Grassley Asks Non-profit Hospitals to Account for Activities Related to Their Tax-exempt Status
WASHINGTON — Sen. Chuck Grassley today asked some of the nation’s largest non-profit hospitals to account for their charitable activities, given the tax-exempt status they receive. The designation results in tax benefits totaling tens of billions of dollars every year.
Grassley said the inquiry is a continuation of his effort to review the non-profit sector inadvance of legislation he will introduce to prevent abuse of the federal tax laws that created nonprofitorganizations and encourage charitable donations. Grassley is chairman of the SenateCommittee on Finance, which is responsible for tax legislation and oversight.
“It’s my duty to make sure charitable donations actually help those in need,” Grassley said.“It’s also my job to make sure charities are earning their generous tax breaks. Tax-exempt status isa privilege. Unfortunately some charities abuse that privilege. By gathering information from nonprofithospitals, I hope to learn whether the benefits they provide to the needy justify the tax breaksthey receive.”
In a letter today to 10 hospitals and hospital systems, Grassley asks for information aboutissues including charitable activities, patient billing, and ventures with for-profit companies andhospitals. Grassley sent his letter was sent to the following hospitals:
--The Cleveland Clinic, Cleveland, Ohio;
--New York Presbyterian Hospital System, New York, N.Y.;
--Advocate Health Care Network and Advocate Health and Hospitals Corporation, Oak Brook, Ill.;
--Resurrection Medical Center and Resurrection Health Care, Chicago, Ill.;
--Phoebe Putney Health Systems, Inc., Phoebe Putney Memorial Hospital, Inc., Albany, Ga.;
--William Beaumont Hospital and Beaumont Properties, Royal Oak, Mich.;
--North Mississippi Health Services, Inc., North Mississippi Medical Center, Tupelo, Miss.;
--Sutter Health, Sacramento, Calif.;
--Fairview Health Systems, Minneapolis, Minn.; and
--Banner Health, Phoenix, Ariz.
Grassley began his oversight of the non-profit sector several years ago when problemsemerged with the United Way and the American Red Cross. Grassley conducted his first hearingto examine the ways some tax-exempt organizations game the tax system in June 2004. In April2005, he held a second hearing. That hearing examined schemes to take inflated deductions for noncashdonations, such as those involving taxidermy, and the broad scope of charitable sectorenforcement problems, according to the Internal Revenue Service commissioner. The Minnesota attorney general testified about highly questionable activities by non-profit health care operations in that state.
Earlier this month, Grassley introduced legislation to crack down on abuses in certain life insurance contracts involving tax-exempt organizations. He is working on a series of legislative reforms to curb various other abuses and improve charities’ accountability to taxpayers and potential donors. He continues to consult with the non-profit sector to ensure that his reforms are effective yet not unduly onerous for charities, especially small charities.
Here is the text of today’s letter.
May 25, 2005
The Congress is considering the issues of tax-exempt organizations and particularly theduties and requirements of public charities in relation to the billions of dollars in tax benefits thattax-exempt organizations receive at the federal, state and local level. To assist the Congress in thisreview and determination of actual practices in the field for tax exempt hospitals, I request thefollowing information:
Charity Care and Community Benefit
1. How does your organization define charity care? What types of activities or programs doesyour organization include in its definition or determination of charity care? Which of theseactivities or programs would your organization not incur, at all or to the same extent, if youwere organized and operated as a for-profit hospital? Does your organization maintain acharity policy? If so, please describe the policy or provide a copy of such policy. Does thispolicy require that certain types and amounts of charity care be provided?
2. What are the 10 largest categories of charity care expenditures incurred by your hospital forthe past five years? How does this differ from 10 years ago? 25 years ago?
3. What percentage of your patients for your most recent fiscal year were: (a) uninsured, (b)covered by Medicare, (c) covered by Medicaid or other state or other governmental programproviding medical care benefits for low income individuals, or (d) otherwise covered byprivate insurance?
4. Does your hospital ever agree to waive its fees immediately upon admission of a patient?If so, under what circumstances?
5. What effect, if any, has the increase in patient co-payments and deductibles had on patientbad debt writeoffs of your hospital over the past five years?
