[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
HEARING ON TAX-EXEMPT HOSPITALS AND THE COMMUNITY BENEFIT STANDARD
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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
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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
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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
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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
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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:]
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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:]
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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.
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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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