Your obligations to the poor and needy when you are in the health business

Not-for-profit hospital, (known as NFP's) have operated free from federal and state taxes because they have promised the government that they would operate as a charity provider of health care for the uninsured and that they would not engage in business. They must also not engage in business that is stated as directly or indirectly, for the benefit of private interests. This is the basic premise and obligation of any not for profit hospital, clinic or organization.

However, the legal requirements for what constitutes charity care can be vague. The definition of the "community benefit standard" was established by the IRS in 1969. Federal tax law states not-for-profit healthcare organizations are to provide services in a way that benefits their community in return for federal tax exemption. The Internal Revenue Service has a new current position on charitable obligations that is reflected in a revised and updated ruling issued by the agency in 1983. The ruling states, "the promotion of health ... is deemed beneficial to the community as a whole," and on the basis of this premise, it then sets forth a number of criteria for tax exemption. This criterion includes all the requirements that care be provided to all uninsured patients, including government sponsored patients, and that a full-time emergency department be maintained in which no one requiring emergency care can be denied treatment or turned away. Although it is important to note that this last condition is the one that may be waived without the organization losing it's not for profit status.

Sadly some not for profit health organizations have not been following through on their commitment and obligation to provide charity care to uninsured and low income groups. Recent lawsuits have highlighted some of these problems with not for profit hospitals and clinics being accused of:

• Charging their uninsured patients significantly more than those who have insurance, Medicare or Medicaid.
• Pursuing the poor or uninsured relentlessly by aggressive and humiliating(and sometimes illegal) collection techniques
• Violating federal and state prohibition against profiteering by allowing "private interests," through either connected board members and/or physicians whose for-profit businesses are formed and subsidized under the "tax-free" organization.
• Some not for profit hospitals and their subsidiaries (who employ the same business model), have been accused of amassing and hoarding billions of dollars in cash and marketable securities. These are monies that otherwise would have been available to provide charity care to those who would be affected by the tax exemption. In addition some organizations have been found to have enormous amounts property and revenues have been isolated from taxation. Ironically this has the effect of giving the not for profit's greater liquidity than that possessed by most state and local governments.

As of today more than 20 states have set up community-benefit reporting requirements designed to tackle the question of whether not-for-profit hospitals are worthy of tax exemption. Yet even in these states, the requirements vary widely in nature and scope, and determining whether a given not-for-profit hospital's tax exemption is safe may be next to impossible because the methods for economic valuation tend to be unclear and the criteria for providing adequate charity care are not always clearly defined.

Not-for-profit hospitals will continue to be under increased scrutiny as local and state governments have become more concerned about holding these hospitals accountable to their communities for their granted tax exempt benefits. While states are facing severe budget deficits and with the uninsured population topping more than 43.6 million nationwide, state policymakers have begun to debate more than ever if they are getting enough in return for the tax exemptions that are granted to not-for-profit hospitals. Not-for-profits who wish to preserve their tax-exempt status should make a strong effort to play an active role in this policy debate. The outcome of this debate may well influence whether not for profit hospitals and clinics will even be in existance.

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