Lawmakers question nonprofit hospitals' status

Scrutiny focuses on whether these facilities provide sufficient community benefit in exchange for their tax breaks.

By David Glendinning, AMNews staff. June 13, 2005.

Washington -- When Rep. Bill Thomas (R, Calif.) recently explained why he is investigating nonprofit hospitals, he borrowed a phrase from the late bank robber Willie Sutton: "That's where the money is."

The House Ways and Means Committee, which Thomas chairs, is looking into whether the societal benefit provided by nonprofit organizations is worth their significant tax breaks .

Many in the hospital community fear Congress will legislate changes that will squeeze revenues flowing to nonprofits or force them to change their tax status. Such moves would hurt facilities, doctors who work at them and patients, officials said.

Health care organizations make up roughly 60% of the entire nonprofit sector in terms of revenue, and hospitals account for about three-quarters of that portion. This makes the facilities a prime focus for any study of where federal dollars are going.

"Given the size of the federal benefit and the competitive advantages given to tax-exempt entities ... it is incumbent upon this committee to ensure that taxpayers are getting at least some commensurate relationship of benefit for tax-exemption amounts," Thomas said at a hearing last month.

His panel isn't the only one getting into the debate. Senate Finance Committee Chair Charles Grassley (R, Iowa) recently sent a letter to 10 major nonprofit hospitals and hospital systems demanding answers to questions about their business activities.

These hospitals have been put on the defensive in recent months over allegations that they too often overcharge the uninsured, provide insufficient charity care and violate their nonprofit status by establishing financial arrangements with for-profit entities. State and local governments, as well as the Internal Revenue Service, already have started to crack down on some of the perceived bad actors.