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<p>A new bill would require more public financial disclosures from hospitals.

By Rose Hoban

It’s called “community benefit,” the money that hospitals spend on treating patients who can’t pay their bills and providing additional services, like health fairs, to their surrounding community.

Despite being a not-for-profit, UNC Health Care, based in Chapel Hill, does not file an IRS Form 990 because it is also a state agency.  Photo credit: Patrick Mustain.

And that community benefit was under scrutiny during a legislative committee hearing Tuesday, where Senators green-lighted a bill that would require hospitals to disclose more of their financials, including what they claim as community benefit.

Most of North Carolina’s hospitals are not-for-profits, and they argue that community benefit is one of the reasons they deserve to retain their tax-exempt status along with rebates on sales taxes from the state.

But North Carolina lawmakers have disagreed. And they showed their disagreement in the proposal that would compel hospitals to report more details of their charity care to the Department of Health and Human Services. The bill would also require not-for-profit hospitals to post the details of their benefit and policies prominently on the web and in their facilities, rather than simply providing a link to their federal tax forms.

The bill would also require disclosure of patient revenues, income and capitol investments.

Bill co-sponsor Sen. Andy Wells (R-Hickory) said the bill would require hospitals to shed light on their financial information in exchange for annual sales tax rebates from the state.

“We’re dealing with 300 million in tax dollars,” Wells said. “We’re just interested in knowing how those dollars are being used.”

Exemptions

“We had passed a requirement that hospitals report the numbers that were available on their [IRS Form] 990s,” said Wells, referring the federal tax forms that not-for-profit hospitals are obligated to file annually. “But some hospitals said, ‘We’re not required to file a form 990, so we are excepted from that.’”

The new bill would amend a 2013 law to require reporting by all not-for-profit hospitals, including university hospitals, such as UNC Health Care, which, as a state agency, does not file a Form 990.

Charlotte-based Carolinas HealthCare System, which is technically a county hospital authority, also does not file a Form 990, and some county-owned hospitals also don’t file the forms, so it’s been harder for lawmakers to determine those organizations’ community benefit.

Not-for-profit hospitals have been required to report more of their financial data to the IRS since 2010.

“If you recall over the last two or three times, this has been an issue of whether to continue to allow nonprofit hospitals to receive these sales tax refunds,” said Senate Health Care Committee co-chair Sen. Tommy Tucker (R-Waxhaw). He was referring to a legislative effort in 2014 to cap the amount of sales tax rebates hospitals received at $45 million.

For example, according to Sen. Fletcher Hartsell (R-Concord), Carolinas HealthCare received about $59 million in refunds last year, most of it sales tax breaks on capital projects.

“In my opinion, if they’re giving the proper information and being fully transparent, it’s less likely this big number gets pounced upon when the budget cycle starts,” Tucker said.

It can be difficult to find the numbers for North Carolina hospitals. Links to the IRS 990s are often buried on websites, and someone needs to know where to look on the forms, which can run up to 50 or 60 pages.

Cody Hand, a lobbyist for the North Carolina Hospital Association, pushed back though, claiming that hospitals provide about a billion dollars in community benefit annually across the state.

“That is only a portion of the cost of caring that hospitals across our state must absorb to meet the needs of our communities,” he wrote in an email communication. “In addition to charity care, hospitals also must account for under-reimbursements from government insurance programs (Medicaid and Medicare) as well as bad debt incurred when insured individuals are unable or unwilling to pay their medical bills.”

Hospitals have also been subject to increasing state assessments over the past five years,

Hand provided a link to a page on the Hospital Association website that includes community benefits and financial-assistance information for most of the state’s not-for-profit hospitals. According to Hand, 18 of the state’s hospitals are for-profit; they would not be subject to the reporting requirements.

“In total, unreimbursed care for hospitals was more than $3.6 billion in 2014,” Hand wrote.

“Health systems earn their tax status every day by shouldering the bulk of the burden of caring for those who cannot afford to pay for their healthcare,” he said.

State scrutiny follows federal

A 2011 study published in the journal Health Affairs found that nationally, not-for-profit hospitals get about $24.6 billion annually in local, state and federal tax breaks.`

Hospitals came under increasing scrutiny by Congress in the last decade, driven in part by allegations hospitals often lacked real community benefit in exchange for being exempt from federal taxes. Critics of not-for-profit hospitals also complained that hospitals would take their bad debt and write that off as charity care.

So when federal lawmakers wrote the Affordable Care Act, they required additional reporting on the IRS 990 about charity care for hospitals.

Since 2010, the Internal Revenue Service has required those hospitals to give increased justification of their tax-exempt status.

Even in the wake of changes though, research has found that critics have a case. A large study of California hospitals published last year found that for-profits and not-for-profits ended up spending around the same amount on charity care and bad debt.

“Not-for-profit hospitals save more than $24 billion a year in federal, state and local taxes,” said author Renee Hsia in a news release on the study. “There are general guidelines that dictate that these hospitals must provide a benefit to the community, but there is no minimum requirement. Individual hospitals set their own policies. A patient that qualifies for charity care at one hospital might have their charges counted as bad debt at another hospital.”

A statement on the N.C. Hospital Association website states the organization is working with hospitals to standardize definitions and data sources to improve community benefit reporting.

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