    [House Hearing, 118 Congress]
    [From the U.S. Government Publishing Office]

       HEARING ON TAX-EXEMPT HOSPITALS AND THE COMMUNITY BENEFIT STANDARD

    =======================================================================

                                    HEARING

                                   before the

                           SUBCOMMITTEE ON OVERSIGHT

                                     of the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 APRIL 26, 2023

                                   __________

                               Serial No. 118-12

                                   __________

             Printed for the use of the Committee on Ways and Means

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    53-243                    WASHINGTON : 2024

                          COMMITTEE ON WAYS AND MEANS

                        JASON SMITH, Missouri, Chairman

    VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts
    ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas
    MIKE KELLY, Pennsylvania             MIKE THOMPSON, California
    DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut
    DARIN LaHOOD, Illinois               EARL BLUMENAUER, Oregon
    BRAD WENSTRUP, Ohio                  BILL PASCRELL, Jr., New Jersey
    JODEY ARRINGTON, Texas               DANNY DAVIS, Illinois
    DREW FERGUSON, Georgia               LINDA SANCHEZ, California
    RON ESTES, Kansas                    BRIAN HIGGINS, New York
    LLOYD SMUCKER, Pennsylvania          TERRI SEWELL, Alabama
    KEVIN HERN, Oklahoma                 SUZAN DelBENE, Washington
    CAROL MILLER, West Virginia          JUDY CHU, California
    GREG MURPHY, North Carolina          GWEN MOORE, Wisconsin
    DAVID KUSTOFF, Tennessee             DAN KILDEE, Michigan
    BRIAN FITZPATRICK, Pennsylvania      DON BEYER, Virginia
    GREG STEUBE, Florida                 DWIGHT EVANS, Pennsylvania
    CLAUDIA TENNEY, New York             BRAD SCHNEIDER, Illinois
    MICHELLE FISCHBACH, Minnesota        JIMMY PANETTA, California
    BLAKE MOORE, Utah
    MICHELLE STEEL, California
    BETH VAN DUYNE, Texas
    RANDY FEENSTRA, Iowa
    NICOLE MALLIOTAKIS, New York
    MIKE CAREY, Ohio

                           Mark Roman, Staff Director
                     Brandon Casey, Minority Chief Counsel

                                     ------

                           SUBCOMMITTEE ON OVERSIGHT

                      DAVID SCHWEIKERT, Arizona, Chairman

    BRIAN FITZPATRICK, Pennsylvania      BILL PASCRELL, New Jersey
    GREG STEUBE, Florida                 JUDY CHU, California
    CLAUDIA TENNEY, New York             BRAD SCHNEIDER, Illinois
    MICHELLE FISCHBACH, Minnesota        SUZAN DelBENE, Washington
    BETH VAN DUYNE, Texas                GWEN MOORE, Wisconsin
    RANDY FEENSTRA, Iowa
    NICOLE MALLIOTAKIS, New York

                             C  O  N  T  E  N  T  S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Hon. David Schweikert, Arizona, Chairman.........................     1
    Hon. Bill Pascrell, New Jersey, Ranking Member...................     2
    Advisory of April 26, 2023 announcing the hearing................     V

                                   WITNESSES

    Jessica Lucas-Judy, Director, Strategic Issues, U.S. Government
      Accountability Office..........................................     4
    Ge Bai, PhD, CPA, Professor of Accounting and Health Policy,
      Johns Hopkins University.......................................    24
    Zachary Levinson, Ph.D, Project Director, KFF....................    32
    Melinda Hatton, General Counsel, AHA Secretary, American Hospital
      Association....................................................    48

                        MEMBER QUESTIONS FOR THE RECORD

    Member Questions for the Record and Responses from Melinda
      Hatton, General Counsel, AHA Secretary, American Hospital
      Association....................................................   114

                       PUBLIC SUBMISSIONS FOR THE RECORD

    Public Submissions...............................................   120

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            TAX-EXEMPT HOSPITALS AND THE COMMUNITY BENEFIT STANDARD

                                  ----------

                           WEDNESDAY, APRIL 26, 2023

                      House of Representatives,
                             Subcommittee on Oversight,
                                   Committee on Ways and Means,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 2:24 p.m., in
    Room 1100 Longworth House Office Building, Hon. David
    Schweikert [chairman of the subcommittee] presiding.
        Chairman SCHWEIKERT. The subcommittee will come to order,
    and I hit the gavel. It's too pretty to actually use, Mr.
    Chairman. The Chairman was kind enough to provide us, all the
    new chairman of the subcommittees a fancy gavel, which we
    appreciate.
        I do want to take one little point of personal privilege
    here. We actually have our senior staffer Shawn--where are you
    Shawn? Is--your spouse is going to have a baby in just a few
    hours.
        SHAWN. That's the [indiscernible.] [Laughter.]
        Chairman SCHWEIKERT. We are going to--yeah, we hope so.
    Yeah. And we won't explain how that happened. We're going to
    pass this little bib down, and I'm going to beg of all the
    members to write a little note. But they're going to induce
    labor in a couple hours, and I thought this would be a really
    neat gift from all of us, both Republican and Democrat, it's a
    little baby bib for the new little tyke's future.
        Shawn, stand up. Wave.
        SHAWN. Hello. [Applause.]
        Chairman SCHWEIKERT. Yay. All right, now back to work,
    without knocking over my coffee.
        I'd like to welcome everyone to today's oversight
    subcommittee hearing. This is our first oversight committee
    hearing of this Congress, and I'm happy that our first hearing
    we will be able to work with who has become my friend, Mr.
    Pascrell, and his team in putting this hearing together.
        Our approach today is not intended to be partisan or to
    beat up on anyone. We just want information and to understand.
    As I spoke with some of the witnesses, we see things coming at
    us from both directions. Help us understand what's actually
    happening in that tax-exempt world.
        Today's focus is tax-exempt hospitals and the community
    benefit standards. Hospitals must maintain certain requirements
    to obtain and maintain their tax-exempt status, including
    organizational and operational requirements, community
    benefits, and also those things spelled out in the ACA. When it
    comes to community benefits, various academics, think tanks
    have sought to put a value on both the tax exemption of
    hospitals which they receive and then the community benefits
    they provide.
        We know that the tax exemptions are very valuable. One of
    our witnesses today from the newly named KFF, we all know as
    Kaiser, will talk about their work showing that tax exemptions
    were valued around 28 billion dollars, and we are going to ask
    you how you calculated that math, in 2020. With half of that
    coming from the federal tax exemption, KFF has also found that
    the value of charitable care provided by hospitals vary
    substantially across facilities ranging from .1 percent in
    operating expenses of hospitals to some well over seven
    percent, and some with other variances.
        Additionally, the Lown--pronounced properly? The Lown
    Institute have made efforts to calculate fair share spending
    for nonprofit hospitals by comparing each system's spending on
    financial assistance, community investment to establish a value
    of its tax exemption. The institute's results show significant
    deficits in community benefits provided as compared with the
    value of some of these hospital's tax exemption.
        Moreover, some articles and studies, including one by one
    of our witnesses today, argued that for-profit hospitals on
    average provide more charity care than tax-exempt hospitals.
    Conversely, groups like our friends at the American Hospital
    Association have published an analysis arguing that the value
    of community benefits provided by hospitals substantially
    exceed the value of the tax exemption. The wide variance here
    seems to come from the lack of guidelines and also what we've
    done in Congress, and the IRS now in its definitions of
    community benefits.
        We are also pleased to have witnesses here today from the
    GAO who will talk about the GAO Study, the report they did in
    2020, and the nature of the standards that the IRS's inability
    to conduct effective oversight on the tax exemption value of
    hospitals. All of this makes exploring the tax-exempt
    hospitals, and the level of community benefits they provide, a
    worthwhile conversation.
        And with that, I thank all of our witnesses for being here,
    and I'd like to turn it over for his opening statement, my
    friend, Ranking Member Mr. Pascrell.
        Mr. PASCRELL. Thank you, Mr. Chairman. I'm here to kick off
    our first oversight subcommittee hearing. And congratulations
    on your gavel.
        Our committee holds a sacred duty to ensure hospitals
    respond with the highest quality of care. We know one size does
    not fill all to provide the care our communities need. Tax-
    exempt hospitals deliver unmatched benefits and are the very
    cornerstone of our hospital system. Nonprofit network cares for
    our most vulnerable. You got to remember that.
        These hospitals collectively deliver more in benefits and
    charity care than other hospitals. There are nearly 3,000 not-
    for-profit hospitals across America. In my state, New Jersey,
    65 of these institutions keep our communities healthy. I'm
    committed to robust oversight of our tax-exempt hospitals. Many
    nonprofit hospital systems can and must do better.
        But we cannot lose sight of the harm Wall Street has done
    already to our entire health system. This subcommittee must
    continue taking a closer look at the opaque ownership of
    hospitals. Private equity control is often shielded like a
    Russian nesting doll, designed to block oversight by the
    government and from patients. By tightening their grip over
    healthcare, corporate tycoons place profits over patients. Big
    bucks over the Hippocratic oath. Our committee has the
    receipts.
        As chairman, I led a hearing last Congress on the impacts
    of private equity on healthcare. What we exposed still needs
    fixing. Wall Street loads debt onto companies, sometimes
    leading to bankruptcy. Facility closures, fired workers,
    neglected patients, and damaged communities.
        In 2022, private equity investment in healthcare grew to 90
    billion dollars. PE stretches like an octopus with tentacles in
    large and small hospitals, physician practices, dental
    practices, nursing homes. These trends demand further
    investigation. Our committee cannot ignore threats to hospitals
    harm our communities and access to care.
        And I thank you, Mr. Chairman, and I wish you the best of
    luck.
        Chairman SCHWEIKERT. You're very kind. Thank you, Mr.
    Pascrell.
        And to the big chairman, Mr. Smith, share with us.
        Chairman SMITH. Thank you, Chairman Schweikert and Ranking
    Member Pascrell. It's a pleasure to be before your first
    oversight subcommittee.
        Today the oversight subcommittee is meeting to examine the
    tax-exempt status of nonprofit hospitals to ensure they are
    operating in the best interest of patients, communities, and
    taxpayers. As the committee with oversight jurisdiction over
    the IRS, the tax code, the administration, and healthcare, we
    know this is an issue that is of great importance to American's
    health. That's not only because of the obvious essential role
    that hospitals play in our healthcare system, but also because
    of their particular importance to many communities across the
    country where they are often the only option for medical
    treatment. That's particularly true in rural areas that many of
    us here represent.
        Nonprofit hospitals account for almost 60 percent of
    hospitals in the United States. The federal tax-exempt status
    granted to most of these hospitals is significant. It is
    estimated to be worth 14 billion with nearly another 14 billion
    coming from state and local exemptions. Recent studies and
    articles have raised concerns, however, that the level of
    community benefit, which includes charity care, provided by
    tax-exempt hospitals has been inadequate compared to the value
    of their tax exemption.
        Additionally, numerous news reports highlight aggressive
    billing practices, executive compensation in the millions of
    dollars, and abuses in the 340B Program. The level of executive
    compensation is particularly alarming. The top 10 nonprofit
    hospital CEOs average more than seven million annually. Some as
    high as 14 million.
        This further questions whether these facilities are living
    up to their mission statements. In the best case scenario, tax-
    exempt hospitals provide meaningful community benefits that
    exceed the value of their tax exemptions, and some do; but
    given the concerns that exist, an examination is needed to
    determine if sufficient community benefits, including charity
    care, are being provided to ensure vulnerable patients and
    communities are being protected.
        This hearing is an opportunity for us to learn from expert
    witnesses and identify any issues that may need to be addressed
    through legislation so that we can be confident that nonprofit
    hospitals are meeting the responsibilities and have the
    resources they need. Additionally, we must be sure that the
    laws, rules, and regulations under which they operate are clear
    and effective.
        I'm confident that together we will identify the problems
    and the potential improvements that will benefit patients and
    communities with the flexibility that they need.
        Yield back, Mr. Chairman.
        Chairman SCHWEIKERT. Thank you, Mr. Chairman.
        Now for our witnesses. Our first witness is Jessica Lucas-
    Judy, Director of Strategic Issues at the U.S. Government
    Accountability Office. We all kindly referred to it as GAO.
        Second, Ge Bai, Professor of Accounting at the John Hopkins
    Carey Business School and Professor of Health Policy and
    Management at the John Hopkins Bloomberg School of Public
    Health.
        Third, Zachary--is it Levinson--Director of a new project
    at the KFF, we all know as Kaiser, that examines business
    practices of hospitals and their providers and their impact on
    costs and affordability.
        And fourth, Melinda Hatton, General Counsel and Secretary
    for the American Hospital Association.
        Ms. Jessica Judy, your written statement will be made part
    of the record. You have five minutes. Please share with us.

