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




   HEARING ON TAX-EXEMPT HOSPITALS AND THE COMMUNITY BENEFIT STANDARD

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

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

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 26, 2023

                               __________

                           Serial No. 118-12

                               __________

         Printed for the use of the Committee on Ways and Means






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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

                                 ------                                

                       SUBCOMMITTEE ON OVERSIGHT

                  DAVID SCHWEIKERT, Arizona, Chairman

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








                         C  O  N  T  E  N  T  S

                              ----------                              

                           OPENING STATEMENTS

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

                               WITNESSES

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

                    MEMBER QUESTIONS FOR THE RECORD

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

                   PUBLIC SUBMISSIONS FOR THE RECORD

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



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        TAX-EXEMPT HOSPITALS AND THE COMMUNITY BENEFIT STANDARD

                              ----------                              


                       WEDNESDAY, APRIL 26, 2023

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

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

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

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

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

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

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

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

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

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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:]

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    Chairman SCHWEIKERT. Thank you, Mr. Steube.
    Mr. Schneider.
    Mr. SCHNEIDER. Thank you, Mr. Chairman. Chairman 
Schweikert, Ranking Member Pascrell, thank you for having this 
conversation. The witnesses, thank you for sharing your 
perspectives and insights as we try to understand this issue 
better.
    I think back through the pandemic and even the years before 
that, I visited hospitals throughout my district, and I hear 
the same concerns repeating themselves over and over. Among the 
most, Ms. Hatton, you touched on it, is just getting good 
providers, whether it's nurses or doctors. We are struggling. 
And I live in the suburbs of Chicago, a place where there is a 
lot of access. Rural communities I know are having an even 
harder time.
    We know that the first responders, the frontline workers, 
the doctors, the nurses were the heroes of the pandemic, but 
they've been squeezed as well throughout this period. And so as 
we come out of the pandemic, and we're looking forward to 
making sure people have access to care, access to quality 
hospitals is critical.
    Ms. Hatton, you touched on the fact that these nonprofit 
hospitals providing community benefit, it's nine dollars for 
every dollar they're benefitting. Would love to get further 
expansion of how that's working, how you see that nine dollars 
playing, and the impact it's having. But, in particular, with 
respect to training doctors and nurses, the hospitals are often 
the places where our professionals go for that medical 
training.
    Ms. HATTON. That's a major focus for many hospitals, to 
provide training opportunities for, you know, workforce. And 
again, it's become--the workforce shortages in focus before the 
pandemic, they were exacerbated by the pandemic, made those 
programs even more important, again, particularly with nurses. 
And I know in the Chicago area that you're suffering from a 
shortage of nurses.
    And again, one of the issues there is there are so many 
applicants than there are training opportunities, which means 
that hospitals--part of what hospitals can do on community 
benefit is to open up more training slots so that more 
applicants have an opportunity to actually train. And they're 
doing this one in a number of different ways in a number of 
different staff shortages, but it's a major focus. And I expect 
when we see the next iteration of health--community health 
needs assessments, we'll find training for the workforce 
becomes one of the priority programs that hospitals want to 
tackle together with their communities.
    Mr. SCHNEIDER. Great, thank you.
    Let me turn to Ms. Lucas-Judy. We were talking about the 
form, and I know others have asked how do we make the form 
better. If I understand this correctly, the form basically asks 
the hospital to quantify their contribution but without full 
meaning, without full capture of data. Is that a fair 
statement?
    Ms. LUCAS-JUDY. For some of the factors, it's asking for a 
quantitative answer, and for others it's just what is it 
important to know about the community benefit that your 
hospital provides. That's very amorphous.
    Mr. SCHNEIDER. Okay. So at best, it's a partial 
quantification, at worst it's an amorphic description. It 
