Grow­ing tax breaks for non­profit hos­pi­tals ques­tioned

Modern Healthcare - - NEWS - By Beth Kutscher

A new study has added fuel to the con­tin­u­ing de­bate over whether not­for-profit hos­pi­tals are earn­ing their tax breaks.

The fi­nan­cial ben­e­fit that not-for­profit hos­pi­tals re­ceive from their tax­ex­empt sta­tus has dou­bled over the past decade, a new Health Af­fairs study found. Yet most of those funds are not be­ing spent on im­prov­ing com­mu­nity health.

Hos­pi­tals across the coun­try re­ceived a col­lec­tive $24.6 bil­lion tax break in 2011, although tax-ex­emp­tion val­ues vary by state, the study cal­cu­lated. That fig­ure in­cluded not only the di­rect sav­ings from fed­eral and state taxes but also hos­pi­tals’ abil­ity to raise money through tax-ex­empt do­na­tions and mu­nic­i­pal bonds. In 2002, the value of that tax break was $12.6 bil­lion.

In ex­change for their tax-ex­empt sta­tus, not-for-profit hos­pi­tals must show that they’re giv­ing back to their com­mu­ni­ties. That goal can be met a num­ber of ways.

Tax-ex­empt hos­pi­tals pro­vided $62.4 bil­lion in com­mu­nity ben­e­fits in 2011, with 92% of that to­tal rep­re­sent­ing char­ity care for in­di­gent pa­tients, Med­i­caid pay­ment short­falls, re­search and train­ing, the study found. Only 8% sup­ported pro­grams to im­prove com­mu­nity health.

Richard Umb­den­stock, pres­i­dent of the Amer­i­can Hos­pi­tal As­so­ci­a­tion, noted, how­ever, that “there is no stip­u­la­tion on what the per­cent­ages have to be within the cat­e­gories.”

The study comes as some state and lo­cal gov­ern­ments, fac­ing bud­get crunches and hunt­ing for new tax rev­enue, have chal­lenged the tax-ex­empt sta­tus of their not-for-profit hos­pi­tals and in­sur­ers. Florida Gov. Rick Scott has ques­tioned the com­mu­nity ben­e­fits pro­vided by hos­pi­tals in his state amid its bat­tle over Med­i­caid ex­pan­sion. Cal­i­for­nia re­cently stripped not­for-profit Blue Shield of Cal­i­for­nia of its tax-ex­empt sta­tus af­ter con­clud­ing the in­surer was not re­turn­ing enough of its earn­ings for public ben­e­fits.

Pre­vi­ous stud­ies have shown that nearly half of hos­pi­tals’ com­mu­nity ben­e­fit spend­ing goes to med­i­cal res­i­dency pro­grams, said Sara Rosenbaum, a Ge­orge Washington Univer­sity law pro­fes­sor, and lead au­thor of the Health Af­fairs study. Another third of com­mu­nity ben­e­fit spend­ing goes to­ward mak­ing up Med­i­caid pay­ment short­falls. The 8% spent on com­mu­nity health im­prove­ment ini­tia­tives rep­re­sents less than 1% of to­tal healthcare spend­ing, she said.

The Af­ford­able Care Act could af­fect the com­mu­nity ben­e­fit de­bate. Un­der the law, hos­pi­tals will pro­vide less un­com­pen­sated care be­cause more peo­ple will have cov­er­age. And new value-based pay­ment mod­els, un­der which providers are re­warded for keep­ing peo­ple healthy, could en­cour­age hos­pi­tals to spend more on com­mu­nity health pro­grams.

“In gen­eral, hos­pi­tals have been mov­ing up­stream so they can keep peo­ple health­ier,” Umb­den­stock said.

There is an ef­fort to re­struc­ture rules gov­ern­ing tax-ex­empt hos­pi­tals. The Al­liance for Ad­vanc­ing Non­profit Health Care, which in­cludes not-for­profit Blues plans in seven states, and the Na­tional As­so­ci­a­tion of Com­mu­nity Health Cen­ters, are urg­ing Congress to elim­i­nate ACA rules re­quir­ing com­mu­nity needs assess­ments, fi­nan­cial aid poli­cies and lim­its on ag­gres­sive bill col­lec­tion. The group wants to re­place those rules with a test of whether the dol­lar value of not-for-profit hos­pi­tals’ ben­e­fit to their com­mu­ni­ties is enough to off­set lost fed­eral rev­enue from their tax-ex­empt sta­tus.

The AHA and the Catholic Health As­so­ci­a­tion op­pose the pro­posal.

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