    STATEMENT OF JESSICA LUCAS-JUDY, DIRECTOR OF STRATEGIC ISSUES,
                 U.S. GOVERNMENT ACCOUNTABILITY OFFICE

        Ms. LUCAS-JUDY. Chairman Schweikert, Ranking Member
    Pascrell, members of the subcommittee, I'm pleased to discuss
    GAO's 2020 report on requirements that hospitals must meet for
    tax-exempt status and challenges that IRS faces with those
    requirements.
        To maintain federal tax-exempt status, a hospital must
    operate for a charitable purpose to promote health for the
    benefit of the community. In 1956, IRS required tax-exempt
    hospitals to provide charity care, operating to benefit those
    not able to pay. In 1969, IRS removed the charity care
    requirement. In its ruling, IRS identified six factors that
    distinguish how one hypothetical hospital satisfies
    requirements and the second does not.
        These factors, referred to as the community benefit
    standard, include providing emergency treatment to all and
    using surplus funds to advance medical research. A hospital
    need not meet all of the factors to qualify. IRS does not have
    authority to define specific types of hospital activities. The
    factors that IRS identified are examples not requirements.
        Some of the factors may have lost relevance. For example,
    some are now common features of all hospitals. Hospitals are
    required by law to provide emergency treatment to all,
    regardless of ability to pay. These factors may be a less
    useful gauge than they once were.
        Representatives of tax-exempt hospitals told us the
    community benefit standard offers needed flexibility, but the
    lack of clarity creates challenges. A hospital could maintain a
    tax exemption by operating an emergency room that's open to all
    while spending little to no money on community benefit
    activities. We found 30 hospitals that reported no spending on
    community benefits in 2016 and other hospitals that could have
    been at risk for noncompliance.
        IRS officials told us the agency had not revoked a
    hospital's tax-exempt status for failing to provide sufficient
    community benefits in the previous 10 years. We recommended
    that Congress consider specifying services and activities it
    believes would provide sufficient community benefits. To date,
    Congress has not enacted such legislation.
        IRS requires a tax exempt hospital to file Schedule H with
    its Form 990 annually. However, Schedule H solicits information
    inconsistently. For example, IRS directs hospitals to specify
    the costs for providing health education, but hospitals may
    describe the use of surplus funds to improve facilities and
    patient care in a narrative without specifying an amount. Our
    analysis found inconsistencies in what hospitals reported in
    those narratives. Some provided numerous examples, others did
    not address any of the factors.
        We recommended IRS update its forms and instructions to
    ensure that the community benefit information is clear and can
    be easily identified. IRS agreed. In response, it adjusted the
    instructions to indicate responses should include all the
    community benefit factors. However, IRS still asks hospitals to
    describe that information narratively. IRS could fully
    implement our recommendation through further updates to its
    forms to help ensure community benefit information is clear and
    can be easily identified.
        Turning now to the Patient Protection and Affordable Care
    Act, or PPACA, it established four additional requirements for
    hospitals. These include conducting a community health needs
    assessment and setting limits on charges and collection. IRS
    requires hospitals to self-report compliance with all four of
    the requirements on Schedule H, answering a series of yes or no
    questions for each. IRS referred almost 1,000 hospitals to its
    audit division for potential violations in five years but could
    not identify whether any of these referrals related to
    community benefits.
        IRS said it sends back incomplete forms, but we found some
    hospitals left the community benefit section blank. IRS's
    guidance for its revenue agents contain specific questions that
    address the community benefit factors, but there was no
    direction on when a hospital should be referred to audit.
    Further, IRS could not determine if hospitals were being
    selected for audit for potential noncompliance related to
    community benefits.
        We recommended IRS establish a process to identify
    hospitals at risk for noncompliance as well as specific audit
    codes. IRS updated its guidance for employees and established
    an audit code for the community benefit standard, which we
    think will help ensure it's effectively reviewing hospital's
    community benefit activities.
        In conclusion, IRS can easily verify whether the legal
    requirements of PPACA are met, but it's harder to verify the
    community benefits because IRS does not have authority to
    define specific services and activities that hospitals must
    undertake to qualify for a tax exemption. Additional clarity
    about specific services and activities Congress believes would
    provide sufficient community benefits could help.
        Chairman Schweikert, Ranking Member Pascrell, members of
    the subcommittee, this concludes my remarks, and I'm happy to
    answer any questions you have.
        [The statement of Ms. Lucas-Judy follows:]

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        Chairman SCHWEIKERT. Thank you, Ms. Lucas-Judy.
        Dr. Bai.

      STATEMENT OF GE BAI, PROFESSOR OF ACCOUNTING, JOHNS HOPKINS
       CAREY BUSINESS SCHOOL AND PROFESSOR OF HEALTH POLICY AND
      MANAGEMENT, JOHNS HOPKINS BLOOMBERG SCHOOL OF PUBLIC HEALTH

        Ms. BAI. Chairman Schweikert, Ranking Member Pascrell, and
    members of the committee, it's my great pleasure to be here
    today. Thank you very much for having me.
        I'm a professor of accounting at Johns Hopkins Carey
    Business School and a professor of health policy and management
    at Johns Hopkins Bloomberg School of Public Health. As a
    accountant, my research interest is monetary issues in
    healthcare. In today's testimony, I will focus on two things.
    Number one, the social contract between taxpayers and the tax-
    exempt hospitals. Number two, evidence on whether tax-exempt
    hospitals fulfilled their obligations to taxpayers.
        My views today represent my own and do not represent that
    of Johns Hopkins University or its affiliations.
        Let's move to number one. So hospitals is the largest
    industry in the United States with 1.4 trillion dollar annual
    revenue. Most of the hospitals, however, are tax-exempt
    hospitals, meaning that they are exempted from income tax at
    the federal, state level, property tax, sales tax. They also
    have lower costs of borrowing because they can issue tax-exempt
    bonds because bond holders do not pay income tax on the
    interest earned on the bonds. They can also receive tax
    exempt--tax deductible charitable contributions.
        So beyond that, these hospitals can also benefit from the
    340B Program. So this 340B Program was established by Congress
    in 1992 to help hospitals that benefit low income patients by
    giving them the ability to buy drugs at discounted price from
    pharmaceutical companies. This was a buy low/sell low program
    at that time. Now it has evolved into a buy low/sell high
    program because hospitals can sell those discounted drugs to
    well-insured patients. And it also encourage hospital's mergers
    and acquisitions because they can buy physician's practices and
    small hospitals in order to take advantage of the 340B Program.
        More importantly, the tax exemptions or taxpayer subsidies
    worth more to hospitals with higher profitability and hospitals
    located in wealthy areas because of the value of property tax
    exemption and the value of income tax exemption. So these are
    the indirect and direct tax benefit or taxpayer subsidies
    enjoyed by nonprofit hospitals.
        How about obligations? So our current tax exempt obligat--
    tax exempt benefit comes from 1913, the first Internal Revenue
    Code. At that time, nonprofit hospitals were pure charities.
    They focused on charitable activities with very little
    commercial activities.
        But time has changed. Our current community benefit
    standards was adopted by IRS in 1969 because we have a social
    contract. As tax-exempt hospitals, we are going to provide all
    kinds of community benefit to the taxpayers. In return, we
    receive taxpayer subsidies.
        Then the ACA defined very specifically eight different
    types of community benefits, including charity care, that is
    the discounted or free care provided by tax-exempt hospitals to
    low-income patients. These are uninsured or insured. And also,
    the Medicaid shortfall, which is the Medicaid payment versus
    the cost of providing care to Medicaid patients. And there are
    other types of community benefit. So basically, nonprofit
    hospitals must report to IRS how much they did for one of the
    eight or more than of the eight different categories and at an
    annual basis.
        Now let's move on to my number two point. The hospitals
    have not yet provided more than the for-profit hospitals in
    overall. So our study in house affairs found that in 2018, for
    every one hundred dollars expense incurred by nonprofit
    hospitals, they only provided $2.30 for charity care, but the
    for-profit hospitals provided $3.80. And the similar result we
    found for the Medicaid shortfall.
        So overall, nonprofit hospitals have not yet demonstrated
    that their activities are consistent with a charitable mission.
    So evidence suggests that tax-exempt status does not provide
    assurance that nonprofit hospitals will provide sufficient
    community benefit or behave in a way consistent with their
    charitable mission. Thank you very much.
        [The statement of Ms. Bai follows:]

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        Chairman SCHWEIKERT. Thank you. Thank you, Dr. Bai.
        Dr. Levinson.

    STATEMENT OF ZACHARY LEVINSON, DIRECTOR, NEW PROJECT AT THE KFF
        THAT EXAMINES BUSINESS PRACTICES OF HOSPITALS AND THEIR
         PROVIDERS AND THEIR IMPACT ON COSTS AND AFFORDABILITY

        Mr. LEVINSON. Thank you, Chairman Schweikert, Ranking
    Member Pascrell, and distinguished members of the subcommittee.
    I appreciate the opportunity to be here with you this afternoon
    to discuss tax-exempt hospitals and the community benefit
    standard.
        This issue has been the subject of renewed interest in
    light of reports on the business practices of some nonprofit
    hospitals, such as instances where hospitals have taken
    aggressive steps to collect unpaid medical bills, including
    from patients who may be eligible for financial assistance.
        To provide context for ongoing discussion on this topic,
    KFF estimated the value of exemption from federal, state, and
    local taxes for nonprofit hospitals. We estimated that the
    total value was about 28 billion dollars in 2020. This
    represents over 40 percent of net income earned by nonprofit
    hospitals in that year, highlighting the large role the tax
    exemption may play in the financial health of these facilities.
        About half of our estimate reflects the benefit of federal
    tax-exempt status. The federal component includes the value of
    not having to pay federal corporate income taxes. It also
    reflects estimated increases in charitable contributions and
    decreases in bond interest rate payments that might arise due
    to receiving tax-exempt status. In exchange for receiving
    federal tax exemption, nonprofit hospitals are expected to
    provide community benefits. One core example of a community
    benefit is charity care, which reflects free or discounted
    services for eligible patients who are unable to afford their
    care.
        Hospital charity care programs help fill in gaps in
    coverage for uninsured patients as well as insured patients
    whose plans may have large cost-sharing requirements. We
    estimated that nonprofit hospitals spent about 16 billion
    dollars on charity care in 2020, which is less than our 28
    billion dollar estimate of the value of tax exemption. We
    focused on charity care to provide context for one of the
    clearest examples of a public good provided by nonprofit
    hospitals.
        However, nonprofit hospitals engage in many other
    activities that may benefit their communities. These include
    covering unreimbursed costs related to treating Medicaid
    patients--excuse me, offering unprofitable services that are
    important for local access, supporting medical training, and
    funding research, among other activities. Nonetheless, research
    suggests that community benefit spending may vary substantially
    across hospitals, and some have suggested the need for
    additional measures to be sure that all nonprofit hospitals are
    carrying their weight.
        Several proposals have been floated to increase the
    provision of community benefits and better align these
    activities with local need. Approaches include expanding
    requirements for hospital charity care programs, requiring
    hospitals to spend a minimum amount on community benefits,
    requiring greater community involvement in hospital decision
    making, and increasing transparency in oversight of community
    benefits.
        Policies that seek to strengthen the regulation of federal
    nonprofit status would inevitably involve tradeoffs. For
    example, some policies may require new spending on certain
    community benefits. While hospitals may try to offset this new
    spending by operating more efficiently, it's also possible that
    some would cut costs in ways that could be harmful to patients
    or the broader community, such as by discontinuing certain
    services or laying off staff.
        It may be especially challenging for some to implement new
    activities given recent financial challenges facing hospitals
    and other financial challenges that are on the horizon. This
    includes the end of the public health emergency and the
    unwinding of Medicaid continuous enrollment which could lead to
    many individuals losing coverage and subsequently requiring
    charity care.
        At the same time, policies to strengthen standards for
    community benefit could increase the provision of benefits that
    are important to patients and communities, such as extending
    free or discounted services to more patients who would
    otherwise have difficulty affording their care. In the context
    of recent financial challenges facing hospitals, strengthening
    community benefit requirements could also protect prioritized
    services and activities from hospital's attempts to cut costs.
    Given the large role that nonprofit hospitals play in the
    nation's healthcare system, the community benefits that they
    provide may have a large bearing on patient's access to
    affordable care and the health of communities.
        Thank you, and I look forward to answering your questions.
        [The statement of Mr. Levinson follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman SCHWEIKERT. Thank you, Doctor.
        Ms. HATTON. Could you hit your button?