doesn't get into the quality of the community service provided, 
it is a partial snapshot. Is that fair?
    Ms. LUCAS-JUDY. Right. And it's a form that's attempting to 
get something very complicated, and that's part of why, you 
know, we think it's important for Congress to maybe clarify 
what the community benefit standard ought to be or, you know, 
what--some of these things that have been discussed, you know, 
whether it be the social determinants of health or other 
things.
    You know, if a hospital is providing these services, and 
we're going to be subsidizing it through the tax code, it's 
important to be clear about what those types of things are, and 
still preserve some flexibility to be able to meet local needs.
    Mr. SCHNEIDER. And going back to my previous question, 
training the next generation of doctors or training nurses and 
other medical professionals, that's something that has value 
not just to the specific community but to the nation as a 
whole. Is that fair?
    Ms. LUCAS-JUDY. Certainly that is one of the things that 
could be considered.
    Mr. SCHNEIDER. And my last question along these lines, so 
we have partial quantitative, we have a very superficial 
qualitative description, not a quality assessment, but the 
other thing I'm hearing is we don't have the transparency 
necessary to fully understand what community benefits are being 
provided. And I'm running out of time. Is that a fair statement 
as well?
    Ms. LUCAS-JUDY. Yes, that's correct.
    Mr. SCHNEIDER. So for us it's better numbers, more 
transparency [indiscernible].
    Ms. LUCAS-JUDY. Correct.
    Mr. SCHNEIDER. All right. I yield back. Thank you very 
much.
    Chairman SCHWEIKERT. Thank you, Mr. Schneider.
    Ms. Tenney.
    Ms. TENNEY. Thank you, Mr. Chairman, and thank you Ranking 
Member, and thank you to our witnesses.
    I have a pretty extensive background serving on different 
levels of hospital boards, and especially in the rural upstate 
communities where I'm from. My grandfather founded a hospital 
in a rural community in upstate New York, and I--it's always 
been a struggle to get quality care and to--I think it has to 
be emphasized that New York City, even Westchester and Long 
Island, is very different from upstate New York in terms of 
evaluating the hospitals. And I understand the ability to take 
advantage of this tax-exempt status. All of the hospitals in 
New York are nonprofit and two are actually community--or 
county owned, including one in Wyoming County which is in my 
district, and another one outside my district.
    But I want to just jump right into some of the questions I 
have. I want to get into just asking--and first I want--Ms. 
Lucas-Judy, you've done a good job of explaining how vague and 
amorphous this standard is on defining what community benefits 
are. Could you tell me on the 990, the Schedule H, what would 
you do to improve this and what could the hospitals provide? 
And I know this is a multiple part questions. Could you tell me 
in your research, have you seen a distinction between upstate 
rural New York and downstate, if it's in any of your studies, 
or even in any other state that has a nonprofit hospital 
system?
    Ms. LUCAS-JUDY. So that last question, that wasn't part of 
the scope of this particular review, but I can tell you that in 
earlier work that GAO has done, we did find quite a bit of 
variability in terms of even the types of information that 
hospitals were providing, the definitions that they were using 
and the ways that they were measuring their charity care and 
uncompensated care, and some of that had to do with different 
standards at the state level as well.
    In terms of things to do to make the form itself, I mean, 
ideally, as IRS is looking to make all of its forms more user 
friendly, both for the taxpayer who is having to report the 
information as well as people who are trying to, you know, get 
information from it, this I think would be a good form for them 
to look at to figure out is there an easier way, a more 
transparent way to get this information reported.
    But, you know, sort of in the short term, we think it's 
important to be able to cover all the different factors that 
IRS considers to make sure that its reviewers have that 
information to be able to determine whether a hospital is 
meeting the community benefit standard.
    Ms. TENNEY. Well let me ask, I mean, do you suggest that we 
in Congress come up with a different standard for not-for-
profit hospitals, or do you think we need to do better 
oversight?
    Ms. LUCAS-JUDY. I think not necessarily an either/or 
question. I think certainly having some more definition around 
what the community benefits are that a hospital could be 
providing would certainly be helpful to make sure that 
taxpayers--different types of hospitals are being treated the 
same and have that same opportunity.
    Ms. TENNEY. So in your September 2020 GAO report, you 
identified 30 hospitals that reported spending nothing on 
community benefits in 2016. In addition, 48 hospitals reported 
spending nothing on financial assistance, and 108 hospitals 
reported spending less than one percent of expenses on 
community benefit spending, placing them at a high risk of 
noncompliance in community benefit standard, as you've pointed 
out.
    What do these hospitals generally state in their community 
benefit standard to meet this? I know you sort of answered 
that, but what did they say, like what was listed? Because we 
do have, obviously, you know, a concern about that, and I don't 
