WASHINGTON –U.S. Sens. Chuck Grassley (R-Iowa) and Orrin Hatch (R-Utah)today requested specific information from the Internal Revenue Service (IRS) regarding their oversight activities of nonprofit hospitals. The senators, in a letter, asked Acting IRS Commissioner David Kautter for details regarding the agency’s monitoring and enforcement practices of the entities.
“Hospitals are an integral part of their communities and we commend these entities for the work they perform to ensure access to high-quality, affordable care,” the senators wrote in a letter. "We also recognize that hospitals often use their resources for items not often accounted for in basic financial reports, such as reinvesting in new models of care and supporting medical researchGiven the importance of these institutions to their communities, and the forgone federal revenue associated with their tax-exempt status, it is important that both Congress and the IRS conduct oversight to ensure their activities are in line with the benefits they enjoy under the Internal Revenue Code (IRC).”
Recent media reports brought forward questions about whether some nonprofit hospitals were meeting the criteria for tax-exempt status, serving their communities appropriately and serving individuals in need regardless of ability to pay.
This letter complements one sent by Hatch earlier this year examining how the credit union industry has evolved in ways that may potentially compromise the need for their tax-exempt status. It also expands on a Grassley-led investigation on hospitals, which resulted in the IRS implementing reforms aimed at increasing transparency.
Full text of the letter is available here and below.
Dear Acting Commissioner Kautter:
According to the American Hospital Association (AHA), there are over 2,845 hospitals in the United States operating as nonprofits. These nonprofit hospitals qualify for tax exemption from the Internal Revenue Service (IRS) as charitable organizations. To qualify for status as charitable organizations under IRS rules, hospitals must meet the community benefit standard which mandates that they make contributions to their communities. The IRS allows hospitals broad latitude in determining which activities constitute community benefits. However, some activities may include providing uncompensated care and operation of a 24-hour emergency room.
Hospitals are an integral part of their communities and we commend these entities for the work they perform to ensure access to high-quality, affordable care. We also recognize that hospitals often use their resources for items not often accounted for in basic financial reports, such as reinvesting in new models of care and supporting medical research. Given the importance of these institutions to their communities, and the forgone federal revenue associated with their tax-exempt status, it is important that both Congress and the IRS conduct oversight to ensure their activities are in line with the benefits they enjoy under the Internal Revenue Code (IRC).
On the basis of oversight work by Senator Charles Grassley, then Ranking Member of this Committee, Congress and the IRS implemented a number of reforms on nonprofit hospitals to ensure greater transparency in their activities. These include the creation of the IRS Form 990, Schedule H, which requires that nonprofit hospitals disclose Financial Assistance and Means-Tested Government Program information and other benefits to their communities. In 2010, Congress created IRC Section 501(r), which conditions eligibility for tax-exempt status on a hospital’s ability to meet requirements such as completion of a Community Health Needs Assessment (CHNA) and limitations on charges to low-income individuals.
In the wake of these important changes, it is important to examine what information the new transparency requirements have shown and the degree to which nonprofit hospitals are benefiting their communities. Several news reports in recent months have questioned these benefits, including a recent Politico story that claimed that charity care has fallen in recent years, and that the “community benefit” standard was being met in part through education costs mostly associated with training new residents, fellows, and other clinical staff. We have also received allegations of nonprofit hospitals cherry-picking patients and disregarding many others on the basis that they were low-income patients. One hospital allegedly used collection agencies, wage garnishment, and other aggressive means to compel payments from people who should have received charity care under state law.
To help us better understand how the IRS monitors compliance with the law and how it considers enforcement actions, please provide answers to the following questions:
We look forward to receiving your response to my questions on IRS enforcement efforts. Pursuant to the Committee’s authority under IRC §§ 6103(f)(l) and (4), we designate the following individuals as agents to receive briefings and responses related to this letter: Christopher Armstrong, Dan Burd, Caitlin Soto, Erin Dempsey. For Senator Grassley’s staff, the designees are Chris Conlin and Josh Flynn-Brown. We ask that you provide this information to the Committee no later than March 26, 2018. We also ask that you answer the questions on a question by question basis, indicating which questions that you are answering. Thank you in advance for your assistance in this matter.