Armchair Finance

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Time to DefineMuch political hay has been harvested in the past few years on the contention that some nonprofit hospitals abuse their tax-exempt status. But talk is really all we've seen-at least from the feds. Much of that tough talk has come from the Republican-dominated Congress, which switched to Democratic control in January. Many nonprofit hospital chief executive officers have been hauled before Congressional committees to publicly justify the reason nonprofit hospitals deserve their federal tax exemption. Whether the 110th Congress will continue that scrutiny remains to be seen, but Sen. Max Baucus, D-Mont., incoming chair of the Senate Finance Committee, worked closely with former chairman Sen. Charles Grassley, R-Iowa, and is not likely to let the matter drop entirely.I recently hosted a HealthLeaders Webcast on this topic. There was a lot of interest from hospital senior executives, and to the extent they can tear themselves away from their hospitals' daily operational challenges, they're worried. A for-profit hospital chief financial officer will swear that the only difference between his hospital and the nonprofit down the street is that he pays taxes on his profits every year while his colleague fills out a form 990, files it with the IRS and forgets it, never hearing the dreaded "audit" word from that most feared of agencies. By contrast, talk to a nonprofit hospital CFO, and he'll tell you that if he were operating a for-profit business, he'd love to be able to pick and choose among services, pruning money-losers like an accomplished arborist. Both are right, in the general sense. Some hospitals do abuse the spirit of their tax exemption, and many more operate unprofitable services like community clinics, obstetrics and other vital services for which their only reward is exposure.Currently, the federal government requires hospitals to file a form with the IRS and report on community benefit efforts, but provides little guidance on what activities constitute community benefit, much less how those activities and programs should be evaluated. For example, should bad debt be reclassified as charity care? How do you measure the community's benefit from holding seminars for seniors? Much of the problem results from the fact that there are no definitive rules for what justifies a federal nonprofit tax exemption. Despite this year's changes in Congress, many pundits are predicting little movement toward meaningful guidance from the federal government on how community benefit should be measured for nonprofit hospitals. If that's true, then it's a shame. The American Hospital Association and many of its member hospitals don't even agree on what should be measured and how. To be sure, many, if not most, would pass the "smell test" if their balance sheets were closely examined. But right now, the good and bad actors are being tarred with the same broad brush. For something so important, it's time for a standard with some teeth, whether it comes from the government or not. -Philip Betbeze




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