Grassley, Bingaman to Continue Crusade for Charity Care Definitions, Mandates

The battle to define community benefit and uncompensated care, as well as set a floor on the amount of free health care tax-exempt hospitals provide, is not over.

Senators Chuck Grassley (R-Iowa) and Jeff Bingaman (D-N.M.) tried to amend the American Recovery and Reinvestment Act signed into law by President Barack Obama to force the Internal Revenue Service, Centers for Medicaid & Medicare Services, and the Medicare Payment Advisory Commission to cooperatively develop a standard definition for uncompensated care and charity care.

The amendments were never voted on, but the senators are not discouraged.  Jude McCartin, a spokeswoman for Sen. Bingaman, told insideARM that the attempt to amend the stimulus plan was “sort of a way of letting people know we’re working on this issue.”  She said Bingaman and Grassley, both members of the Senate Finance Committee, are working on new legislative with the same goal as their amendment attempts in mind.

Grassley, who has been reviewing the charitable giving of tax-exempt hospitals since 2005, said recently that hospitals’ tax-exempt status is a tremendous advantage and puts non-profits in a position to provide health care to people who otherwise can’t afford it. It’s that public good that justifies tax-exempt status. But Grassley has questioned whether non-profit hospitals are doing enough public good.

“Neither the IRS nor Congress has done a very good job when it comes to establishing the criteria for enjoying this tax status since the IRS scrapped charity care for its community benefit standard in 1969,” Grassley said after the IRS last month released a report on how tax-exempt hospitals provide benefits to the community.  “The Treasury Department could do a lot of good, and probably more quickly than Congress, by re-establishing those charity care requirements, and if it looks like that can’t get done, then Congress will have to step in.”

Dennis Smith, a senior fellow of health policy for the Heritage Foundation, however, cautioned against trying to attach a mathematical formula to the amount of free-care not-for-profit hospitals provide.  Smith said not-for-profit hospitals tend to be religious organizations with a broader mission than just providing medical care. Requiring hospitals to set aside a specific percentage of their revenues for medical care could interfere with their other charitable efforts, he said.

“It would be a mistake,” he said.  “With a religious organization, their mission is throughout an organization. It’s very difficult to come up with standards that broadly reflect the mission religious organizations have…You can’t trace all the public good, because their entire mission is for the public good. It’s one of those cases where the law of unintended consequences holds great risk.”

Smith said he fears the intent of any legislation specifying the amount of free medical care given to maintain tax-exempt status has more to do with competition than public good.

“It has to do with other relationships and competitors in the market who are trying to gain an advantage, to me, at the expense of religious affiliated organizations,” he said.

If minimum percentage allocation legislation is coming, health care providers would be wise to get behind the new law, said Kaulkin Ginsberg Analyst Michael Klozotsky. In doing so, health care providers position themselves ahead of the curve for changes to IRS Form 990 that will take full effect for many hospitals next year, he said.

“The underlying issue ultimately will influence providers’ patient segmentation and scoring practices which have a direct effect on bad debt,” Klozotsky said. “The combination of potential legislative changes and new IRS requirements will force providers to more carefully examine, promote, and deploy charity care policies.”

Although that may decrease the volume of patient accounts that make their way in the collections stream, those accounts likely are uncollectable and perhaps should have been diverted into the charity care bucket, Klozotsky said.