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  • Washington Highlights

    House Examines Hospitals’ Tax-Exempt Status, Community Benefit Spending


    Sinead Hunt, Legislative Analyst
    For Media Inquiries

    On April 26, the House Ways and Means Committee Oversight Subcommittee held a hearing, “Tax-Exempt Status and the Community Benefit Standard.” During the hearing, the subcommittee heard testimony from academics and government officials regarding the value of nonprofit hospitals’ tax-exempt status, the mechanics of community benefit reporting, and how nonprofit and for-profit hospitals compare vis-à-vis charity and Medicaid uncompensated care costs.

    The subcommittee heard testimony from Mindy Hatton, general counsel and secretary for the American Hospital Association (AHA). In her testimony, Hatton outlined the history of the community benefit standard, explaining that hospital charitable missions extend beyond the provision of community care, encompassing a wide range of services “tailored to meet the needs of their communities.” For this reason, Hatton argued that the standard should remain flexible, and furthermore, that a hospital’s community benefit activities should be evaluated by the community they serve, rather than the Internal Revenue Service (IRS). “Community benefit can only be fairly judged by those in the community in which the benefits accrue,” she concluded.  

    Ge Bai, PhD, CPA, professor of accounting and health policy at the Johns Hopkins University Bloomberg School of Public Health, also testified during the hearing. Bai argued that the substantial value of the tax-exempt status received by nonprofit hospitals necessitates a “social contract with taxpayers,” reflecting, “taxpayers grant hospitals subsidies in the forms of tax exemptions and other tax-related benefits, and hospitals have an obligation to provide community benefits to justify this sizeable subsidy.” Bai further argued that tax-exempt hospitals do not provide sufficient community benefit, citing research findings that for-profit hospitals provide more charity care than their nonprofit counterparts, while reporting a comparable Medicaid shortfall as a share of total expenses. She also criticized the 340B Drug Pricing Program, arguing that the program incentivizes hospitals to acquire clinics located in wealthy community and shift care towards hospital outpatient departments. 

    During the question-and-answer portion of the hearing, the subcommittee considered revisions to the IRS Form 990, Schedule H, a form for reporting the community benefit provided by tax-exempt hospitals, including financial assistance, Medicaid and Medicare shortfall, community health improvement services, health professions education, and bad debt. In a key exchange, Subcommittee Chair David Schweikert (R-Ariz.) inquired about necessary improvements to the Schedule H form, which was last updated in 2008. Hatton responded that the AHA would be amenable to participating in a working group charged with updating the form. She cited concerns that the IRS is not subject to notice and comment and therefore is not obligated to engage communities most impacted by proposed changes. “I think it’s important that we do not define ‘community’ out of ‘community benefit,’” stated Hatton. 

    In another key exchange with Rep. Brad Schneider (D-Ill.), Hatton described how many hospitals focus on health professions training and education as a critical component of their community benefit investments. Reflecting upon nursing shortages, Hatton observed, “One of the issues there is that there are so many more applicants than there are training opportunities, which means that part of what hospitals can do on community benefit is open up more training slots … it’s a major focus.” She predicted that, in light of workforce shortages, more tax-exempt hospitals will begin to focus on these programs as part of the Community Health Needs Assessment process.