to be doing in terms of being more substantiate, in terms of looking at these hospitals and fulfilling that, you know, looking at every one of these hospitals every three years or are the numbers sort of low, that they think that there's got to be more issues going on than what the IRS is sort of finding and does the IRS have the manpower to be doing all of this? The second part of it was, which is interesting, is that the other letter went to the Treasury inspector general, which is for tax administration, which is basically, you know, the organization that's overseeing the IRS. And so they're asking the Treasury inspector, you know, is the IRS doing its job correctly? You know, how effective is the IRS in identifying hospitals at risk, evaluating the standards, asking if Schedule Hs should be revised and sort of that information. So one letter is going to the IRS and saying, give us the hospitals that have issues. The other one is addressed to the IRS saying we think the IRS has issues in terms of not being able to, you know, sort of determine what is going on in the nonprofit hospital area with all the reports and Schedule Hs that are being filed and the new regulations that came about, which are not so much new anymore. So in both letters and with the sort of what are the challenges the IRS is facing in overseeing hospitals. And we'll see where that goes in terms of, you know, is the funding that the IRS needs to be able to review, like we said, you know, 1,000 hospitals a year is challenging. Does that lend itself to just making their job easier by giving them a bright line test, which a lot of people are proposing? When you saw some of the people that were testifying at the House hearing, there's a significant push to do some kind of bright line test that would obviously make the job of the IRS easier. Instead of sort of these flexible standards that they, you know, look at one hospital and they look at the next hospital, And how do you compare? Is it apples to apples or not? By giving them a bright line test would change, I think, the ability of the IRS to sort of determine who's meeting the criteria.
A lot of this is revolving around the concern about the amount of medical debt, which I think is an issue that, you know, hospitals need to sort of spend more time focusing on in terms of collection practices.
Morgan Ribeiro: Right. OK. So, Chris, you know, there was a lot of conversation in the media, and there was kind of like, things kind of hot and heavy there for a bit. I haven't heard much lately. So what's, what's next? What happens from here?
Chris Armstrong: So it's hard to say. Right? You know, potentially the senators could take the responses that they'll get and use those responses to write legislation and to make the changes that we've talked about. And, you know, the House might do the same as well. At the same time, though, this is a very, very challenging Congress in terms of actually passing legislation. You know, I'd say especially if it's tax-related, legislation will be a big challenge and is probably unlikely to happen, at least on this issue. But, you know, it's also a very unpredictable Congress. And so we'll wait and see on that. But I think in the meantime, I think we'll have more of the same. I expect more oversight. I expect more letters, you know, and more media attention, which is usually the basis of those letters. So, you know, it's hard to have a great answer to that. It's likely wait and see with the caveat of I would expect more oversight in this space, absolutely, moving forward.
I'd say especially if it's tax-related, legislation will be a big challenge and is probably unlikely to happen, at least on this issue. But, you know, it's also a very unpredictable Congress. And so we'll wait and see on that. But I think in the meantime, I think we'll have more of the same. I expect more oversight. I expect more letters, you know, and more media attention, which is usually the basis of those letters.
Regulatory Oversight at the State Level
Morgan Ribeiro: And the bulk of our conversation has really focused on what's happening at a federal level. But as you think about, you know, you're a hospital and you're based in Georgia or North Carolina or wherever you are, what are the state things that are happening at a state level as well? So more than a dozen states have considered or passed legislation to better define charity care, to increase transparency about the benefits that hospitals provide, or in some cases even set minimal financial thresholds for charitable help to their communities. And Don, I know this is an area that you've been tracking pretty closely, so can you speak to some of the things that you're seeing at a state level?