6. Has your hospital or other members of your hospital system group entered into joint ventureswith other nonprofit, tax-exempt hospitals to provide charity care or health care services?If so, please describe the nature of such joint ventures.
7. Has your hospital or other members of your hospital system group entered into joint ventureswith physicians or other for-profit companies or investors to conduct unrelated trade orbusiness activities? If so, please describe the nature of such joint ventures.
8. Has your hospital or other members of your hospital system group entered into joint ventureswith physicians or other for-profit companies or investors to conduct health care activitiesyou consider to be substantially related to your core charitable mission? If so, pleasedescribe the nature of such joint ventures.
9. Do any of your hospital or hospital system joint ventures have charity care policies thatrequire certain types or amounts of charity care to be provided? If so, please describe suchpolicies, and how they are similar to or different from your hospital’s charity care policy.
Also explain the role your hospital has in assuring that the charity care policy of the jointventure is enforced. If your organization does not track charity care expense by suchcategories, please explain why not, and provide a narrative response that explains whetherthere are certain categories of care for which charity care is more important or is not relevant.
10. Please respond to the following assertion: Many nonprofit, tax-exempt hospitals engage injoint ventures that shift the most profitable and valuable procedures, practices, and incomestreams to the joint ventures so that the greater profits and value may be shared withphysicians and other for-profit persons.
11. How do you assure that your joint ventures with others do not deplete your hospital’sresources that otherwise would be available for charity care, such as by tying up cash andother liquid assets in the investments in the joint venture?
12. Please provide a charity care breakdown for each entity that is a member of your hospitalsystem group. In your opinion, should charity care be measured on an aggregate group basisor on an organization-by-organization basis?
13. In your judgment, should the Federal tax law require each joint venture in which a taxexempthospital participates to have a charity care requirement? If so, should the amount ofthe requirement differ depending upon the extent of ownership by exempt hospitals in thejoint venture?
14. How does your hospital account for charity care provided by a joint venture in which thehospital participates? For example, if your hospital is a 50% owner of a joint venture, andthe joint venture provides $100 of charity care, do you count $0, $50, $100, or some otheramount, as charity care provided directly by your hospital?
15. What types of research and teaching are performed by your hospital as a charitable oreducational activity?
16. Please describe any fund-raising activities conducted by your hospital in an attempt tosupplement fees for services and other revenues. Specifically, provide for the last three yearsthe amount of charitable donations received by your hospital. Does your organization everconduct fund-raising activities which commit the donations raised by the activity to be usedto provide medical care to low-income or uninsured individuals or families?
17. In general, does partnering with for-profits in a joint venture arrangement have implicationson the provision of charity care and the satisfaction of the community benefit standard by thejoint venture or by the overall hospital system that participates in the joint venture?
18. Do your compensation arrangements with physicians and other professionals in any wayencourage or discourage the provision of charity care by your hospital or hospital system?If so, how?
19. Please provide a breakdown of your charity care expenditures, across emergency roomservices, urgent care services, intensive care services, rehabilitation, maternity care, mentalhealth care, cosmetic surgery, chemical dependency and outreach, and any other categoriesyou consider to be appropriate.
20. What kinds of community outreach and education activities does your hospital conduct, andhow much is expended on such activities (in absolute dollars and as a percent of yourbudget)?
21. Please explain how the amount of charity care you provide differs in magnitude and kindfrom that provided by your for-profit competitors?
22. How much does your hospital spend on free or below-cost infant and child care programs,such as childhood immunization programs?
23. Does your organization conduct clinical trial programs, and if so, how does your organizationtreat such programs for purposes of determining charity care?
24. How do you allocate expenses (direct labor and materials, indirect labor and materials,management, general and administrative, fund-raising, investment, and other) for purposesof determining the amounts you consider to have been expended on your charity careprograms? Does this allocation include costs incurred pursuant to a cost-sharingarrangement with other members of your hospital system group? Is this allocationmechanism dictated by internal policy, Federal or State regulatory requirements, financialaccounting principles, or other standards? Is your allocation of expenses to charity careconsistent with expense allocation procedures you use to allocate expenses for otherpurposes, regulatory or otherwise? Please explain any similarities and differences.