      STATEMENT OF MELINDA HATTON, GENERAL COUNSEL AND SECRETARY,
                     AMERICAN HOSPITAL ASSOCIATION

        Ms. HATTON. Chairman Schweikert, Ranking Member Pascrell,
    and distinguished members of the subcommittee, thank you for
    the opportunity to testify at this hearing. On behalf of the
    American Hospital Association's 5,000 member hospitals and
    health systems, I look forward to sharing the many ways
    hospitals provide benefits to their communities as we strive to
    ensure all individuals reach their highest potential for
    health.
        Every hospital----
        Chairman SCHWEIKERT. Ms. Hatton, forgive me. I know--will
    you pull the mic closer to you?
        Ms. HATTON. Sure.
        Chairman SCHWEIKERT. It's--the acoustics in this room are
    really bad.
        Ms. HATTON. Thank you.
        Every hospital provides valuable and vital services to
    their patients and communities. These include 24/7 emergency
    care, specialized surgeries, and treatment for complex diseases
    that only hospitals can provide. Tax-exempt hospitals have
    special obligations to their communities in exchange for that
    privilege. Tax-exempt hospitals report the amounts they spend
    on community benefits yearly and conduct a community health
    needs assessment at least every three years. Hospitals work
    with their communities to develop these assessments to decide
    which priority health issues they should tackle. There's no
    doubt that these hospitals both meet and exceed any
    requirements and expectations that attach to the privilege of
    tax exemption.
        A few key facts. In 2019, which is the most recent tax year
    that comprehensive information is available, tax-exempt
    hospitals devoted nearly 14 percent of their total expenses to
    community benefit programs, and about half of that was for
    financial assistance and other means tested benefits. In
    addition, the most recent report by the international
    accounting firm of EY demonstrated that the return to taxpayers
    for hospital's federal tax exemption is nine to one. That means
    for every one dollar of tax exemption, taxpayers receive nine
    dollars of community benefit. I think that's a remarkable
    return by any standard.
        For nearly 100 years, it's been widely recognized that
    fulfilling a hospital's charitable mission is multifaceted and
    does not rest on the provision of financial assistance alone.
    The community benefit standard established by the IRS from its
    hospitals to satisfy their community benefit obligations by
    providing a mix of financial assistance, services, and programs
    tailored to meet the needs of their communities. In 2008, as
    part of a major overhaul of Form 990, the IRS developed
    Schedule H. This is the form tax-exempt hospitals use to report
    the range of community benefits they provide.
        The AHA has been collecting comprehensive information on
    the benefits reported in Schedule H since 2009. The amount of
    community benefit has remained steady between 11 and 14 percent
    of total hospital expenses with financial assistance and
    Medicaid underpayments counting for about half that total.
    Since reporting began, hospitals have provided between 894
    billion and 1.3 trillion dollars' worth of community benefits.
        One of the greatest accomplishments of the community
    benefit standard is the flexibility it gives to hospitals to
    meet the needs of the unique communities they serve. Let me
    give you two brief examples.
        HonorHealth in Scottsdale, Arizona supports its communities
    through a variety of programs that increase access to
    healthcare, provide early childhood education, food bank
    access, senior daycare, and trauma and deployment training for
    military professionals. St. Joseph's Health in Patterson, New
    Jersey works with community partners, including faith-based,
    civil, and social organizations, schools, and others to offer a
    wide-range of services. Some examples include educational
    programs on autism, diabetes, obesity, asthma, and other
    support services for parents of infants and toddlers with a
    special focus on children with developmental disabilities and
    delays. Every single hospital has examples of programs that are
    designed to address the unique needs of their communities.
        Before closing, just let me note that we do have some areas
    agreement with the other three witnesses that you've heard
    from. There should be more emphasis on the value of social
    determinants of health. The Schedule H form could and should be
    more user-friendly for communities. The value of grants that
    support programs, services, research, and training should be
    counted, and setting minimum dollar thresholds would not be
    helpful or prudent.
        In conclusion, hospitals do more than any other sector of
    healthcare to support the communities they serve and more than
    enough to support their tax exemption.
        Thank you again for the opportunity to testify, and I look
    forward to your questions.
        [The statement of Ms. Hatton follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman SCHWEIKERT. Thank you, Ms. Hatton.
        Now we're going to have some questions, and the benefits of
    being chairman, I get to go first.
        Ms. Lucas-Judy, a very simplistic question. If the IRS
    documentation were updated, Ms. Hatton just said the last time
    the form was updated was 2008, what would we change to make it
    so we would have a commonality of understanding of the
    community benefit being offered with this exemption.
        Ms. LUCAS-JUDY. Well, as you probably know, IRS recently
    came out with its strategic operating plan for using the funds
    from the Inflation Reduction Act, and part of the vision that
    was laid out there was one of the initiatives was to revise
    forms in general to try to make them more user friendly, more
    transparent, make them easier----
        Chairman SCHWEIKERT. You beat me to my punchline. So what
    would you do to change the design of the form? What are the
    couple things we need to know?
        Ms. LUCAS-JUDY. So some of the things you need to know
    would be what is it that hospitals are doing to address the
    community benefit. I mean, right now, it's scattered on several
    different parts of the form and some of the information is
    collected through a quantitative or a, you know, sort of
    contained kind of answer. Some of it, as we mentioned, three of
    the factors are addressed generally in a narrative that's then
    not captured in the electronic version.
        So it's difficult--from what we heard from hospital
    associations, it's difficult for them sometimes to even know
    what to include where on the form, what kind of information
    would be useful. And then it's difficult for users, for members
    of the public, for Congress, for researchers to be able to know
    where to look on the form to find the answers as to what is it
    that a hospital is providing.
        Chairman SCHWEIKERT. So an update in the design of the
    form.
        Ms. LUCAS-JUDY. Right.
        Chairman SCHWEIKERT. Ms. Hatton, do you agree that at least
    we could ever throw together a working group to just update the
    way we accept that information?
        Ms. HATTON. So, Mr. Chairman, we--a working group would be
    good. And that's actually originally how the Schedule H form
    was designed, by a working group. I think one of the things
    this committee could consider, the IRS is not one of the
    agencies that's subject to notice and comment, so when they
    update a form, when they update instructions, they don't go out
    to the public and those most affected----
        Chairman SCHWEIKERT. And to your----
        Ms. HATTON [continuing]. To get----
        Chairman SCHWEIKERT. To your point, you're actually making
    one of the reasons for this discussion.
        Ms. HATTON. To widespread--you know, to determine from the
    communities the ways in which the form could be, you know, made
    easier so that it would be easier for community members to use
    them. I mean, I think it's important that we don't ever define
    community out of community benefit because those are the
    individuals that really best understand the impact of the
    programs and the services that the hospitals are providing. And
    the ability for them to use the form and understand the form
    more easily is paramount.
        Chairman SCHWEIKERT. Understood. But much of my concern
    there is actually much more mechanical. You know, when we all
    look at the form to be able to make policy decisions off the
    data.
        Ms. Bai, you said a couple things that I need to understand
    as an accountant or as an expert in public accounting. How did
    you get to the conclusion of here's your value of the tax
    exemption and here's what you see being put out in charitable
    care, community benefit? Could you first walk us through the
    numbers as your research demonstrated, and how did you
    partially get to that math?
        Ms. BAI. I love that equation analogy. Yes. On one side,
    let's first look at taxpayer subsidiaries, right. Right now,
    let's assume the--let's put aside whether eight categories of
    charity--of community benefit is justifiable or not. Let's
    assume they are. Then IRS Form 990, Schedule H already has very
    explicitly, right, charity care, Medicaid, shortfall,
    everything listed by the line. But what is missing is how much
    taxpayer subsidies received by these hospitals at the hospital
    level.
        Let's say we add three lines on the Schedule H. Number one,
    forgone property tax. Number two, foregone sales tax. Number
    three, 340B profit or gross profit. So that will help
    tremendously for the public and the stakeholders at every level
    to compare that on one hand you have the taxpayers subsidies;
    on the other hand, what is the tax benefits, right, and how
    much you give back to community.
        And also, by the way, this is a very conservative measure.
    Why? Because a lot of the community benefit categorized, you
    know, charity care, Medicaid shortfall, and education, you
    know, all these things also provided by for-profit hospitals as
    well. So this is a very conservative measure.
        Chairman SCHWEIKERT. Well, first--and back to one of the
    cores of the question. Here's the value--as you were looking at
    nonprofits, here's the value of those levels of tax benefit.
    Over here is what you saw going out in charity care, community
    benefits. And I will tell you, I had a hook at the end. I
    wanted to see across the country how many received dis pro
    share, disproportion share benefits also as a backfill. What is
    that differential in your research? What's the gap?
        Ms. BAI. So that is the reason we are here, right, to
    discuss this--because there's no way to know at the hospital
    level how much is the taxpayer subsidy. Now our friends have
    already estimated, but that is at the national level, and
    that's based on a lot of assumptions.
        At the individual hospital, you know, how much is the
    income tax that they would have paid if they had been for
    profit? There's no way to know because a taxable income is very
    different from this closed accounting income. And also property
    tax, right, we do not know. And, you know, think about the
    hospitals, you know, in a very wealthy area. They're property
    tax is going to be very high, right, compared to a hospital in
    a rural area. So that's why we need the disclosure. We need IRS
    to have the disclosure on the Schedule H.
        Chairman SCHWEIKERT. Well, Dr. Bai, but in some of your
    testimony you actually have some estimates of what that gap is.
        Ms. BAI. So that I think is from Kaiser Family Foundation.
    They have about 28 billion dollars.
        Chairman SCHWEIKERT. Oh, that's the--that's Kaiser's
    estimate----
        Ms. BAI. Yeah.
        Chairman SCHWEIKERT [continuing]. Of the value of the tax
    exemption.
        Ms. BAI. Mm-hmm.
        Chairman SCHWEIKERT. And do we have actually--in any of
    your research, have you ever attempted to do the value of the,
    let's just call it charity care?
        Ms. BAI. Charity care is lower than that, yes.
        Chairman SCHWEIKERT. Okay.
        Ms. BAI. So we have the same conclusion. So the tax
    exemption value as estimated is actually lower than--sorry,
    it's higher than the charity care provided. Thank you.
        Chairman SCHWEIKERT. Okay. Dr. Bai, my last question is,
    how did you come up with the calculation that you believe many
    for-profit hospitals are actually taking and providing more as
    a percentage of their book of value in charitable care?
        Ms. BAI. Thank you so much. The for-profit hospitals are
    minority, right, in the hospital industry. So we found in 2018
    for every 100 dollars expense incurred by hospitals, the for
    profit provided, this in aggregate, a $3.80. Okay. That's in
    aggregate. But for nonprofit, it's about $2.30. So that means
    the nonprofit, the aggregate provide the less charity care than
    for profit counterpart, which actually pay tax. And I have no
    reason to believe that things have changed in 2019 or 2020. But
    that's the overall picture.
        And we found similar results for Medicaid shortfall, which
    is also one of the most important community benefit components.
    The nonprofit do not have evidence--you know, there's no
    evidence that the nonprofit hospitals provided more Medicaid
    shortfall then for-profit hospitals, which again, pay all the
    taxes.
        Chairman SCHWEIKERT. Okay. The last thing and then we'll go
    to our ranking member. When you've been doing your
    calculations, were you also able to see if there were certain
    state backfills, like in our Arizona system or in
    disproportionate share that also backfills some of these--the
    charity care?
        Ms. BAI. That we did not examine. You know, Chairman, so
    we--our--right now there's no benchmark, right. We do not know
    if the charity care or community benefit is sufficient or not.
    That's why we chose to look at a benchmark using for profit
    ones.
        Chairman SCHWEIKERT. Okay.
        Ms. BAI. Yeah.
        Chairman SCHWEIKERT. All right.
        Ms. BAI. But that's a great question.
        Chairman SCHWEIKERT. Thank you, Doctor.