Don Stuart: Sure. I think this is very interesting what's going on at the state level, because I think many states, you know, are struggling with a lot of issues in terms of their finances and the healthcare in their state and what's being done as far as charity care, community benefits. But they're also seeing sort of the headlines, too, in their states about sort of the aggressive debt collection practices that are going on. And just, you know, for our listeners to understand, too, that having that 501(c)(3) and meeting all the exemption requirements at a federal level doesn't necessarily just cross over that you automatically get something at the state level as far as tax exemption or qualifying as a nonprofit, particularly for hospitals. You know, one of the key areas is their property tax exemption. So that's a, not a federal, but that's a state and local exemption that's provided. And that's one where, you know, there are significant dollars involved. It could even be more dollars savings in the property tax versus what they would save in federal income taxes if they were a taxable entity. So we're seeing, I think it's kind of threefold in terms of what you see at the, at the state level. There's the community benefit and charity care requirements that states are putting in place because I think they've been monitoring what's been happening at the federal level. You know, 501(r) came out and Schedule H came out. Many states have their own community benefit reporting requirements and that they sort of adopted maybe what was done at the 501(r) level. But many are seeing that the issues that are sort of being raised by the House and the Senate here in terms of not seen enough dollars going in, in terms of pure charity care. And so they're making, you know, the variety of states are adding, as you mentioned, Morgan, you know, there's new laws and there's proposed legislation in a variety of states in terms of mandating actually some kind of percentage of charity care that may be required or expanding the definition of vulnerable populations. I know California is looking at that in terms of providing what community benefit has done for, you know, expanded definition of those populations. You know, Maryland and Minnesota and several other states that are looking at this in terms of, you know, Maryland's interesting because they have a form document that needs to be for financial assistance that all hospitals have to use. If we think about it on the federal side, everyone has sort of their own financial assistance policy. There's no sort of form documents, or are we going to shift to something that, you know, maybe nationwide, a form type of document for financial assistance. Particularly, also, I think Oregon is, you know, in screening patients for financial assistance. They have a new law. So I think, you know, community benefit and charity care there, you know, I encourage our listeners to make sure they're monitoring what's going on in their state. If you've got a multi-hospital system that adds to the complexity, if you've got uniform documents for all of your hospitals and your multiple hospital system, you need to make sure that what you're doing in particular states is meeting those state-level requirements. We mentioned about the, you know, the property tax exemption. That's where states are, you know, that's a source of revenue for states. And are some of the hospitals that we're seeing losing their property tax exemption because they're not providing enough charity care? You know, whether it's Illinois, New Jersey, those states, Pennsylvania, have all been sort of aggressive in terms of looking in detail at what qualifies a hospital for that property tax exemption. And maybe they're bifurcating it or this part of the campus gets it, but this other doesn't. One other area that is coming up, too, is what they call pilot programs in states where instead of paying property taxes, you make a payment in lieu of taxes. And we're seeing pilot programs coming up where the states are saying, all right, we're not going to subject you to property tax, but we're going to require at least some minimum some type of payment in lieu of paying property taxes. And we're seeing states getting creative and coming up with those type of programs. And, of course, the debt collection. Are they violating any sort of collection practice bills or any other requirements that need to be done at a state level? There's a lot of interest in terms of the amount of patient debt that is building in certain states, and cities are looking at that. And what are the nonprofit hospitals doing in terms of are they making it worse or are they addressing it? And so there, you know, the attorney generals can come in and look for violations of certain acts in state level because of collection practices.
I think this is very interesting what's going on at the state level, because I think many states, you know, are struggling with a lot of issues in terms of their finances and the healthcare in their state and what's being done as far as charity care, community benefits. But they're also seeing sort of the headlines, too, in their states about sort of the aggressive debt collection practices that are going on.
Considerations for Hospitals
Morgan Ribeiro: So we've covered a lot of ground here. And, you know, if I'm a hospital listening in, it's a lot of information like, what do I need to do now? There's all these things kind of happening around me. I think some things are clear. You know, there's current requirements that you will continue to follow. But what do you do in this sort of interim phase, given kind of the things that are at play and under consideration?
Chris Armstrong: Because of the, the uncertainty in this area, I would begin by, you know, taking stock of your risk, right? You know, what are your debt collection practices? How do you show community benefit? How is your performance, you know, relative to for-profits? If things that could be attacked from the outside, if it's media or if it's on the Hill, take a survey of that right now and just have an idea of are there any weaknesses that, you know, could be addressed at the outset? If you're concerned about the Congress, reach out to your members of Congress, because you know what, members rarely, almost never actually write to hospitals in their own states or districts. And so you have natural allies right there on the Hill. And so I think it's, you know, the challenge, though, is it is a very uncertain area and it's important to know your risks.
Because of the, the uncertainty in this area, I would begin by, you know, taking stock of your risk, right? You know, what are your debt collection practices? How do you show community benefit? How is your performance, you know, relative to for-profits?
Morgan Ribeiro: Good feedback. Don?