25. Please provide a statistical breakdown of the hospital’s average cost per patient and theaverage length of stay of your patients. Feel free to provide as much detail as you considerto be appropriate to demonstrate the range of costs and stays across different types oftreatment.
Payments/Charges/Debt Collection/Tax-Exempt Status and Other Issues
1. Please explain what is the average mark-up of charges over costs? What is the averageprivate pay contractual allowance (charges to payments) weighted by payer?
2. Please explain the reason for charging “chargemaster” rates to uninsured individualsparticularly in light of the Secretary of Health and Human Services’ letter of February 19,2004 to the President of the American Hospital Association and also in light of your not-forprofitand tax-exempt status.
3. Please explain how fairness or reasonableness of charges to the uninsured can be assuredeven in instances where you offer discounts where those discounts are discounts from thealready high chargemaster rate? What is your discount policy? What is the collection ratefor self-pay?
4. If government programs pay for hospital services for its enrollees without regard to thechargemaster rate and commercial insurance carriers throughout the country likewise pay notbased on the chargemaster rate, please explain why the uninsured continue to be charged thechargemaster rate?
5. Please explain what is the economic benefit to your hospital of charging uninsureds the highchargemaster rate when uninsured people generally have less of an ability to pay hospitalcharges and do in fact generally pay only a fraction of what has been charged? Does thisbenefit justify your action particularly in light of your not-for-profit tax-exempt status?
6. The Committee has heard statements from individuals that have gone to many not-for-profit,tax-exempt hospitals in the very recent past and have seen no evidence of the fact that theymake their tax-exempt and charitable missions known to patients via signs in patient accessareas, brochures, booklets and the like. Please comment on what your hospital does toprovide such visible information on the subject.
7. Please identify what steps your hospital has taken to insure that lower level staff, who areactually the front-line staff, are aware of your not-for-profit status and charitable mission andhave been instructed to implement the same in their treatment of uninsured patients. Pleaseproduce any documents conveying such information to your staff.
8. If your hospital believes that Medicare rules created roadblocks to providing discounts to theuninsured, as is evidenced by the President of the American Hospital Association’s (AHA)December 2003 letter to the Department of Health and Human Services, why did yourhospital, or your hospital through the AHA not raise the same with the Department at anearlier date? In considering this question it is noteworthy that in December of 2002, TrevorFetter, the CEO of Tenet Healthcare, stated in an investor conference call “I would like toturn to an issue that has bothered me for years. I mentioned earlier that Medicare requireshospitals to set charges the same for everyone. This means that the uninsured or underinsuredpatient receives a bill of gross charges. In other words, the entire hospital industry rendersits highest bills to the customers who are least able or likely to pay.”
In addition, please state whether your organization ever grossed up their charges on theMedicare cost report because they had a lower OPD fee schedule? Please state your viewson whether it is allowable or acceptable for hospitals to lower their charges for the insuredand not the uninsured?
9. It has been suggested that one of the reasons that a hospital may have maintained these highchargemaster rates is that it allows the hospital to obtain more in the way of Medicare outlierpayments thus further costing the government additional money for the care of the uninsured.Please explain why your hospital, as a tax-exempt not-for-profit hospital, feels that this isappropriate or inappropriate. What was the growth rate in your Medicare outlier paymentsfrom 1998 to 2002?
10. Secretary Thompson, in his letter mentioned above, noted that “Medicare and Medicaid havea long history of doing their part to help the uninsured that includes paying hospitals $22billion each year through the disproportionate share hospitals’ provision to help hospitalsbear the cost of caring for the poor and uninsured.” In light of the fact that you are a taxexemptnot-for-profit hospital, please comment on whether or not you believe it isappropriate for your hospital to receive such aid from the government. Please list yourpayments under disproportionate share for the past three years as compared touncompenstated care, separating out bad debt.
11. Do you agree that the chargemaster method of charging uninsureds should be discontinued?In answering, I would ask that you consider the statement of Mr. Jack Bovender, theChairman and CEO of Hospitals Corporation of America, one of the largest for-profithospitals in the country. Mr. Bovender has stated, “the chargemaster system on whichhospitals rely to set pricing and billing codes have a 40 year history of changes that havedistorted the relationship between price and cost. It grew out of a time when decreasingMedicare reimbursement prompted cost shifting to the private sector and this wasexacerbated in the 90's by aggressive managed care discounting. I am not here to try tojustify this and it really needs to be fixed.”