know if that's--these are upstate hospitals, or profit, 
nonprofit, you know what I mean? I don't know which state 
they're from but----
    Ms. LUCAS-JUDY. Right. So we weren't identifying specific 
hospitals.
    Ms. TENNEY. Right.
    Ms. LUCAS-JUDY. But we were flagging this as an area of 
concern and something that seems like it should have, you know, 
triggered some additional review on the part of IRS.
    Ms. TENNEY. I guess what I want to say--allow me to reclaim 
my time for--are these hospitals, were they more rural, were 
they more urban, what would you say? Was there some commonality 
that you could say that you saw----
    Ms. LUCAS-JUDY. So that----
    Ms. TENNEY [continuing]. In the trending on the----
    Ms. LUCAS-JUDY. That was not information that we had. We 
did refer them--all of them to IRS and some of them did go back 
and get additional information on. And it's not necessarily 
that those hospitals were not even spending money, they just 
weren't reporting it. And so that part of our point was that 
the form itself isn't being used effectively for oversight.
    Ms. TENNEY. Okay.
    Ms. LUCAS-JUDY. Because if you had, you know----
    Ms. TENNEY. So we got--I understand about the form because 
we've talked about whether we should change it, but let me ask 
you this. There is a big difference state to state. And did you 
and your study come up with the difference between say states 
like New York, which have a very different type of healthcare 
system, and it's really burdensome for rural hospitals to 
survive. Most of them my area are really in freefall, I mean, 
because of the mandates coming from the government in Albany.
    I mean, would you say there's a distinction say based on 
state to state and the way we do healthcare?
    Ms. LUCAS-JUDY. That definitely was not in the scope of 
this work, but I do know that, you know, again, in earlier 
studies, trying to find a difference, looking at different 
kinds of states and different uncompensated care that they were 
providing, the differences between the nonprofit and the for-
profit hospitals was actually very small.
    Ms. TENNEY. Wow, that's interesting. Thank you so much. I 
think my time's out. I yield back.
    Chairman SCHWEIKERT. Thank you. Thank you, Ms. Tenney.
    And Ms. DelBene.
    Ms. DelBENE. Thank you, Mr. Chairman, and thanks to 
everyone for taking the time to join us today. We really 
appreciate it.
    Ms. Lucas-Judy, we've been talking a lot about how 
challenging it can be for the IRS to determine whether a 
hospital is providing sufficient community benefits because the 
requirements are so ambiguous. You also recommend that the IRS 
assess community benefits at the facility level rather than the 
collective organization. And I wondered if you could talk a 
little bit about why you think that's important to increase 
transparency and enforcement.
    Ms. LUCAS-JUDY. Right. So one of the things that we found, 
as you mentioned, was that there--the community benefits were 
reported at the aggregate level, at the organizational level 
and not at the facility level. And when you have very, very 
large organizations full of multiple hospitals all reporting 
one level of community benefit, it's very difficult to know, 
you know, maybe one hospital in that system is contributing and 
not the rest of them at all. And so for a transparency and 
accountability perspective, that's difficult.
    We recommended that IRS assess the costs and benefits of 
changing that reporting because for the ACA requirements, those 
are at the facility level rather than at the organization 
level. IRS looked at that qualitatively and determined that the 
administrative burden that it would put on the hospital and on 
IRS was not worth the tax administration benefit that they 
would get. We still think it's important for transparency, but 
we understand their point.
    Ms. DelBENE. Okay. Thank you very much. Also, we were 
talking about the importance of healthcare services to our most 
indigent communities and that despite the benefits, we know 
that there needs to be increased oversight. And there is 
reference to a New York Times article last year where 
Providence, a nonprofit hospital system that actually has a 
large presence in my state of Washington, engaged in aggressive 
practices intended to increase payments from patients who 
should have received free or discounted medical care.
    Ms. Hatton, I was wondering, how can the federal government 
increase oversight of tax-exempt hospitals to ensure that their 
practices are consistent with the law? You're--yeah, there you 
go.
    Ms. HATTON. There really is, I think, a great deal of 
oversight for hospitals now. And there's a great deal of 
transparency when you look at all of the different parts of the 
requirements for tax-exempt hospitals. One, there's the 
reporting on Schedule H, which is really quite comprehensive.
    But there's also the community health needs assessment, and 
again, that's a report that's done by the hospitals in 
conjunction with the community, with the public health 
authorities and civic groups, including civic groups that 
represent disadvantaged communities to determine--not only just 
to determine the priorities but determine how the priorities 
will be addressed and whether or not they've successfully 
addressed them. That's really a lot of oversight I think for 
what tax-exempt hospitals are doing in their communities on the 
community level.
    Ms. DelBENE. Ms. Lucas-Judy, is there anything you'd add 