        And to our ranking member, Mr. Pascrell.
        Mr. PASCRELL. Ms. Hatton, all the folks that gave testimony
    today know what they're talking about. I want to ask questions
    in a particular area. You touched on it, so you're going to get
    most of the questions.
        So please share some of the upstream projects our nation's
    nonprofit hospitals have undertaken to address social factors
    of health in the wake of COVID-19. Could you tell us some of
    those projects so we can put it in context what we're all
    talking about?
        Ms. HATTON. Thank you. During COVID-19, hospitals stepped
    up into many shoes. They worked with a public health agency. In
    fact, many of them became the public health agencies to both
    develop effective testing kits, to reach out to their
    communities to provide effective information and accurate
    information on both the virus and the vaccines. And many of
    them stood up vaccine sites in very innovative ways to assure
    their communities got vaccines.
        One of our favorite examples is in Charlotte, North
    Carolina. One of our hospital systems partnered with the
    Charlotte Motor Speedway to be able to give vaccinations to
    those in attendance at the race. So hospitals really stepped in
    an enormous way to fill those kinds of gaps, all of which I
    think--all of which, you know, shows--demonstrates commitments
    to their community.
        There are many other upstream activities that hospitals
    also undertake around social determinants of health. Whether
    it's food pantries, whether it's education, whether it's
    training, whether it's work training, whether it's education
    for professionals. One of the gaps--one of the workforce gaps
    that I think this committee is very aware of, in particular, is
    the shortage of nurses. And we find that many of our hospitals
    are spending considerable resources to open training
    opportunities--to give training opportunities to nurses because
    every year there are many more applicants for nursing slots
    than there are training opportunities.
        Mr. PASCRELL. Let me ask you this. The Ernst and Young
    report, a very specific report, very specific about what we're
    talking about today, that report was from 2019, I believe.
    Nonprofit hospitals provided over 51 billion dollars in
    unreimbursed expenses in means tested government programs. Do
    you have a sense of what that amount was in 2020 to 2021 during
    the height of the pandemic? Does anybody?
        Ms. HATTON. We don't yet have that information, both
    because the IRS gave tax-exempt hospitals some additional time
    to file their Form 990s and Schedule Hs, but also because the
    IRS is behind on processing them.
        Mr. PASCRELL. Has everybody filed?
        Ms. HATTON. So we won't have--we don't expect to have that
    information til closer to the end of the year.
        Mr. PASCRELL. Has everyone filed, now that we're in 2023?
        Ms. HATTON. We don't know if everyone's filed. Again,
    hospitals--the IRS gave hospitals an extension on filing for
    this year because of the pandemic, so the number of actual
    Schedule Hs that are available are just a fraction of what you
    usually see this time of year. And again, there's some
    processing issues on the part of the IRS. So again, we don't
    expect to have that data until later this year, but when we do,
    we'll be happy to share it with the subcommittee and do our
    annual Schedule H report on that data.
        Mr. PASCRELL. Can anyone add anything to--Dr. Bai.
        Ms. BAI. Thank you. Thank you, Ranking Member. In our
    study, we did not have direct number on the--you know, what you
    just mentioned. But we found that overall profitability of
    hospitals actually increased during pandemic. Why? Because of
    relief money.
        So looking at--operating income went down because, you
    know, no patients came and a lot cancelled, delayed procedures.
    But because of the relief money received, they actually enjoyed
    a higher financial viability, higher profitability than before
    the pandemic. In other words, Congress have provided them more
    than their fair share to endure the pandemic. That's what our
    study found.
        Mr. PASCRELL. My time's out, but God bless you. Providers
    and patients, I hear this all the time and so do you, the
    healthcare workforce is in crisis. Tell me how this has
    impacted our nation's nonprofit hospitals. Just be brief, but
    to the point. Speak up, please. You shut your mic off?
        Ms. HATTON. No, it should be on.
        Mr. PASCRELL. Now you put it on.
        Ms. HATTON. Okay, sorry. The chronic shortages in workforce
    started before the pandemic but they were greatly exacerbated
    by the pandemic and persists today. Nonprofit hospitals were
    impacted--have been impacted a number of different ways,
    including by the costs, particularly of contract labor going up
    twice or three times what they were before the pandemic. In
    fact, a number of the members of this subcommittee signed a
    letter to the Federal Trade Commission asking it to investigate
    staffing--price--alleged price gouging by staffing agencies
    because of those price increases.
        The price of materials skyrocketed and continue to sky--has
    continued to skyrocket. And just the general inflation that we
    see in the economy has also impacted hospitals. So all of that
    has made the workforce shortage a top priority, you know, for
    America's hospitals. And many--as I indicated earlier, many
    community benefit efforts on the part of nonprofit hospitals
    are now being directed to train individuals to try to alleviate
    that shortage.
        Mr. PASCRELL. Thank you very much for your testimony, all
    of you. And thank you, Mr. Chairman.
        Chairman SCHWEIKERT. Thank you, Mr. Pascrell.
        Mr. Fitzpatrick.
        Mr. FITZPATRICK. Thank you, Chairman Schweikert, for
    holding this important hearing.
        In my home state of Pennsylvania, we do not have a public
    hospital system. In 2021, uncompensated care in Pennsylvania
    approached 900 million dollars, an increase of just under five
    percent from 2020.
        My first question, Ms. Hatton, how--in your estimation,
    how, if at all, has the amount of community benefit provided by
    tax-exempt hospitals changed over the years?
        Ms. HATTON. The amount of community benefit actually since
    we've been measuring it for Schedule H has remained quite
    steady, between 11 and 14 percent of hospital expenses. And
    again, about half of that has been for financial assistance,
    Medicaid underpayments, and other means tested programs.
        Mr. FITZPATRICK. And your testimony mentions that the
    national uninsurance rate reached an all-time low of eight
    percent in the first quarter of 2022. How do you believe that
    has impacted the amount of community benefits, including
    charity care, that the hospitals are not providing?
        Ms. HATTON. We don't yet know that for certain, but we
    expect that that will mean that there is likely more impact on
    Medicaid underpayments in the future because with more
    individuals qualifying for Medicaid during the pandemic.
        Mr. FITZPATRICK. Okay. I yield back, Mr. Chairman.
        Ms. HATTON. Did I misunderstand your question?
        Mr. FITZPATRICK. No, you got it.
        Ms. HATTON. Okay.
        Mr. FITZPATRICK. I yield back.
        Chairman SCHWEIKERT. Thank you, Mr. Fitzpatrick.
        Ms. Chu.
        Ms. CHU. Ms. Hatton, in your testimony, you highlighted the
    importance of having flexibility in the community benefit
    standard to allow hospitals and health systems to support the
    social determinants of health that most impact their specific
    communities, including safe housing, nutritious food, and
    transportation. For example, in my district in California,
    Monterey Park Hospital uses their tax-exempt status to provide
    free transportation to and from the hospital for patients
    within a ten-mile radius for outpatient services, emergency
    room service, surgery, and admissions.
        Can you expand on the importance of sustaining this
    flexibility in the community benefit standard so that hospitals
    can tailor their services to the unique needs of their
    communities?
        Ms. HATTON. One of the geniuses behind the community
    benefit standard has been exactly that kind of flexibility so
    that hospitals can look at their communities to determine what
    it is they need. Is it food insecurity, is it transportation
    needs, is it employment, is it--you know, is it education? What
    exactly are the deficits?
        And I should also mention that hospitals do this in a
    couple of different ways, including through the community
    health needs assessment, where they work with the community and
    public health authorities to determine exactly what the highest
    priority needs are in that community, and they work together,
    again, with these same groups to develop a plan and actually
    evaluate the impact of the plan.
        So the community benefit standard and its flexibility has
    been essential to allowing communities of all sizes with all
    different needs really to be able to prioritize those health
    issues that they can tackle along with their communities.
        Ms. CHU. And do you think Form 990, Schedule H captures the
    amount that hospitals are putting in, such as this?
        Ms. HATTON. I think it's probably an undercount,
    particularly on social determinants of health. One of the
    recommendations that we had and others have had is to elevate
    the importance of social determinants of health and make it
    more clear and I think more evident to those who are filling
    out the form of the importance of capturing that information
    and putting it on the form.
        Ms. CHU. Director Lucas-Judy, it's clear that there are
    many nonprofit hospitals that deliver community benefits to our
    communities, but in recent years, certain tax-exempt hospitals
    have pursued aggressive debt collection, denied charity care to
    those who qualify, and have engaged in anticompetitive
    practices at the expense of patients and taxpayers. In your
    testimony, you mentioned that hospitals Form 990 and Schedule H
    can be the primary or sole source of information available to
    the public to understand the community benefits provided by a
    tax-exempt hospital. You pointed out certain deficiencies in
    the reporting.
        And I'd like to know specifically what sort of things would
    you change to update Form 990, Schedule H to include clearer
    information to the general public and to Congress. For
    instance, what would you do about the narrative issue, because
    you outlined that the narrative doesn't get transmitted to the
    public at all in the electronic reporting? And then also, would
    you require an answer, because you pointed out that some
    hospitals had extensive answers there and some had nothing at
    all. And would you eliminate some questions, like the provision
    of emergency care at the emergency room?
        Ms. LUCAS-JUDY. Well, what we looked at is what is IRS
    doing to determine the extent to which hospitals are providing
    community benefits and what is it that they're reporting as
    part of that oversight. And what we found was that the form
    really doesn't allow anyone to do that because the--for one
    thing, the community benefit standard itself really is not a
    standard, it's a series of examples of things that could be
    provided.
        But even if you were looking at those factors that
    currently make up the community benefit standard, they're on
    different parts on the form, and as I mentioned, they're--some
    of them are closed-ended questions, some of them are open-ended
    narrative and sort of more optional. That narrative question
    tries to address several of the factors, and even go beyond,
    and so IRS really is left with a facts and circumstances
    determination in each case.
        And so, you know, one of the things for a good tax system
    is to make sure that you're treating similar taxpayers
    similarly, and right now you really can't do that, either with
    the standard as it currently is determined and also in the
    reporting itself.
        Ms. CHU. So what would you do about the narrative problem?
        Ms. LUCAS-JUDY. Well, that would be something that it would
    be up to IRS to determine how to do, but if those factors are
    important, then we think that IRS could design the form in such
    a way so that the factors are more clearly addressed.
        Ms. CHU. Thank you. I yield back.
        Chairman SCHWEIKERT. Thank you, Ms. CHU.
        Mr. Steube.
        Mr. STEUBE. Thank you, Mr. Chairman.
        Nonprofit hospitals derive substantial benefits from their
    tax-exempt status, but in some cases aren't providing the
    charity care that their nonprofit status requires. Nonprofit
    hospitals have an obligation to serve indigent patients and not
    try to push them off on other hospitals, but the numbers show
    they aren't doing this.
        For instance, in 2020, nonprofit hospitals received almost
    40 percent more in tax benefits than they provided in charity
    care. A New York Times report found that a nonprofit hospital
    in New York City received nearly 250 million in tax benefits a
    year for which they are supposed to provide charity care. But
    according to the report, that hospital routinely told ambulance
    workers to take homeless patients to other hospitals.
        My question is for Dr. Bai and Dr. Levinson. There are
    several requirements that tax-exempt hospitals must meet to
    maintain tax exemption, two of which include maintaining a
    written financial assistance policy for needy patients and the
    requirement that hospitals set billing and collection limits.
    But we are increasingly hearing about how some nonprofit
    hospitals are making it difficult for eligible patients to get
    financial assistance, are delaying checking patient's
    eligibility for financial assistance, and are sometimes
    engaging in aggressive billing and debt collection practices.
        Are you familiar with these practices, and if so, can you
    elaborate on the practices you have seen from some hospitals?
    I'll start with Dr. Bai.
        Ms. BAI. Thank you, Representative Steube. Thank you very
