Tax-Exempt Advisory
Health care reform is the current top agenda item for the Senate Finance Committee. Over the past month, Senators Baucus and Grassley, Chairman and ranking member of the committee, respectively, have released a series of "Policy Options" papers on health care reform. These papers address transforming the health care delivery system, expanding health care coverage, and financing comprehensive health care reform. It is the last paper to which tax-exempt hospitals will want to pay attention.
A small section of the Policy Options paper entitled, "Financing Comprehensive Health Care Reform: Proposed Health System Savings and Revenue Options," released by the Finance Committee on May 18, 2009, proposes modifying the requirements for tax-exempt hospitals. In summarizing the current laws regarding tax exemption, charitable contributions, and tax-exempt financing, the paper notes that the "community benefit standard," established in 1969 as the standard for tax-exemption, is considered by some to be "imprecise and not sufficiently stringent" and "has proved to be difficult to administer because of the difficulty of applying imprecise legal standards to complex and evolving fact patterns." The paper also notes that the only sanction available for hospitals falling short of the standard is revocation of tax-exempt status.
Following the current law summary, the paper, briefly, sets forth proposed policy options regarding tax-exempt hospitals. In general, the proposals are to codify the organizational and operational requirements a hospital must meet in order to receive tax-exempt status as a charitable organization under section 501(c)(3) of the Internal Revenue Code, and to impose intermediate sanctions (excise taxes) where revocation of exemption is not warranted. The paper identifies four possible, but not exclusive, organizational and operational requirements: conducting regular community needs analyses, provision of a minimum level of charitable patient care, providing services regardless of a patient's ability to pay, and following particular procedures prior to commencing collections actions. The paper does not expound any further on these requirements, other than to say that some hospitals would be excluded from the minimum charity care requirement if those hospitals are critical to their communities or have an independent basis for tax-exempt status, and that the proposal seeks "to ensure proper reporting and transparency of operations."
On May 20th the Finance Committee held an all day, closed-door meeting to "walk through" the financing options for health care reform. Although no details about which options would be pursued, Chairman Baucus stated that the committee was headed toward a consensus on how to pay for health care reform, but no decisions had been made. The Finance Committee is planning for a June mark-up of the financing portion of the health care reform package.
Blank Rome is, and will be, monitoring the health care reform proposals as they relate to tax-exempt hospitals. If you have any questions regarding these proposals, please contact one of the Blank Rome attorneys specializing in Tax Exempt Organizations Practice.
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