As journalists, public agencies and healthcare experts exercise more scrutiny over hospital prices, politicians are also questioning how much nonprofit, tax-exempt hospitals actually give back to their communities, according to a New York Times report.
Provisions in the Patient Protection and Affordable Care Act and new reporting requirements imposed by the Internal Revenue Services are resulting in more transparency around how much hospitals give back in community benefit. The federal government has not specified the amount of benefit a hospital should provide to be exempt from federal taxes, but hospitals' status will now be subject to review every three years under the healthcare reform law.
Still, tax law and healthcare experts say states and cities still wobbling from the recession are prepared to make demands of these nonprofit institutions, according to the report.
Although there is no set number for how much a tax-exempt entity is required to give back, a 2013 study from the New England Journal of Medicine found little consistency among hospitals. The study found, based on IRS filings, hospitals spent an average of 7.5 percent of their operating costs on charity care and community benefit. Some spent less than 1 percent and others about 20 percent.
The study also found religious hospitals did not provide more community benefit than secular ones, but major teaching hospitals provided "somewhat more." Their benefits, though, tended to be more difficult to quantify and weren't necessarily related to patient care.
Gary Young, JD, PhD, a professor with Northeastern University and lead author of the NEJM study, said there are many gray areas in hospitals' provision of community benefit. "Is there manipulation?" he said in the report. "Absolutely."
One of the more closely watched challenges revolves around the city of Pittsburgh and the $10 billion, tax-exempt healthcare giant UPMC. The city sued UPMC, challenging it to pay payroll and property taxes, which are estimated to cost about $20 million combined each year.
UPMC has maintained that it contributes to the city in a variety of ways, such as the sponsorship of college scholarships. It has also argued on a technicality, saying UPMC does not employ people — rather, its subsidiaries do. In that case, the city would need to challenge tax-exemption on a subsidiary-by-subsidiary basis.
More Articles on Hospitals and Tax-Exemption:
UPMC Claims it Has No Employees to Keep Tax-Exempt Status
Pittsburgh v. UPMC: Legal Arguments Behind the Tax-Exempt Challenge
A New Definition of "Market" in Tax-Exempt Healthcare?