12. At the hearing of the Oversight Investigation Subcommittee of the House Energy andCommerce Committee on hospital billing dated June 24, 2004, Mr. Bovender stated that he“was told by both inside and outside legal counsel . . . [in late 2002] that we had to getclearance [for discounting to the uninsured] through CMS.” Please identify whether yourhospital has received such legal advice and if so, please provide any written documentationof that advice.
13. Please provide all documents related to your hospital’s consideration of medical charges forbilling practices, charity or indigent care, discounts or write-offs to uninsured patients.
14. Please provide all documents relating to your charity care policy, community benefit reports,community benefit assessment, community benefit strategy and/or charity care audits for thetime period of January 1, 1998 through the present. In providing the same, please identifyspecifically where those documents consider your hospital’s treatment of the uninsured.
15. Please provide any community needs assessment done by you or on your behalf during thetime period of January 1, 1998 through the present. In providing the same, please identifyspecifically where your hospital considered its treatment of the uninsured in its communityneeds assessment.
16. Please identify how many lawsuits you have filed against uninsured patients for the currentyear and the preceding five calendar years and please identify whether or not you arecompelled by law to file such lawsuits in order to collect from these individuals. Pleaseidentify the amount of debt that was at issue in each suit. Please identify any times you havesold debt owed to the hospital from uninsured patients to other companies for collection.
Please state the amount the debt(s) was sold for, and the terms under which such privatecollection accounts were sold. In particular, please estimate the volume and value ofaccounts sold to private companies in the past five years, and whether those sales were madeafter your hospital rigorously pursued the patient on its own, and whether or not the hospitalalso claimed those same accounts for purposes of collecting the70% bad debt payments madeavailable to hospitals that despite best efforts, fail to recover aged patient accounts. Pleaseexplain how the sale of private accounts for recovery, and an concomitant claim to Medicarefor payments on the same debts, is not “double dipping.”
Please provide copies of your contracts, if any, with collection agencies. Please identifywhether this collection agency is a for-profit or nonprofit subsidiary of your organization.
Please discuss any financial relationship with a bank or credit card company that patients useto help finance their debt. Please explain if you differentiate between Medicare and NonMedicare patients in regard to debt. If you sell debt, what is your policy on when that debtis sold, particularly in terms of the age of the debt.
17. Please identify any money or investments that your hospital or related organization(including supporting organization or private foundation) has in off-shore bank. Identify theamount in these accounts. Please explain why your organization has taken this action.
18 Please provide an organization chart including Type I and Type II supporting organizations.The chart should identify ownership interest and the type of organization (nonprofit, forprofit, partnership, etc.).
19. Some hospitals have taken the position that the provision of healthcare, no matter the costto the patient, is inherently charitable. Do you agree that the provision of health care touninsureds is charitable even if there is a high charge associated with it? If so, pleaseexplain.
20. Some hospitals have stated that all patients, insured and uninsured alike, are charged thesame amount for services. It seems that this is a response based on semantics as it is myunderstanding that all insureds and government payors ultimately are expected to pay lessthan the chargemaster rate while uninsured patients are expected to pay the full amount.Please respond and in your response identify the net effective discount to all patient groupsbased on contractual or other allowances with those groups and identify the discount offeredto uninsured patients as well. Please explain what your policies are for providing electiveprocedures, ex. breast biopsies, mammograms, colonoscopies, physicals, etc. to theuninsured.
21. Please provide for the last three years a detailed breakdown of travel of your five top salariedemployees: for trips over $1000 please provide receipts for hotel; meals; airfare and all otherreimbursed items as well as the purpose of the trip. Please provide all salaries and otherbenefits provided to these five individuals for the last three years from any organizationidentified in question B18. Finally, please detail any payments or reimbursements made toemployees for country clubs.
Thank you for your time and assistance on this matter. I would ask for a complete responseby July 11, 2005.
Charles E. Grassley
cc: Senator Baucus
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