Don Stuart: Yeah. I mean, I think for, you know, when talking with my client, my nonprofit hospital clients, you know, you need to be able to distinguish yourself because if you're looking, as I mentioned, down the street and there's a for-profit hospital down the street and it has a mission and it's serving community and providing patient care quality, how do you distinguish yourself here? And I recommend when I talk to them, I say every board member, every officer, I want them to go to the hospital's website and I want them to go in and find a copy of the financial assistance policy, the application. Can they do that? Because those are all requirements that need to be you know, you need to have it posted online. You know, what's the eligibility criteria for financial assistance at your hospital? You know, I've had several board members that come back and say, I couldn't find it, I don't know what our policy is. And so you think of that from a patient perspective, if the patient is trying to do the same thing that a board member is doing and the board member of the hospital cannot find the financial assistance policy or what the criteria is, then that just, that's an example of where that's an easy fix, and don't make it hard on yourself because someone else is going to do that. And it'll be like the news reporter who's trying to do the same thing, and then you end up in the headlines where it's, you know, the hospital is hiding its policies or not putting them out. Same with the 990s and other things too. You know, part of the requirements that came out of 501(r) is looking at the community, doing these community health needs assessments. The hospitals are actually doing a good job. They're getting involved with community members, and they're doing these community health needs assessments. You know, part of the process is then to identify what needs are in the community that need to be addressed, and you select those and then you implement a plan to address them. My concern is that they develop a plan to address them, and then they tuck that away in the file cabinet and it's not pulled out again. And the requirements are that you're on an annual basis to review that and make sure you're identifying and addressing that need. And if, if that need has gone away, then that's fine. But if the need is still there and it's not being addressed and you're not revising the plan or doing something else to make sure you're addressing it, then that's something that the IRS can focus in on too. So board members need to be actively looking at, on an annual basis, what needs were identified, you know, three years ago and have we addressed them. Not just three years ago we identified it, and then we move on and deal with all the other issues that the board has. So many hospitals are, you know, they're facing all the challenges, fiscal challenges, hiring challenges. But, you know, a loss of tax exemption is not the challenge they want to be dealing with right now. And if the IRS is given more oversight and sort of tools to use, you don't want your hospital to come in and be the one that's identified and presented to Senator Grassley as that is the problem child. So those are sort of some things that we're sort of recommending, obviously paying attention to what's going on at the local and community level, you know, being active in your community, having community representatives, putting working groups together. Definitely this is an item where you'd want to have the board put a working group together. And I would also have them identify how much are we saving in taxes versus how much charity care is being provided. You know, that's something internally you want to know because somebody will be asking at some point.
A loss of tax exemption is not the challenge they want to be dealing with right now. And if the IRS is given more oversight and sort of tools to use, you don't want your hospital to come in and be the one that's identified and presented to Senator Grassley as that is the problem child. So those are sort of some things that we're sort of recommending, obviously paying attention to what's going on at the local and community level, you know, being active in your community, having community representatives, putting working groups together.
Morgan Ribeiro: I mean, it seems like the hospitals and health systems in the last three years in particular have been really trying times. And I know that hospital leaders and boards are getting pulled in a lot of different directions. But this is really a conversation to have proactively. I mean, a lot of the things that you've pointed to are sort of getting in front of it. And through the community benefit report, for example, and telling your story and using that as a communication tool to talk about all that you do in your community and ways that you invest in the community is really important, more so now than ever. And it's not an easy task. But I think to your point you just made, it's leaning on, you know, creating a committee that is tasked with addressing all the various aspects of this, as well as, you know, leaning on your team members, if that's, you know, not just those that sit on sort of the executive level, but leaning on your marketing and communications team, leaning on your government relations team. Chris, you talked about reaching out to your representatives and your senators and having these conversations, I think is all that really contributes to, to this. And I think showing that is really a reflection of you have the best interest of your, your citizens and your community at heart here. And, you know, no one's trying to, I think everyone's trying to do the best they can. And it can be really confusing to sort of navigate all of this. But those are all really good points that you all have shared with us. Well, anything else that you want to note on this topic as we close?
Don Stuart: Well, you know, I just, Morgan, one thing is that — and not to forget about our for-profit hospitals out there — but just many of them are in joint ventures with nonprofit hospitals. And so they have a hospital facility that's joint ventured. And the 501(r) rules, the community benefit rules apply at that hospital facility level. So, you know, it's owned by a nonprofit and for-profit in a joint venture. So for-profit hospitals need to be looking at these rules, too, and where things and the direction they're going, because they may have a hospital jointly owned with a nonprofit subject to these rules. And these are all items that hit bottom line, too. So it's something that I would say from whatever side you're on in terms of being the nonprofit or for-profit hospital, everyone has a vested interest in seeing where, you know what direction this is going.
So for-profit hospitals need to be looking at these rules, too, and where things and the direction they're going, because they may have a hospital jointly owned with a nonprofit subject to these rules. And these are all items that hit bottom line, too. So it's something that I would say from whatever side you're on in terms of being the nonprofit or for-profit hospital, everyone has a vested interest in seeing where, you know what direction this is going.
Morgan Ribeiro: Well, thank you both so much. Look forward to continuing this conversation on our next episode. We'll really look at some of the more kind of hospital policy and specific items there. So more to come. And I'm sure we'll be talking about this as we see how things play out at a federal level in particular.