Houston partners Robert Wolin and Susan Harris and Washington, D.C., partner Edward Beckwith co-authored an article for Compliance Today, the monthly magazine produced by the Health Care Compliance Association. The article, "Tax-Exempt Hospitals Under the Microscope: Charity Care," was published in the September 2008 edition of the magazine.
According to the authors, "The Internal Revenue Service (IRS), Congress, and several states have all been looking extensively at whether the benefits received by communities from tax-exempt hospitals justify the tax breaks the hospitals receive from federal, state, and local governments. Most recently, draft instructions for the new IRS Form 990 were issued on April 7, 2008. The final form of the new Form 990, which represented the first major change in 30 years, was issued on December 20, 2007 by the IRS issued for tax year 2008."
Wolin, Harris and Beckwith detail the factors previously considered in determining whether a hospital qualifies for tax exemption, based on the "community benefit" standard introduced by the IRS in 1969. "As the number of uninsured and underinsured individuals in the U.S. has risen (that is, those individuals who do not otherwise qualify for the Medicare or Medicaid programs), Congress and others have begun to question whether the current community benefit standard adequately ensures that tax-exempt hospitals will meet their obligation to provide benefits to the poor," according to the authors.
According to the article, the changes to Form 990 were based in part on findings from an IRS questionnaire of tax-exempt hospitals. The authors detail the revisions to the form and also discuss The Minority Staff Discussion Draft of Non-Profit Hospital Reforms (the discussion draft) which "suggests a number of reforms to help ensure tax-exempt hospitals provide meaningful contributions to their communities."
The article details the proposed additional standards for both 501(c)(3) and 501(c)(4) exempt hospitals called for in the discussion draft and the proposed sanctions for non-compliance.
Wolin, Harris and Beckwith conclude: "The proposals discussed herein are still formative, but it is clear reforms and additional requirements for tax-exempt hospitals will be a topic of keen interest in Washington and in the health care industry. In the coming months and years, tax exempt policy analysis will be significantly more data driven as the revised IRS Form 990 data provides greater insights . . . All exempt hospitals should review their organizational and governance structures, as well as policies and procedures, to assure they can reasonably comply with the new evolving federal and state standards. In addition, exempt hospitals should start planning actions to ameliorate the impact of these proposals and should assure that they are prepared for increased public transparency and scrutiny, especially with respect to the new information required to be reported on the IRS Form 990."