    much for the question.
        What we have seen is that hospitals have 100 percent
    discretion in designing those eligibility criteria, right. To
    start, if you have your resource available, you can make the
    policy very generous, so many people would have been qualified
    to receive charity care. That's number one.
        But the way we are seeing it is, no, many hospitals did not
    do that. And beyond that, as you already mentioned, they are
    trying to make the charitable--charity care policy very
    obscure. So patients under stress would not be able to find the
    policy, so they would lose the opportunity to apply for it. And
    then after that, once they incur that, some hospitals go into
    very aggressive techniques to go after them, garnish wages, et
    cetera.
        So these, as you mentioned, this is really against their
    charitable mission, not consistent with what's the purported
    mission statement.
        Mr. STEUBE. Dr. Levinson, do you have anything to add to
    that?
        Mr. LEVINSON. I agree with everything Dr. Bai said. I
    should also mention, there--again, it is a requirement that
    hospitals have a financial assistance policy in place. As Dr.
    Bai was mentioning, there are fairly limited requirements of
    what that financial assistance policy has to entail, and that
    both includes who is eligible for charity care but also it
    grants hospitals substantial flexibility in their application
    procedures and how often they have to notify patients of their
    eligibility.
        So, for example, hospitals are currently required to make a
    reasonable effort to determine eligibility before taking
    extraordinary collections actions. However, that could, for
    example, include notifying a patient of their eligibility and
    giving them four months to apply for financial assistance.
        There's some areas of the country where states have
    required more transparency around financial assistance
    policies, such as sending patients information about financial
    assistance with every bill that they receive and once their
    bill goes to collections.
        Mr. STEUBE. And when--and I'll just stick with you, Dr.
    Levinson, if that's okay. When nonprofit hospitals aren't
    providing the charity care that they are obligated to provide,
    how does that impact other hospitals that are in the area? Dr.
    Levinson first, and then you can add, if you want.
        Mr. LEVINSON. Thank you for that question. So, you know, in
    theory, it most directly impacts the patients at those
    hospitals who ultimately might be saddled with medical debt. It
    could also I think conceivably lead to some patients choosing
    to receive their care at other hospitals where those hospitals
    will in turn be obligated to cover their charity care costs.
        Mr. STEUBE. Dr. Bai, do you want to add something to that?
        Ms. BAI. Yeah, thank you. And more importantly, you know,
    these patients are not high-income patients, right. Many of
    them are struggling, working class Americans, very
    marginalized. And if they are being collected--you know, very
    aggressively pursued for medical debt, they might just give up
    and fall into the welfare trap. That will increase taxpayer
    burden.
        See, there is a social contract. So the taxpayers lacks the
    subsidy, go to nonprofit hospitals, but in return they must
    help taxpayers by helping those marginalized and very
    struggling low-income Americans so they can stay in the
    workforce and stop being a taxpayer's burden. So I think that
    is a breach of the social contract.
        Mr. STEUBE. Well, and real quick, I only have a couple
    seconds left. And for both of you, of the various types of
    community benefits that hospitals provide, how many of those do
    hospitals receive reimbursement for through other means such as
    Medicare, Medicaid, DSH, 340B, et cetera? So they're taking
    that as well, correct? Go--Dr. Bai.
        Ms. BAI. Thank you. So right now there is no transparency
    regarding this 340B Program, so it has become a, you know, buy
    low/sell high program. So that is the transparency we probably
    need. But in other--the DSH also is a black box. The tax
    exemption value also, as we have mentioned. You know, you don't
    have the information at the hospital level. Thank you.
        Mr. STEUBE. I'd ask unanimous consent, Mr. Chairman, to
    add, ``Hospitals Often Don't Help Needy Patients, Even Those
    Who Qualify.'' I ask unanimous consent to add that to the
    record. And also the New York Times article, ``They Were
    Entitled to Free Care. Hospitals Hounded Them to Pay.''
        Chairman SCHWEIKERT. So ordered.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman SCHWEIKERT. Thank you, Mr. Steube.
        Mr. Schneider.
        Mr. SCHNEIDER. Thank you, Mr. Chairman. Chairman
    Schweikert, Ranking Member Pascrell, thank you for having this
    conversation. The witnesses, thank you for sharing your
    perspectives and insights as we try to understand this issue
    better.
        I think back through the pandemic and even the years before
    that, I visited hospitals throughout my district, and I hear
    the same concerns repeating themselves over and over. Among the
    most, Ms. Hatton, you touched on it, is just getting good
    providers, whether it's nurses or doctors. We are struggling.
    And I live in the suburbs of Chicago, a place where there is a
    lot of access. Rural communities I know are having an even
    harder time.
        We know that the first responders, the frontline workers,
    the doctors, the nurses were the heroes of the pandemic, but
    they've been squeezed as well throughout this period. And so as
    we come out of the pandemic, and we're looking forward to
    making sure people have access to care, access to quality
    hospitals is critical.
        Ms. Hatton, you touched on the fact that these nonprofit
    hospitals providing community benefit, it's nine dollars for
    every dollar they're benefitting. Would love to get further
    expansion of how that's working, how you see that nine dollars
    playing, and the impact it's having. But, in particular, with
    respect to training doctors and nurses, the hospitals are often
    the places where our professionals go for that medical
    training.
        Ms. HATTON. That's a major focus for many hospitals, to
    provide training opportunities for, you know, workforce. And
    again, it's become--the workforce shortages in focus before the
    pandemic, they were exacerbated by the pandemic, made those
    programs even more important, again, particularly with nurses.
    And I know in the Chicago area that you're suffering from a
    shortage of nurses.
        And again, one of the issues there is there are so many
    applicants than there are training opportunities, which means
    that hospitals--part of what hospitals can do on community
    benefit is to open up more training slots so that more
    applicants have an opportunity to actually train. And they're
    doing this one in a number of different ways in a number of
    different staff shortages, but it's a major focus. And I expect
    when we see the next iteration of health--community health
    needs assessments, we'll find training for the workforce
    becomes one of the priority programs that hospitals want to
    tackle together with their communities.
        Mr. SCHNEIDER. Great, thank you.
        Let me turn to Ms. Lucas-Judy. We were talking about the
    form, and I know others have asked how do we make the form
    better. If I understand this correctly, the form basically asks
    the hospital to quantify their contribution but without full
    meaning, without full capture of data. Is that a fair
    statement?
        Ms. LUCAS-JUDY. For some of the factors, it's asking for a
    quantitative answer, and for others it's just what is it
    important to know about the community benefit that your
    hospital provides. That's very amorphous.
        Mr. SCHNEIDER. Okay. So at best, it's a partial
    quantification, at worst it's an amorphic description. It
    doesn't get into the quality of the community service provided,
    it is a partial snapshot. Is that fair?
        Ms. LUCAS-JUDY. Right. And it's a form that's attempting to
    get something very complicated, and that's part of why, you
    know, we think it's important for Congress to maybe clarify
    what the community benefit standard ought to be or, you know,
    what--some of these things that have been discussed, you know,
    whether it be the social determinants of health or other
    things.
        You know, if a hospital is providing these services, and
    we're going to be subsidizing it through the tax code, it's
    important to be clear about what those types of things are, and
    still preserve some flexibility to be able to meet local needs.
        Mr. SCHNEIDER. And going back to my previous question,
    training the next generation of doctors or training nurses and
    other medical professionals, that's something that has value
    not just to the specific community but to the nation as a
    whole. Is that fair?
        Ms. LUCAS-JUDY. Certainly that is one of the things that
    could be considered.
        Mr. SCHNEIDER. And my last question along these lines, so
    we have partial quantitative, we have a very superficial
    qualitative description, not a quality assessment, but the
    other thing I'm hearing is we don't have the transparency
    necessary to fully understand what community benefits are being
    provided. And I'm running out of time. Is that a fair statement
    as well?
        Ms. LUCAS-JUDY. Yes, that's correct.
        Mr. SCHNEIDER. So for us it's better numbers, more
    transparency [indiscernible].
        Ms. LUCAS-JUDY. Correct.
        Mr. SCHNEIDER. All right. I yield back. Thank you very
    much.
        Chairman SCHWEIKERT. Thank you, Mr. Schneider.
        Ms. Tenney.
        Ms. TENNEY. Thank you, Mr. Chairman, and thank you Ranking
    Member, and thank you to our witnesses.
        I have a pretty extensive background serving on different
    levels of hospital boards, and especially in the rural upstate
    communities where I'm from. My grandfather founded a hospital
    in a rural community in upstate New York, and I--it's always
    been a struggle to get quality care and to--I think it has to
    be emphasized that New York City, even Westchester and Long
    Island, is very different from upstate New York in terms of
    evaluating the hospitals. And I understand the ability to take
    advantage of this tax-exempt status. All of the hospitals in
    New York are nonprofit and two are actually community--or
    county owned, including one in Wyoming County which is in my
    district, and another one outside my district.
        But I want to just jump right into some of the questions I
    have. I want to get into just asking--and first I want--Ms.
    Lucas-Judy, you've done a good job of explaining how vague and
    amorphous this standard is on defining what community benefits
    are. Could you tell me on the 990, the Schedule H, what would
    you do to improve this and what could the hospitals provide?
    And I know this is a multiple part questions. Could you tell me
    in your research, have you seen a distinction between upstate
    rural New York and downstate, if it's in any of your studies,
    or even in any other state that has a nonprofit hospital
    system?
        Ms. LUCAS-JUDY. So that last question, that wasn't part of
    the scope of this particular review, but I can tell you that in
    earlier work that GAO has done, we did find quite a bit of
    variability in terms of even the types of information that
    hospitals were providing, the definitions that they were using
    and the ways that they were measuring their charity care and
    uncompensated care, and some of that had to do with different
    standards at the state level as well.
        In terms of things to do to make the form itself, I mean,
    ideally, as IRS is looking to make all of its forms more user
    friendly, both for the taxpayer who is having to report the
    information as well as people who are trying to, you know, get
    information from it, this I think would be a good form for them
    to look at to figure out is there an easier way, a more
    transparent way to get this information reported.
        But, you know, sort of in the short term, we think it's
    important to be able to cover all the different factors that
    IRS considers to make sure that its reviewers have that
    information to be able to determine whether a hospital is
    meeting the community benefit standard.
        Ms. TENNEY. Well let me ask, I mean, do you suggest that we
    in Congress come up with a different standard for not-for-
    profit hospitals, or do you think we need to do better
    oversight?
        Ms. LUCAS-JUDY. I think not necessarily an either/or
    question. I think certainly having some more definition around
    what the community benefits are that a hospital could be
    providing would certainly be helpful to make sure that
    taxpayers--different types of hospitals are being treated the
    same and have that same opportunity.
        Ms. TENNEY. So in your September 2020 GAO report, you
    identified 30 hospitals that reported spending nothing on
    community benefits in 2016. In addition, 48 hospitals reported
    spending nothing on financial assistance, and 108 hospitals
    reported spending less than one percent of expenses on
    community benefit spending, placing them at a high risk of
    noncompliance in community benefit standard, as you've pointed
    out.
        What do these hospitals generally state in their community
    benefit standard to meet this? I know you sort of answered
    that, but what did they say, like what was listed? Because we
    do have, obviously, you know, a concern about that, and I don't
    know if that's--these are upstate hospitals, or profit,
    nonprofit, you know what I mean? I don't know which state
    they're from but----
        Ms. LUCAS-JUDY. Right. So we weren't identifying specific
    hospitals.
        Ms. TENNEY. Right.
        Ms. LUCAS-JUDY. But we were flagging this as an area of
    concern and something that seems like it should have, you know,
    triggered some additional review on the part of IRS.
        Ms. TENNEY. I guess what I want to say--allow me to reclaim
    my time for--are these hospitals, were they more rural, were
