Increased Scrutiny of Tax Exemptions for Nonprofit Hospitals Due to Noted Weak Enforcement

A bipartisan group of influential senators is taking action to gather comprehensive information from U.S. Treasury tax regulators. Their focus is on nonprofit hospitals, with a specific interest in understanding the details of reported charity care and community investments. This move is part of a broader trend where legislators are increasingly scrutinizing the practices of tax-exempt hospitals.

Senators’ Concerns and Investigations into Nonprofit Hospital Practices

• Senators involved: Elizabeth Warren (D-Massachusetts), Raphael Warnock (D-Georgia), Bill Cassidy, M.D. (R-Louisiana), and Chuck Grassley (R-Iowa)
• Collaboration on two letters expressing concern regarding certain nonprofit hospitals
• Concerns involve potential exploitation of “community benefit” concept for personal gain despite tax-exempt status
• Reference to news reports and investigative report by Grassley’s office highlighting aggressive debt-collection tactics used by tax-exempt hospitals and healthcare systems

In addition to these sources, the senators drew on research conducted by academic institutions and policy-focused groups. These studies highlighted that nonprofit hospitals across the U.S. enjoyed tax exemptions amounting to approximately $28 billion in 2020. This figure was compared to the charitable healthcare services provided by these hospitals during the same period. However, it’s worth noting that the hospital advocacy sector contested these findings, arguing that charity care is just one aspect of the broader activities reflecting a nonprofit hospital’s commitment to community welfare.

Nonetheless, the senators were deeply concerned about the ambiguity surrounding this issue. They argued that the current community benefit standard, in place for a significant period, might not adequately ensure protection and services for the communities housing these medical institutions. They cited a comprehensive 2020 analysis by the Government Accountability Office, which identified challenges in overseeing tax exemptions for nonprofit hospitals due to the vague nature of the community benefit definition. While the Internal Revenue Service (IRS) had implemented some recommendations from this analysis, the senators believed that more comprehensive measures were necessary to standardize and make accessible information related to nonprofit hospitals’ community benefit initiatives. Possible steps include revising Form 990’s Schedule H, a document where nonprofits outline their community-focused efforts.

To better understand the oversight mechanisms in place, the senators requested a range of information from the IRS and the Treasury’s Tax Exempt & Government Entities Division. This included a list of the most frequently reported community benefit activities that qualified nonprofit hospitals for tax exemptions in fiscal years 2021 and 2022. They also sought details about instances where nonprofit hospitals faced penalties or had their tax-exempt status revoked due to breaches of community benefit standards.

In a separate letter to the Treasury’s inspector general for tax administration, the senators urged an evaluation of existing financial assistance policies and practices aimed at reducing medical debt for eligible patients. They also called for an investigation into the frequency of nonprofit hospitals billing patients based on “gross charges” and the IRS’s effectiveness in ensuring hospitals determine patients’ eligibility for financial assistance before resorting to extreme collection actions.

Both letters stipulated a 60-day timeline for the tax regulators to provide the requested information. This bipartisan effort by influential senators underscores the increasing concerns surrounding the practices of tax-exempt hospitals and their commitment to community benefit.