Proposed IRS form revision irking nonprofit hospitals

Institutions would need to provide more details about their charity care efforts and other financial data.

By Dave Hansen — Posted July 9, 2007

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Nonprofit hospitals will have to quantify to the IRS how much they give back to their communities, including details about how much charity care they provide, under a proposed revision of a form that tax-exempt organizations fill out each year.

The new Form 990 includes a separate schedule for nonprofit hospitals. The current form has only a vague section asking nonprofits to describe their most significant activities, said Julie Trocchio, senior director of community benefit and continuing care for the Catholic Health Assn. of the United States. "It was no different from the Girl Scouts to museums," she explained.

The proposed form would ask nonprofit hospitals to detail how much money they spent on a number of specific areas, such as charity care, unreimbursed Medicaid costs and health professions education.

Schedule H also asks nonprofit hospitals to describe their collection and billing practices and seeks details as to their joint ventures, such as specifying the ownership interests of doctors in any for-profit activities.

The form comes as more attention has focused on whether nonprofit hospitals are carrying out effectively their charitable missions, as well as how they bill uninsured patients.

Provena Covenant Medical Center of Urbana, Ill., lost its tax-exempt status in 2006 when the Illinois Dept. of Revenue ruled that it did not provide enough charitable care. As a result, the hospital paid almost $5 million in property taxes by the end of 2006.

In addition, Mississippi trial lawyer Richard Scruggs spearheaded a number of unsuccessful class-action lawsuits against nonprofit hospitals in 2004, claiming that they had violated their tax-exempt status by overcharging uninsured patients, devoting too few resources to charity care and using abusive practices to collect payment.

Last fall, a U.S. Senate survey of 10 nonprofit hospitals, as well as discussions with others in and around the hospital sector, determined that such facilities had overcharged uninsured patients or denied care to those without the ability to pay, overstated the amount of charity care they provided, and lavished executives with high pay and perks. The American Hospital Assn. disputed the findings.

But in May, Senate Finance Committee Chair Max Baucus (D, Mont.) and ranking member Charles Grassley (R, Iowa) asked the IRS to revise Form 990 to make nonprofit hospitals' dealings more transparent.

The IRS released the form in June and is accepting comments on it through Sept. 14 before it becomes finalized. The plan is to release it in 2009, to cover tax year 2008.

The current proposal needs tweaking, said Alliance for Advancing Nonprofit Health Care President and CEO Bruce McPherson. It excludes many community development activities of nonprofit hospitals such as housing improvements. These ultimately impact the health status of a community, he stated.

Schedule H also needs to consider the public advocacy efforts of nonprofits at the government level, McPherson added. Finally, it is uncertain how the IRS will quantitatively weigh the community benefit data. But the AAHNC is pleased by the proposal, he said.

The main accomplishment of the new Form 990 is that it leads to more transparency, said Louisiana Hospital Assn. Vice President Patsy Jeter. Hospitals provide many services that many people are unaware of, Jeter explained, such as screening, preventing diseases and educating the public about chronic diseases such as diabetes. "It is a way for hospitals to communicate their story by showing the services and programs they provide."

It's important to remember that this is only a draft, Jeter said. Some questions are open-ended, such as asking a hospital to describe its policies and procedures. The IRS probably will modify the new form after the comment period closes on Sept. 14, she predicted.

Baucus applauded the proposal. "This new form will help the public and the IRS assess whether tax-exempt organizations are staying true to the reasons they were granted exempt status in the first place," he said in a press statement. "We must be assured that the public's donations are used appropriately." Grassley responded more succinctly. "President Carter was in office the last time the IRS rewrote this form. Let's open the blinds and let the sunshine in."

The American Hospital Assn. said it is concerned that some of the questions on the form are not related to hospitals' tax-exempt activities, said AHA president and CEO Rick Umbdenstock in a prepared statement. They are also likely to be confusing and burdensome for members, he added.

The AHA declined to comment further, explained spokeswoman Amy Lee. "We are in the process of reviewing the revised schedules and proposed Form 990 more closely and working with our hospitals to get their feedback so we can formulate more specific comments," she said.

Overall, most organizations "should not experience a change in burden," said Lois G. Lerner, director of the IRS' Exempt Organizations division. "However, those with complicated compensation arrangements, related entity structures and activities that raise compliance concerns may have to spend more time providing meaningful information to the public."

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