    they more urban, what would you say? Was there some commonality
    that you could say that you saw----
        Ms. LUCAS-JUDY. So that----
        Ms. TENNEY [continuing]. In the trending on the----
        Ms. LUCAS-JUDY. That was not information that we had. We
    did refer them--all of them to IRS and some of them did go back
    and get additional information on. And it's not necessarily
    that those hospitals were not even spending money, they just
    weren't reporting it. And so that part of our point was that
    the form itself isn't being used effectively for oversight.
        Ms. TENNEY. Okay.
        Ms. LUCAS-JUDY. Because if you had, you know----
        Ms. TENNEY. So we got--I understand about the form because
    we've talked about whether we should change it, but let me ask
    you this. There is a big difference state to state. And did you
    and your study come up with the difference between say states
    like New York, which have a very different type of healthcare
    system, and it's really burdensome for rural hospitals to
    survive. Most of them my area are really in freefall, I mean,
    because of the mandates coming from the government in Albany.
        I mean, would you say there's a distinction say based on
    state to state and the way we do healthcare?
        Ms. LUCAS-JUDY. That definitely was not in the scope of
    this work, but I do know that, you know, again, in earlier
    studies, trying to find a difference, looking at different
    kinds of states and different uncompensated care that they were
    providing, the differences between the nonprofit and the for-
    profit hospitals was actually very small.
        Ms. TENNEY. Wow, that's interesting. Thank you so much. I
    think my time's out. I yield back.
        Chairman SCHWEIKERT. Thank you. Thank you, Ms. Tenney.
        And Ms. DelBene.
        Ms. DelBENE. Thank you, Mr. Chairman, and thanks to
    everyone for taking the time to join us today. We really
    appreciate it.
        Ms. Lucas-Judy, we've been talking a lot about how
    challenging it can be for the IRS to determine whether a
    hospital is providing sufficient community benefits because the
    requirements are so ambiguous. You also recommend that the IRS
    assess community benefits at the facility level rather than the
    collective organization. And I wondered if you could talk a
    little bit about why you think that's important to increase
    transparency and enforcement.
        Ms. LUCAS-JUDY. Right. So one of the things that we found,
    as you mentioned, was that there--the community benefits were
    reported at the aggregate level, at the organizational level
    and not at the facility level. And when you have very, very
    large organizations full of multiple hospitals all reporting
    one level of community benefit, it's very difficult to know,
    you know, maybe one hospital in that system is contributing and
    not the rest of them at all. And so for a transparency and
    accountability perspective, that's difficult.
        We recommended that IRS assess the costs and benefits of
    changing that reporting because for the ACA requirements, those
    are at the facility level rather than at the organization
    level. IRS looked at that qualitatively and determined that the
    administrative burden that it would put on the hospital and on
    IRS was not worth the tax administration benefit that they
    would get. We still think it's important for transparency, but
    we understand their point.
        Ms. DelBENE. Okay. Thank you very much. Also, we were
    talking about the importance of healthcare services to our most
    indigent communities and that despite the benefits, we know
    that there needs to be increased oversight. And there is
    reference to a New York Times article last year where
    Providence, a nonprofit hospital system that actually has a
    large presence in my state of Washington, engaged in aggressive
    practices intended to increase payments from patients who
    should have received free or discounted medical care.
        Ms. Hatton, I was wondering, how can the federal government
    increase oversight of tax-exempt hospitals to ensure that their
    practices are consistent with the law? You're--yeah, there you
    go.
        Ms. HATTON. There really is, I think, a great deal of
    oversight for hospitals now. And there's a great deal of
    transparency when you look at all of the different parts of the
    requirements for tax-exempt hospitals. One, there's the
    reporting on Schedule H, which is really quite comprehensive.
        But there's also the community health needs assessment, and
    again, that's a report that's done by the hospitals in
    conjunction with the community, with the public health
    authorities and civic groups, including civic groups that
    represent disadvantaged communities to determine--not only just
    to determine the priorities but determine how the priorities
    will be addressed and whether or not they've successfully
    addressed them. That's really a lot of oversight I think for
    what tax-exempt hospitals are doing in their communities on the
    community level.
        Ms. DelBENE. Ms. Lucas-Judy, is there anything you'd add
    there? Because clearly we need to have oversight so we can see
    if folks aren't receiving the benefits that they deserve. What
    else can we do to make sure they are operating?
        Ms. LUCAS-JUDY. The ACA required IRS to do triannual
    reviews of the hospital's compliance with the other
    requirements, and that included things like the community
    health needs assessment. And we found that IRS had--in doing
    those reviews, had referred about a thousand hospitals during
    the five-year period that we examined for their audit and
    examination.
        They were working--treating some of the initial reviews as
    sort of educational opportunities to make sure that hospitals
    were aware of the requirements, and we saw that the self-
    reported compliance with all of the ACA requirements did go up
    over the course of time that we were--of our review.
        But the one thing that we found was that, again, IRS
    couldn't--didn't have the mechanism in place to be able to say
    whether or not any of these reviews looked at community
    benefits, and so they made a number of changes to their
    guidance for doing the reviews and to the way that it codes the
    results, so we'll be curious to see the results of that in a
    few years.
        Ms. DelBENE. Thank you. Thank you, Mr. Chairman, I yield
    back.
        Chairman SCHWEIKERT. Thank you, Ms. DelBene.
        Ms. Fischbach.
        Mrs. FISCHBACH. Thank you, Mr. Chair, and thank you so much
    for all of our testifiers--all of our witnesses here today. I
    appreciate it.
        I'm from Minnesota. Minnesota's hospitals and health
    systems contributed 3.3 billion to their communities and 649
    million in uncompensated care in 2020. In my district,
    smalltown hospitals are more than just a place where people
    receive healthcare. They act as a staple in the community
    helping bridge the gap between workforce, education, and law
    enforcement.
        Our nation's opioid and chemical dependency crisis is out
    of control. I think everybody can agree with that. Facilities
    such as the ones in my district have partnered with community
    members and outside organizations in their area to come up with
    collaborative prevention efforts that include unused medication
    disposal systems, and strengthening relationships, and creating
    referral pathways between mental health and chemical dependency
    providers, clinics, law enforcement, emergency medical,
    schools, and social services. So there's a whole array of
    things that those hospitals are helping with and doing.
        One hospital, I'll just use the example, is actively
    participating in the program is in Alexandria, Minnesota. It's
    a small town of less than 15,000 people. And it was the first
    Minnesota hospital to be named one of the top rural and
    community hospitals in the nation. So this is what's happening
    in rural areas all across our country.
        It's obvious that the incredible relationship that they
    share with their community, law enforcement, schools, and other
    community leaders has helped this hospital to thrive and
    address the needs of the community. Minnesota is my home, and
    it is home to many, many nonprofit small community hospitals
    that utilize these tax exemptions to support the healthcare
    communities to meet the needs of their communities.
        Dr. Bai, how has the healthcare landscape changed since
    this tax exemption was first made available to those hospitals?
        Ms. BAI. So if we think about the origin of the tax
    exemption, 1923--sorry, 1913, at that time, hospitals scoffed
    the tax exemption because they were charities, right. They have
    the doctors and nurses as volunteers. But then things have
    changed, because think of the proportion of their revenue
    coming from commercial activities versus coming from charity
    activities. Totally different today. That's why our, you know,
    community benefit standard has to also change to come--yeah, to
    be consistent with this.
        But I want to emphasize that any heavy-handed policy
    efforts will have a lot of unintended consequences on
    hospitals. And so just to mention, right, there are some
    hospitals with a lot of financial vulnerability, and if we, you
    know, have bright-line initiatives, and they might be under
    huge pressure, it might close, and that will affect the access
    of care to the local community.
        So therefore, I believe still we should do disclosure. Then
    let the local community decide, the state or local level decide
    what to do, because they really pay the lion share in terms of
    taxpayer subsidies, because property tax is almost always the
    largest component. Thank you.
        Mrs. FISCHBACH. And maybe you can just go a little bit more
    into, you know, if the requirements that the hospitals abide--
    must abide by to obtain and maintain their tax-exempt status--
    I'm sorry, I'm fighting a cold, so I'm a little--it's a
    little--sometimes I'm stuffed up. But how have those changed to
    reflect some of these changes in the landscape? Maybe you could
    go into a little more--you kind of mentioned it, but if you can
    go in a little more detail.
        Ms. BAI. Yeah. There's very little evidence that IRS or the
    state attorney general have used the tax exemption as--taken
    away tax exemption using any evidence. There's no such
    enforcement. And recently in Pennsylvania, four nonprofit
    hospitals lost their property tax exemption because of a
    special statute in Pennsylvania. So I would say so far there--
    this threat has not been credible from--you know, from the
    enforcement at the federal or state level.
        Mrs. FISCHBACH. Okay.
        Ms. BAI. They have been enjoying the tax exemptions.
        Mrs. FISCHBACH. Well, thank you very much, and I appreciate
    it. And I was going to ask about the same thing that Ms. Tenney
    was asking, so I appreciate that she asked that and there was
    that discussion included because that's a concern, too. But
    thank you very much, and I yield back.
        Chairman SCHWEIKERT. Thank you, Mr. Fischbach.
        Ms. Moore.
        Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman,
    Mr. Ranking Member, and our witnesses for being here today.
    This is a very important topic, and I really have been
    listening very carefully to the questions that my colleagues
    have been asking and your responses, and it's really given me a
    lot of thought about whether or not we ought to constrict the
    definition of what community benefits are or whether we ought
    to leave the flexibility there, because communities are so
    very, very different.
        And I also, I'm going to ask a question, I have no idea
    what the answer is to this question, but I know it's a source
    of frustration for me. Ms. Hatton, you talked about social
    determinants of health, and one of the frustrations we have
    around here is that there's not a lot of dynamic scoring on
    healthcare issues so that the predictability--so that they
    won't necessarily score as a benefit or preventive medicine.
        So if I, for example, as a hospital decide I'm in a
    community where there's a lot of diabetes, and say I give six
    workshops a year on cooking and alternative eating styles, and
    so on and so forth, can I only claim as a community benefit the
    amount of money I spent on the lecturer, and the venue, and the
    food, or can I come back and say, we've reduced diabetes by 20
    percent based on our outreach to the community?
        And if you can't do that, then what, Ms. Bai, you might
    want to jump in, how are we accounting for community benefits
    if we aren't allowing the institutions to demonstrate through
    what they're doing that there is some impact? You know, it
    could be any numbers of things. We see that, you know, kids are
    poor, so we're giving out fruits and vegetables to increase the
    fruits and vegetable intake, and, you know, a year later,
    obesity has decreased.
        So I guess who should I ask? Can I ask you, Ms. Hatton, Ms.
    Bai?
        Ms. HATTON. You can do both.
        Ms. MOORE of Wisconsin. Okay.
        Ms. HATTON. You can take an exemption on your--you can take
    the credit for it on your Schedule H for the amount that you
    spend on those workshops. But that's where the second part of
    your question is where the community health needs assessment
    comes in. And that is, if this is a need of the community, and
    again, hospital working with community groups, determine that
    this is need, one of the things that they--among the things
    that they're going to document is what is the need, what's the
    plan to tackle it, and what's the results of tackling it.
        So you get really transparency in two different ways. One,
    you get a number, which will really--which, you know, when you
    come to social determinants of health, the amount that you
    spend on it may not really be commensurate with the impact. It
    may have a huge impact on people's lives.
        Ms. MOORE of Wisconsin. And that's my conundrum because----
        Ms. HATTON. Yeah.
        Ms. MOORE of Wisconsin [continuing]. Ms. Bai said more than
