Senate Finance Committee Chairman Charles Grassley (R-Iowa) has launched a new review of nonprofit hospitals, continuing a longstanding oversight in the sector. On Feb. 19, 2019, the chairman wrote to Internal Revenue Service (IRS) Commissioner Charles Rettig requesting a wide range of information concerning the IRS' oversight of nonprofit hospitals and their compliance with Internal Revenue Code (IRC) Section 501(r), which established new requirements on hospitals organized under IRC Section 501(c)(3). As Holland & Knight noted earlier this month, nonprofit hospitals are likely to be a major focus of Grassley's committee leadership during the 116th Congress, given his longstanding oversight of their activities and his powerful investigative authorities as chairman of the Senate Finance Committee.
Holland & Knight is prepared to answer any questions nonprofit hospitals have about Chairman Grassley's oversight activities, assist in responding to congressional inquiries and preparing hearing testimony, answering questions about Section 501(r) and handling IRS enforcement activity. Our attorneys can also review policies and procedures to ensure compliance with Section 501(r). Should deficiencies be discovered, Holland & Knight is prepared to walk hospitals through any necessary corrective actions.
The Affordable Care Act (ACA) added IRC Section 501(r), imposing significant new requirements on nonprofit hospitals. Grassley was a driving force behind Section 501(r)'s inclusion in the ACA.
At a summary level, this section requires charitable hospitals to:
Section 501(r) provides that a hospital will not be treated as a tax-exempt organization as described in Section 501(c)(3) if it fails to meet these new requirements. In addition, a nonprofit hospital that fails to meet requirements around conducting a CHNA must pay an excise tax of $50,000.
Chairman Grassley's interest in nonprofit hospitals goes back well over a decade. In 2005, during his prior chairmanship of the committee, Grassley wrote to 10 hospitals asking for detailed information on charitable activities, patient billing and ventures with for-profit entities.1 Two years later, he highlighted an IRS report critical of charity care levels2 and organized a staff roundtable on nonprofit hospital reform.3 In 2008, Grassley requested a Government Accountability Office (GAO) report examining community benefit requirements4 and sought information from two nonprofit hospitals requesting details on their practices.5 More recently, he has criticized nonprofit hospitals for seizing wages and taking other legal action against patients who are unable to pay,6 and wrote an op-ed article further criticizing the sector.7 It is important to review Grassley's new oversight activities within the context of his longstanding interest.
On Feb. 19, 2019, Grassley wrote to IRS Commissioner Charles Rettig requesting information on nonprofit hospital compliance with Section 501(r), noting that "it appears at least some of these tax-exempt hospitals have cut charity care, despite increased revenue, calling into question their compliance with the standards set by Congress." The letter follows up on a Feb. 15, 2018, letter that then-Chairman Orrin Hatch and Grassley sent to the IRS requesting information on IRS oversight of nonprofit hospitals.
Noting that his new inquiry is part of "ongoing efforts to ensure the Internal Revenue Code is enforced vigilantly," Grassley's most recent letter asks for:
Interestingly, Grassley's letter also contains an authorization for committee staff to receive otherwise confidential taxpayer information, pursuant to Grassley's authority under Section 6103 of the IRC. This section allows the chairman and his designees to review such information, though generally it does not allow further dissemination of that information.
Given Grassley's longstanding interest in nonprofit hospitals, this letter is likely a precursor to further activity. Slightly more than a month into his second chairmanship, Grassley's recent oversight letter is among his first efforts in an aggressive oversight agenda for the committee. Given his continued interest on these issues, it is likely that his next step will be to request similar information directly from hospitals.
Accordingly, nonprofit hospitals need to ensure that they are in compliance with Section 501(r) and other requirements, and prepare to engage constructively with Grassley and his committee staff. The IRS will be under additional pressure to review nonprofit hospital activities, given that Grassley is likely to continue to press the agency for information on those efforts. The IRS was very prescriptive in its guidance under Section 501(r), and therefore, there are many pitfalls for the uninformed.
Please contact the authors for additional information or assistance.
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