Tax­ing chal­lenges as not-for-profit rules shift

Modern Healthcare - - NEWS - By Lisa Schencker

Ad­vo­cate Christ Med­i­cal Cen­ter now of­fers pa­tients copies of its fi­nan­cial as­sis­tance pol­icy in three lan­guages. But soon the Oak Lawn, Ill., hos­pi­tal will of­fer trans­la­tions in 15 more lan­guages to bet­ter re­flect the lo­cal com­mu­nity.

The change was driven by new, fi­nal In­ter­nal Rev­enue Ser­vice reg­u­la­tions out­lin­ing what more than 2,900 not-for-profit hos­pi­tals across the coun­try need to do to hold on to their tax-ex­empt sta­tus. The man­date for change, con­tained in the Af­ford­able Care Act, was driven by con­cerns that some not-for-profit hos­pi­tals are op­er­at­ing more like for-profit en­ti­ties, es­pe­cially in the area of bad­debt col­lec­tions.

Some be­lieve the fi­nal reg­u­la­tions will lead to more com­mu­nity en­gage­ment and col­lab­o­ra­tion be­tween state and lo­cal health agen­cies and hos­pi­tals. Hos­pi­tals clearly have a lot at stake if they fail to com­ply with the new reg­u­la­tions.

“What hos­pi­tals should be con­cerned about is the broader mes­sage com­ing from the gov­ern­ment, and par­tic­u­larly con­gres­sional lead­ers, that they’re go­ing to put char­i­ta­ble hos­pi­tals’ feet to the fire to jus­tify their tax ex­emp­tion,” said Jim Flynn, who heads the health­care group at Bricker & Eck­ler in Colum­bus, Ohio.

The fi­nal reg­u­la­tions, which go into ef­fect Jan. 1, grew out of crit­i­cism by Iowa Repub­li­can Sen. Chuck Grass­ley and oth­ers that some tax-ex­empt hos­pi­tals were ag­gres­sively pur­su­ing poor pa­tients for un­paid bills while rack­ing up huge, un­taxed sur­pluses. Be­fore the ACA, hos­pi­tals only had to show they were pro­vid­ing a “com­mu­nity ben­e­fit” to be tax-ex­empt, and the def­i­ni­tion of “com­mu­nity ben­e­fit” was vague, said Sara Rosenbaum, a law pro­fes­sor at Ge­orge Wash­ing­ton Uni­ver­sity.

The new reg­u­la­tions are far more spe­cific, and fol­low pro­posed reg­u­la­tions hos­pi­tals have fol­lowed for years. They re­quire not­for-profit hos­pi­tals to es­tab­lish writ­ten fi­nan­cial-as­sis­tance and emer­gen­cy­care poli­cies; limit the amount they bill low-in­come pa­tients for care; make rea­son­able ef­forts to find out whether an in­di­vid­ual is el­i­gi­ble for fi­nan­cial as­sis­tance be­fore en­gag­ing in ex­tra­or­di­nary col­lec­tion ac­tiv­i­ties; and con­duct a com­mu­nity health-needs as­sess­ment, fol­lowed by an im­ple­men­ta­tion strat­egy at least once ev­ery three years.

“Th­ese re­quire­ments build on the kinds of things hos­pi­tals were oth­er­wise do­ing, but as to the de­tails, hos­pi­tals are in the process of re­vis­it­ing their own poli­cies and prac­tices to see if there’s a need for any changes or en­hance­ments,” said Mau­reen Mu­dron, the Amer­i­can Hos­pi­tal As­so­ci­a­tion’s deputy gen­eral coun­sel.

Each el­e­ment of the new rules is ac­com­pa­nied by a litany of de­tails. In ad­di­tion to the lan­guage re­quire­ment, for ex­am­ple, the fi­nal reg­u­la­tions, un­like the pro­posed ones, also re­quire hos­pi­tals to list which of their providers are cov­ered by their fi­nan­cial as­sis­tance poli­cies and which are not.

The AHA and the As­so­ci­a­tion of Amer­i­can Med­i­cal Col­leges wrote a let­ter to the IRS and oth­ers May 1 de­cry­ing that new re­quire­ment, say­ing it is “un­ex­pected, con­fus­ing and ex­traor­di­nar­ily bur­den­some for hos­pi­tals.”

Other changes are viewed more pos­i­tively by hos­pi­tals. For ex­am­ple, the rules ex­pand the types of health needs that may be in­cluded in com­mu­nity health needs as­sess­ments to in­clude pre­ven­tion of ill­ness, en­sur­ing ad­e­quate nu­tri­tion and ad­dress­ing so­cial, be­hav­ioral and en­vi­ron­men­tal health fac­tors.

In­ter­moun­tain Health­care, for ex­am­ple, is meet­ing the new rules by adding more so­cial de­ter­mi­nants of health to its list of health in­di­ca­tors for the as­sess­ments, such as high school grad­u­a­tion rates, said Cyn­thia Boshard, In­ter­moun­tain’s direc­tor of com­mu­nity ben­e­fit re­port­ing.

The penalty for fail­ing to com­ply with the health-needs as­sess­ment re­quire­ment is only $50,000. But penal­ties for fail­ing to com­ply with the fi­nal reg­u­la­tions more broadly could lead to hos­pi­tals los­ing their tax-ex­empt sta­tus, although some tax ex­perts say it is un­likely the short-staffed IRS would take such dras­tic mea­sures.

“Their goal is for peo­ple to com­ply with the law, so they will typ­i­cally work with hos­pi­tals,” said Michael Meiss­ner, a tax part­ner at Squire Pat­ton Boggs in Cleve­land.

The IRS has said if hos­pi­tals find, cor­rect and dis­close their own mi­nor, in­ad­ver­tent com­pli­ance mis­takes, the IRS won’t come af­ter them.

But states with ag­gres­sive at­tor­neys gen­eral could be an­other mat­ter. Re­quire­ments vary from state to state, but in many places, a hos­pi­tal los­ing its fed­eral tax-ex­empt sta­tus could also lose its ex­emp­tions from state and lo­cal in­come, prop­erty and sales taxes, said Don Stu­art, a part­ner at Waller Lans­den Dortch & Davis in Nashville who also leads the Amer­i­can Health Lawyers As­so­ci­a­tion’s tax and fi­nance prac­tice group.

At the least, the new reg­u­la­tions may pro­vide a stronger ba­sis for chal­leng­ing hos­pi­tals’ tax-ex­empt sta­tus if they aren’t do­ing enough for their lo­cal com­mu­ni­ties. Illi­nois and Ohio have mounted chal­lenges to not-for-profit hos­pi­tals’ sta­tuses in the past.

“Be­cause (the new rules) re­quire a lot more dis­clo­sure, a lot more pub­li­ciz­ing of what you’re do­ing in sat­is­fy­ing com­mu­nity health needs, it will give the states ammunition,” Meiss­ner said.

“What hos­pi­tals should be con­cerned about is the broader mes­sage com­ing from the gov­ern­ment, and par­tic­u­larly con­gres­sional lead­ers, that they’re go­ing to put char­i­ta­ble hos­pi­tals’ feet to the fire to jus­tify their tax ex­emp­tion.”

Jim Flynn Part­ner and health­care group chair­man Bricker & Eck­ler

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