    once that some of the nonprofit hospitals don't necessarily
    provide as much community impact. But, I mean, if we were to
    have this sort of dynamic scoring to be able to say, yeah, you
    know, we reduced diabetes in this community, and to be able to
    add up and count up how much diabetes costs every year and so
    on. Ms. Bai.
        Ms. BAI. Thank you so much, Ms. Moore. One challenge is
    [indiscernible], the impact of the hospital on the health and
    wellbeing of the community residents. And the second, if we
    are--as the GAO report has already mentioned, that right now
    the reporting is already quite complex and their lack of
    standardization. What we have to remember is when we make the
    standards very complex it becomes a very regressive system. The
    rich and the powerful hospitals will be able to hire
    consultants, right, to window dressing--to window dress to make
    themselves look good.
        Ms. MOORE of Wisconsin. What do you think, ma'am? Yeah.
    We've got 27 seconds.
        Ms. LUCAS-JUDY. Well, certainly, I mean, accountable is our
    middle name, and so we do think it's important for there to be
    some accountability, some transparency, some measures in place
    for the community needs assessment. You know, part of it was
    to----
        Ms. MOORE of Wisconsin. But what about the conundrum with
    how they're scored? I mean, prevention--this is why people say
    we have a sick care system instead of a healthcare system, you
    know, because prevention, if it were scorable, maybe people
    would do more of it, and providing it as a general healthcare
    practice, you know.
        Ms. LUCAS-JUDY. And those are definitely things that
    Congress could consider if it wanted to, you know, put in
    place, like what is it that we want from our hospitals? What is
    it that we think some of these community benefits could be, and
    what kind of reporting, what kind of outcomes is it important
    for them to be able to provide to demonstrate that they are
    making a difference in the community?
        Ms. MOORE of Wisconsin. Okay, thank you. My time is up.
    Thank you, and I yield back.
        Chairman SCHWEIKERT. Thank you, Ms. Moore.
        Ms. Van Duyne.
        Ms. VAN DUYNE. Thank you, Mr. Chairman, and thank you to
    all of our witnesses.
        This hearing is about access to quality care for all
    Americans and having good options for getting that care. And
    while nonprofit hospitals can serve a critical role in
    providing a benefit to our local communities, I have serious
    concerns about the IRS guidelines that are in place that are
    used to identify whether a hospital meets those requirements.
    We've talked about that, you know, pretty much all day.
        But in some cases, it looks like a patient with financial
    insecurity needs to fill out more paperwork to receive
    financial aid than it does for a hospital to obtain nonprofit
    status. In a Wall Street Journal article published in November
    of last year, they detail how a patient must use a 19-item
    checklist that includes three months' worth of bank statements
    that must be shown, and show all deposits and withdrawals, loan
    information on all cars that they may own and, among other
    things, a list of the applicant's monthly expenditures for 17
    different categories.
        They must do all of this while meeting a 10-day deadline
    set by the hospital to file their paperwork to see if they even
    qualify for financial aid.
        Meanwhile, a nonprofit hospital only needs to satisfy
    limited and very vague requirements set by the IRS to maintain
    their status. This is clearly one example of how things can go
    wrong, so I'm glad that we're having this hearing today. That--
    it shows that when Congress delegates authority to an executive
    agency without sufficient oversight, agencies like the IRS can
    confuse--can create more confusion and bureaucracy in our
    healthcare system.
        Dr. Bai, is the excessive amount of paperwork required to
    be completed by a patient in financial distress to receive
    access to care, is that a requirement by the IRS?
        Ms. BAI. It is actually indirect requirement from the IRS.
    So the IRS says hospitals must have eligibility policy there.
    What exactly in the policy is up to the hospital to decide.
        Ms. VAN DUYNE. So it's not the IRS then that's requiring
    it, the hospital gets to decide.
        Ms. BAI. [Indiscernible], exactly. But you have to----
        Ms. VAN DUYNE. So the IRS is not requiring that they fill
    out a list of every single expenditure for 17 different
    categories.
        Ms. BAI. Yes, that's correct. So if a hospital wants to do
    good things, they can. They can make it very accessible and
    tell the patients face to face and make it like a one-step
    process; or if they want to do, you know, like try to increase
    their revenue and reduce their charity care, they can make the
    process very, very complicated.
        Ms. VAN DUYNE. Okay. so this sounds like it might possible
    be a hospital that's trying to avoid financial aid----
        Ms. BAI. Exactly
        Ms. VAN DUYNE [continuing]. Through creating a very
    overburdensome paperwork trail for their patients.
        Ms. BAI. Mm-hmm. And also increase eligibility. The, you
    know, floor level. Let's say it's 300 percent, the federal
    poverty line----
        Ms. VAN DUYNE. Is there something that Congress can do to
    address this?
        Ms. BAI. So I think if we have a broad bright-line
    requirement of eligibility, then there will be no variation,
    right. Some hospitals, you know, wealthy neighborhood, they
    wanted them to be more general, right. But some hospitals in a
    poor neighborhood, you want them to be--especially facing
    financial threats, you want them to be more flexible.
        So I think this should be decided at the local level, at
    state or county level. Once they have the information from the
    federal government, they can decide based on their situation.
        Ms. VAN DUYNE. Okay. So, Dr. Levinson, can you give some
    examples of the different kinds of activities that hospital
    report as a community benefit, considering that no one specific
    type of community benefit is used to determine the hospital's
    nonprofit status?
        Mr. LEVINSON. Yes. So as Director Lucas-Judy described,
    there are six broad categories, examples of community benefits
    that hospitals can provide, and hospitals are also required to
    report specific expenses on specific types of community
    benefits to their Schedule H, so that includes, as we were
    discussing before, charity care, unreimbursed costs for
    Medicaid, unfunded medical research, unfunded medical training,
    and so forth. And then there are also opportunities in Schedule
    H to narratively describe other community benefits that
    hospitals might be providing.
        Ms. VAN DUYNE. All right, I appreciate that. I mean,
    recognizing that the IRS is responsible for enforcing the
    hospital's non-exempt status, I don't think anyone would be
    comfortable knowing that a random IRS agent is charged with
    determining if a hospital in my district is meeting the needs
    of a community. As I can you, the needs of north Texas did not
    reflect necessarily the needs of Congressman Fischbach or
    Congresswoman Malliotakis' district or anyone on this
    committee.
        So I look forward to continuing to further look into this
    issue to see how Congress can do a little bit more. And thank
    you very much for your testimonies today. I yield back.
        Chairman SCHWEIKERT. Ms. Malliotakis.
        Ms. MALLIOTAKIS. Thank you, Mr. Chairman. My home state of
    New York is in a unique situation compared to many other
    districts and the rest of the country because practically all
    our hospitals are nonprofits due to regulations at the state
    level. In my district, in Staten Island in particular, I have
    two nonprofit hospital systems and, you know, they do an
    amazing job. They work tirelessly to serve our community, and
    I'm very proud to represent them.
        And when we're talking about fair share value, meaning how
    hospitals contribute to their communities compared to the tax
    breaks they receive, I think there are some important aspects
    that may get overlooked. For example, more than seven out of 10
    of the patients my hospitals on Staten Island care for are
    either on Medicare, or Medicaid, or both. Public programs that
    have a much lower rate of reimbursement than commercial
    insurers, as you know. Medicaid reimbursement pays 60 cents on
    the dollar compared to private and commercial insurance,
    meaning that the hospital is eating 40 cents for every dollar.
        Ms. Lucas-Judy, my first question is for you. When the IRS
    is evaluating the community benefits of nonprofit hospitals in
    order to maintain their tax-exempt status, does the rate at
    which they treat patients on public health programs such as
    Medicaid factor into the equation?
        Ms. LUCAS-JUDY. So for the community health benefit
    section, you know, what they're looking at is just some of the
    extent to which hospitals report that they are addressing those
    factors. But as I mentioned in the testimony, it's very open
    ended, and so there really isn't necessarily an assessment of,
    you know, what--it's not clear what it is that the IRS would be
    assessing against, I guess is what I was trying to say.
        Ms. MALLIOTAKIS. So there should be better metrics. There
    should certainly be better criteria to make this evaluation,
    and they should specifically take into account Medicaid,
    Medicare at the hospital.
        Ms. LUCAS-JUDY. Well, there--so there are different parts.
    So under the ACA, there are certain requirements that hospitals
    have to meet, and there are other reporting requirements,
    separate from these as well in terms of things getting at some
    of the uncompensated care. But some of the variability in what
    hospitals report and one of the reasons why it's difficult to
    know the extent to which community benefit--or what the full
    extent of community benefits is that hospitals are providing is
    things like to the extent to which the unreimbursed--
    uncompensated care for Medicare and Medicaid are included.
        Ms. MALLIOTAKIS. Okay. In addition to filling out the IRS
    tax forms to qualify for nonprofit status, my home state of New
    York goes a step further in requiring nonprofit hospitals to
    include budgets in their community service plans, to
    demonstrate investments in evidence-based community health
    interventions.
        Dr. Bai, what are the advantages of Congress enacting
    changes to the IRS code that would require well-defined charity
    care minimum rates and/or detailed plans as to how nonprofit
    hospitals are providing community benefit?
        Ms. BAI. Thank you. I think there will be several
    unintended consequences if we set a bright-line rule. Let's
    say, you know, two percent of revenue. I'm just making it up.
    That will discourage current good performers if there are,
    right, to reduce their charity care.
        Number two, there are some financially vulnerable hospitals
    already struggling, especially in rural areas. If we set a
    standard apply to every hospital, then these, you know,
    financially vulnerable hospitals would be more vulnerable.
        And number three, no, we--these hospitals will lose a
    signaling channel, right. If they want to show the community,
    you know, we are doing something that--right now they can show
    in there a higher provision of charity care or community
    benefit. But if--I know we have seen evidence from academic
    studies. Once you start this bright-line, and then the
    hospitals might converge to that level, then we lose the
    signaling factor.
        Ms. MALLIOTAKIS. Okay. And one other issue that I heard a
    lot from my hospitals--not just mine but across New York City,
    is the influx of the undocumented immigrants receiving care.
    It's placing a tremendous strain on the hospitals, it's
    overcrowding our emergency rooms, and it's obviously coming at
    a burdensome cost to taxpayers. Hospitals, you know, now have
    to shift critical resources, and I'm concerned about how that
    may diminish care for my constituents.
        And, Ms. Hatton, is there something that you--is this
    something that you've been hearing from hospitals, and how
    would that factor in to nonprofit charity care requirements?
        Ms. HATTON. If I could go back to your very first question
    about Medicare and Medicaid underpayments, which are pervasive
    in New York and other places, those are counted on Schedule H,
    and there's a specific way that they're counted on Schedule H.
    So they do--the hospitals do get credit for those
    underpayments, which again, in New York are quite significant.
    And those show up right in the numbers and are very explicit on
    the form, so they're definitely getting credit for that.
        With respect to patients who are--patients without
    insurance, hospitals--and who have no--you know, have no access
    to insurance, hospitals can do a couple of things. They can
    write it off as uncompensated care and then estimate the amount
    of uncompensated care that--that's attributable to patients who
    don't have insurance, which all these patients wouldn't have
    insurance.
        So there's a way to sort of account for the care and for
    the amount of care they're providing without any pay for that
    care right on Schedule H. And we encourage hospitals to do that
    so that you get a more accurate picture of how much care that
    they're--how much community benefit they're providing in free
    and unreimbursed care.
        Ms. MALLIOTAKIS. The Chairman is giving me the eye. My time
    is up. Thank you.
        Chairman SCHWEIKERT. Thank you, Ms. Malliotakis.
        Dr. Murphy.
        Mr. MURPHY. Thank you, Mr. Chairman.
        Let me just start out first, Dr. Wenstrup was not able to
    come, so I would like to ask unanimous consent to enter Dr.
    Wenstrup's statement into the record, as he was unable to be
    here today, but as a physician colleague, has valuable insights
    into this topic.
        Chairman SCHWEIKERT. So ordered.
        [The statement of Mr. Wenstrup follows:]
        [GRAPHIC] [TIFF OMITTED] T3243A.071

