As Tax Reform Looms, Hospitals Defend US Exemptions – Forbes

As the Republican-led Congress moves from its failed health reform effort to an attempt to restructure the U.S. tax code, the nation’s hospital industry is out with a new report defending its federal tax exemption.

The American Hospital Association says the “community benefit activities” of the nation’s hospitals and health systems “outweigh the value of their federal tax exemption by a factor of 11 to 1.” The analysis by Ernst and Young is based on 2013 data from community benefit and Medicare cost reports from nearly 3,000 nonprofit hospitals.

U.S. House Speaker Paul Ryan ( R-Wisconsin) speaks during a news conference on a unified tax reform framework at the U.S. Capitol in Washington, D.C., U.S., on Wednesday, Sept. 27, 2017. (Photo: Andrew Harrer/Bloomberg)

Most hospitals in the U.S. are considered nonprofit charities that don’t pay state or local property taxes nor federal income taxes largely because of the community benefits they offer or the way they treat the poor, providing free and discounted medical care regardless of a patient’s ability to pay.

The AHA said in the report that “federal tax revenue foregone” due to hospitals’ tax-exempt status was $6 billion in 2013 , the most recent year available information was available for the AHA’s Ernst & Young report. But the benefit tax-exempt hospitals say they provided their communities was $67 billion in 2013, AHA said .

“Hospitals of all kinds — urban and rural, large and small — are demonstrating the value they provide and solidifying their commitment to making their communities healthier through strengthened community partnerships, health and wellness programs, and outreach activities designed to combat identified community needs,” AHA CEO Rick Pollack said in a statement accompanying the report.

But the nation’s nonprofit hospitals have in the past seen threats to exemptions from Congress when tax reform arises and they aren’t taking any chances this time.

And hospitals might have reason to worry about tax exemptions considering the Affordable Care Act’s expansion of health insurance to more than 20 million Americans has caused unpaid medical bills to plummet.

Uncompensated care costs for the nation’s 4,862 hospitals dropped below 5% to 4.2%, or $35.7 billion in 2015, the American Hospital Association’s most recent tally shows. The 2015 level of uncompensated care costs were the lowest amount since 2007 , the AHA figures show.

This comes as the nation’s uninsured rate has hit historical lows of less than 9% of the U.S. population, according to a report out from the Centers for Disease Control & Prevention.

Some observers say not-for-profit hospitals are no different than their investor-owned brethren when it comes to providing charitable service. Across the country, for-profit hospital operators like Community Health Systems, HCA Holdings and Tenet Healthcare Corp. have for years argued that they treat all who show up in their emergency rooms and deal with cuts in government health programs just like the not-for-profits do.

Although details of tax reform have a long way to go and are only just beginning in Congress, some lawmakers in the past have floated the idea of mandating hospitals be required to spend at least 3.5% of their revenue on charity care.

The idea of hospitals paying taxes has been of political interest to both Republicans and Democrats in recent years . On the federal level, Sen. Chuck Grassley, an Iowa Republican, has for years now criticized hospital charity-care spending and related tax-exempt status.

“I’ve been evaluating and investigating tax-exempt hospitals for more than a decade,” Grassley wrote last month in an opinion piece in STAT News. “Most of them work hard to meet their obligations and care for low-income patients to the best of their abilities. But when the wheels fall off at certain hospitals, they fall off badly.”

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