        Chairman SCHWEIKERT. And thank you for joining us on the
    subcommittee.
        Mr. MURPHY. Yeah, thank you.
        Thank you guys for coming, I appreciate you all bringing
    your expertise. Just as a point of reference, I've been a
    physician for over 30 years, was chief of staff of a Level 1
    trauma center, close to a thousand beds. We had a 12 hospital
    system, close to a two billion dollar budget, so I know some of
    the language. We are a non-for-profit entity.
        I know some of the challenges over the last two years have
    been extraordinary, things we've actually--hospitals have never
    faced before, travel nurses especially. Who would have foretold
    this and the exponential rise in the cost for travel nurses.
        I--you know, I want people to earn the highest wage as
    possible, but it got to be the point where hospitals were
    actually closing beds because they could not afford the care of
    nurses. And I'm sorry, I took an oath as a physician, and I
    know nurses took an oath to care for patients, and I think
    fortunately the pendulum has swung back and hopefully will stay
    there. You know, you want people to earn, but our first and
    primary goal--or first and primary oath is to take care of
    patients, as are all people on the medical staff, including
    executives, C-suite people, and everything. I know medical
    supplies have grown. The inflation rate to Medicare is
    essentially nonexistent comparatively. Absolutely abusive
    practices by insurance companies.
        This--I mean, this is going to be a little political here.
    There was a bipartisan law, bicameral law sent over to the
    President that was signed during the last Trump Administration,
    and this Administration has absolutely disregarded the intent
    of the law, giving everything to insurance companies, and such
    to the effect that they send out letters to attack physician
    repayments and some of the other things. Absolutely wrong.
        So let's get back to the order of the day, and that's the
    tax-exempt status of a non-for-profit, which I think is a good
    thing. It allows institutions to actually be able to serve at
    risk communities. I live in one, a very, very poor rural area
    in eastern North Carolina.
        But a couple things I'm going to ask different folks to
    give me some help with. Dr. Bai, I'm in receipt of some things
    I just don't quite understand, some 990 forms, from one of the
    institutions in North Carolina I won't name, that shows some
    significant, and I mean billions of dollars of offshore
    accounts from a non-for-profit institution. Can you tell me why
    would any non-for-profit do that? Why are they hiding money
    offshore? What's the purpose of that?
        Ms. BAI. Well, we have seen evidence that nonprofit
    hospitals have been engaged in all sorts of activities that you
    would only expect in for profit entities. For example, this
    offshore hiding, and then investment in private equity and
    venture capital, and then investing the income, doing some
    quite risky investment and going after return. So this is only
    one of the examples of this underlying trend that nonprofit
    hospitals have been behaving more and more profit oriented like
    their for profit counterpart.
        Mr. MURPHY. I mean, what's the motive for that? Is it to
    avoid taxes or some--what--why were--why are they doing this?
    Because it--honestly, it just doesn't pass the smell test.
        Ms. BAI. I think these activities, none of them is random,
    none of them is accidental, everything is strategic. For, you
    know, expanding market share, making more money, you know,
    profit driven, yeah.
        Mr. MURPHY. Okay. I just--you know, it just looks kind of
    funny when you've got all of the sudden non-for-profits that
    are supposed to be charity institutions shifting money
    offshore.
        I will tell you, Ms. Matton--or Hatton, I got a pet peeve,
    and that's CEO administrative compensation in this country. And
    especially, you know, in the chairman's remarks that the top 10
    nonprofits average seven million. I'm a physician, and I take
    care of patients, nurses take care of patients, and I love my
    CEOs, one of my best friends is a CEO, but this is absurd.
    Absolutely absurd, when we have charity care going in this
    country where the CEOs, Executives are paid millions of
    dollars, getting taxpayer money to get these--to run their
    hospitals. I'd love for you to comment on that.
        Can I have an extra two minutes?
        Ms. HATTON. First of all, let me thank you for your support
    for trying to get at the price gouging by staffing agencies,
    and I think you were talking about surprise billing----
        Mr. MURPHY. Yep.
        Ms. HATTON [continuing]. And thank you for your support
    there, we very much appreciate it. As you know, we were one of
    the original groups that went to court over surprise billing--
    --
        Mr. MURPHY. Right.
        Ms. HATTON [continuing]. To vindicate that.
        In terms of CEO compensation, for tax exempt executives,
    they typically go through a process to have the amount of their
    compensation reviewed by an independent committee that has
    comparability data. And again, everyone on the committee is
    independent to try to determine whether or not that
    compensation is reasonable and fair for that job. It's called
    the rebuttable----
        Mr. MURPHY. Yeah. And I'll just tell you, I'm familiar with
    that.
        Ms. HATTON. Yeah.
        Mr. MURPHY. But let me tell you, being on the other side of
    the coin, being up at 2:00 in the morning and repair--saving
    the life of a gunshot victim and everything, I kind of get
    honestly ticked off about that because I know boards do that in
    compensated care, but here we are, we're taking care of the
    patients. They're running hospitals. Why are they being paid
    more than the people who take care of the patients?
         I get it. It's important to run hospitals, big systems and
    everything. But it doesn't pass the smell test for patients
    when they hear about that. I've had patients come and bring
    their Medicare bill to me and apologize to me for the amount of
    money I get. And so when the cuts go through and we're trying
    to trim healthcare costs, guess who gets cut? The people who
    deliver the care.
        And so I think this needs to be a reckoning with boardrooms
    across the country, especially in nonprofits. Nonprofits.
    Charity care. That we need to reexamine CEO pay because it's
    just not right. I believe in people earning as much as they
    can, but when physicians, the people who are delivering the
    care, when they've had a 20 percent cut in their average care
    in the last 20 years, but CEO pay keeps rising. It's absolutely
    absurd.
        So I--you know, I know you're not controlling it, but it's
    something that's really important to patients. And at the end
    of the day, that's what we're talking about.
        Ms. HATTON. Yeah, we understand. And just want you to
    understand that the process of setting that is a fair and
    independent process and----
        Mr. MURPHY. I get it.
        Ms. HATTON. And, you know, you can certainly argue with the
    results, but all the nonprofit CEOs use that to try to come up
    with a compensation that's fair and reasonable.
        Mr. MURPHY. I get it. I get it. But I'm sorry, I just don't
    get that they should be earning more than the people who
    deliver the care.
        Ms. HATTON. I understand.
        Mr. MURPHY. So, all right, thank you, Mr. Chairman. I'll
    yield back.
        Chairman SCHWEIKERT. Thank you, Dr. Murphy.
        Mr. Hern.
        Mr. HERN. Thank you, Mr. Chairman, thank the witnesses for
    being here for a couple of hours now talking about this issue.
        I'm not a doctor, certainly don't play one on TV, but I'm a
    business person, and somebody that's concerned about where the
    cost for healthcare industry is going. And, you know, as we
    know, and I'm going to state some obvious here, hospitals play
    a very important role in delivering cares to--care to Americans
    in our rural areas, which I grew up in. They are usually the
    largest employer and the first line of defense for miles when
    an accident happens. But the role hospitals play in urban areas
    is evolving. And I live in Tulsa, and we have really great
    hospitals there doing a lot of great work.
        In the 1960s, hospitals popped up all over the country as
    the only site of care, and more than 60 years later, there's
    several different types of hospitals that are not only the--not
    the only option for care. There are family physician offices,
    ambulatory surgical centers, urgent care centers, rehab
    centers, nursing homes, and the list goes on and on and on. The
    diverse options patients have speaks to the American
    entrepreneurial spirit and the freedom to choose.
        And as our healthcare system evolves, Congress must examine
    each sector of the industry to root out bad actors. And what
    we're seeing in these--and, Dr. Bai, you did a great job. I
    read your article, your research on that. We see the benefit
    from nonprofit tax status while delivering less charity care
    than their profit competitors. Abused federal programs like the
    340B to prop up their bottom lines instead of helping the
    members that they are supposed to be serving. Buy off-campus
    physician offices and immediately increase the prices by 200
    percent.
        This is totally unacceptable. As a member of Congress who
    must ensure the people represent--that we represent are not
    taken advantage of and that the taxpayer money is well spent.
    Again, I want to reiterate my interest in rooting out the bad
    actors doing this. And there are many hospitals throughout the
    country earning their community benefit.
        I am fortunate, as I mentioned, to be in Tulsa, and we have
    several world-class hospitals that innovate and cut costs to
    compete with their competitors down the street. They invest in
    the community and make tough decisions while closing down units
    to keep their businesses running.
        Many hospitals across the country similarly contribute to
    their communities. For example, there are over 250 physician-
    owned hospitals which collectively paid more than 1.2 billion
    dollars in taxes in 2021, and over 1,000 investor-owned
    hospitals similarly paid billions in taxes and provided 65
    percent more charity care than their exempt counterparts.
    However, I can't say the same for many bad actors nationwide.
        So I want to insert for the record, Mr. Chairman, a report
    from the Progressive Institute--Lown Institute. Mr. Chairman,
    if I could enter this for the record. Thank you.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. HERN. That outlines how out of this 1,773 tax-exempt
    hospitals evaluated, 77 percent spent less on charity care and
    community investment than the estimated value of their tax
    breaks.
        As a business owner, I'm a firm believer in getting the
    government out of the way, but if the federal government is
    providing hospitals 27.6 billion dollars in tax relief, we must
    make sure they are accurately reporting their value and earning
    it. And the nonpartisan GAO concluded that under the current
    law, there are no qualitative requirements for community
    benefits or charity care.
        Dr. Bai, thank you for your testimony today. I appreciate
    how you described your community benefit as a social contract
    between hospitals and their communities. As you know, the
    federal program provides many incentives to hospitals such as
    the 340B Program, paying more for services in physician offices
    and nonprofit hospital tax exemptions. I especially like, as my
    colleague to my immediate left stated, in the 990, I like your
    additional requirements suggested for reporting these so we
    don't have to go dig through a lot of things.
        But what--to what extent are these incentives making it
    hard for small business healthcare facilities to survive or
    enter their marketplace?
        Ms. BAI. Yes. Actually, these current regulations are the
    major reason we are seeing more and more mergers and
    acquisitions and the small players leaving the market. And then
    the result is higher price for private pay patients. Like the
    340B Program you mentioned and the tax exemption status. And
    then we have the banning from the ACA banning physician-owned
    hospitals. And at the state level, we have a lot of certificate
    of needs law. And then we have the set of non-mutual payments,
    we pay hospitals more than physicians.
        These are, in my opinion, policy failures. Many people
    would say, oh, the high prices is because market failure. No.
    The Congress and administration has made it very hard for small
    ones to compete, and it makes the life of big ones easy. So
    these are fundamental policy failures, that's why we're seeing
    higher and higher price and less and less competition.
        Mr. HERN. So if I may ask you in the last 12 seconds here,
    because I always like to ask our witnesses this because you
    come here and you testify, and you really walk out of here and
    you're saying nobody asked me what we think we should do
    differently. So I'm going to ask you that. How do you think
    Congress can improve reporting to get a better picture of the
    community benefit?
        Ms. BAI. First----
        Mr. HERN. So I'm going to give you a chance to talk about
    your changes to the 990, as an example.
        Ms. BAI. Yes. Very simple. Add several lines. Let hospitals
    self-report their estimated property tax exemption, sales tax
    exemption, and then charity contributions they received, and
    then the cost of savings--lower cost of borrowing because they
    can issue tax-free bonds, and also 340B profit. All these
    things can be easily estimated and no other administrative
    burden whatsoever. But that will give taxpayers, stakeholders,
    policymakers huge transparency for them to make decisions.
        Mr. HERN. And if I may, in your research, today's
    technology, that should make that relatively easy. I mean, I
    could see 20 years ago that might be a little bit difficult,
    but today that should be just adding and programming a line on
    the 990 software, right?
        Ms. BAI. Yes, thank you, Mr. Hern. And also, we do not want
    them to report estimated federal income tax or state income tax
    because, you know, accounting income is different from tax
    income. But all the other things can be easily reported, and
    they are really the meat.
        Mr. HERN. Thank you so much, Mr. Chairman, I yield back.
        Chairman SCHWEIKERT. Thank you, Mr. Hern.
        I can't thank all of you enough for spending time with us.
    There's still dozens of questions. I was showing an article
    from an Arizona CEO of a nonprofit system that was paid 25 and
    a half million in one year. You get questions when things like
    that happen. There is a number of hospital systems, now it may
    be because they're producing insurance products or other
    things, that I have one that has a billion dollars in the
    Caribbean. Would help us to be able to have enough sunlight so
    we understand when we get questions on how we explain these
    things.
        So, first, thank you for being here. I must tell you, the
    actually intellectual level of the conversation was one of the
    best hearings we've had, particularly so far this year.
        And I now need to--please be advised that members have two
    weeks to submit written questions, and do expect some questions
    from us, and answered later in writing. Those questions and
    your answers will be made part of the record of this hearing.
        And with that, the subcommittee is adjourned.
        [Whereupon, at 4:17 p.m., the subcommittee was adjourned.]

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