there? Because clearly we need to have oversight so we can see 
if folks aren't receiving the benefits that they deserve. What 
else can we do to make sure they are operating?
    Ms. LUCAS-JUDY. The ACA required IRS to do triannual 
reviews of the hospital's compliance with the other 
requirements, and that included things like the community 
health needs assessment. And we found that IRS had--in doing 
those reviews, had referred about a thousand hospitals during 
the five-year period that we examined for their audit and 
examination.
    They were working--treating some of the initial reviews as 
sort of educational opportunities to make sure that hospitals 
were aware of the requirements, and we saw that the self-
reported compliance with all of the ACA requirements did go up 
over the course of time that we were--of our review.
    But the one thing that we found was that, again, IRS 
couldn't--didn't have the mechanism in place to be able to say 
whether or not any of these reviews looked at community 
benefits, and so they made a number of changes to their 
guidance for doing the reviews and to the way that it codes the 
results, so we'll be curious to see the results of that in a 
few years.
    Ms. DelBENE. Thank you. Thank you, Mr. Chairman, I yield 
back.
    Chairman SCHWEIKERT. Thank you, Ms. DelBene.
    Ms. Fischbach.
    Mrs. FISCHBACH. Thank you, Mr. Chair, and thank you so much 
for all of our testifiers--all of our witnesses here today. I 
appreciate it.
    I'm from Minnesota. Minnesota's hospitals and health 
systems contributed 3.3 billion to their communities and 649 
million in uncompensated care in 2020. In my district, 
smalltown hospitals are more than just a place where people 
receive healthcare. They act as a staple in the community 
helping bridge the gap between workforce, education, and law 
enforcement.
    Our nation's opioid and chemical dependency crisis is out 
of control. I think everybody can agree with that. Facilities 
such as the ones in my district have partnered with community 
members and outside organizations in their area to come up with 
collaborative prevention efforts that include unused medication 
disposal systems, and strengthening relationships, and creating 
referral pathways between mental health and chemical dependency 
providers, clinics, law enforcement, emergency medical, 
schools, and social services. So there's a whole array of 
things that those hospitals are helping with and doing.
    One hospital, I'll just use the example, is actively 
participating in the program is in Alexandria, Minnesota. It's 
a small town of less than 15,000 people. And it was the first 
Minnesota hospital to be named one of the top rural and 
community hospitals in the nation. So this is what's happening 
in rural areas all across our country.
    It's obvious that the incredible relationship that they 
share with their community, law enforcement, schools, and other 
community leaders has helped this hospital to thrive and 
address the needs of the community. Minnesota is my home, and 
it is home to many, many nonprofit small community hospitals 
that utilize these tax exemptions to support the healthcare 
communities to meet the needs of their communities.
    Dr. Bai, how has the healthcare landscape changed since 
this tax exemption was first made available to those hospitals?
    Ms. BAI. So if we think about the origin of the tax 
exemption, 1923--sorry, 1913, at that time, hospitals scoffed 
the tax exemption because they were charities, right. They have 
the doctors and nurses as volunteers. But then things have 
changed, because think of the proportion of their revenue 
coming from commercial activities versus coming from charity 
activities. Totally different today. That's why our, you know, 
community benefit standard has to also change to come--yeah, to 
be consistent with this.
    But I want to emphasize that any heavy-handed policy 
efforts will have a lot of unintended consequences on 
hospitals. And so just to mention, right, there are some 
hospitals with a lot of financial vulnerability, and if we, you 
know, have bright-line initiatives, and they might be under 
huge pressure, it might close, and that will affect the access 
of care to the local community.
    So therefore, I believe still we should do disclosure. Then 
let the local community decide, the state or local level decide 
what to do, because they really pay the lion share in terms of 
taxpayer subsidies, because property tax is almost always the 
largest component. Thank you.
    Mrs. FISCHBACH. And maybe you can just go a little bit more 
into, you know, if the requirements that the hospitals abide--
must abide by to obtain and maintain their tax-exempt status--
I'm sorry, I'm fighting a cold, so I'm a little--it's a 
little--sometimes I'm stuffed up. But how have those changed to 
reflect some of these changes in the landscape? Maybe you could 
go into a little more--you kind of mentioned it, but if you can 
go in a little more detail.
    Ms. BAI. Yeah. There's very little evidence that IRS or the 
state attorney general have used the tax exemption as--taken 
away tax exemption using any evidence. There's no such 
enforcement. And recently in Pennsylvania, four nonprofit 
hospitals lost their property tax exemption because of a 
special statute in Pennsylvania. So I would say so far there--
this threat has not been credible from--you know, from the 
enforcement at the federal or state level.
    Mrs. FISCHBACH. Okay.
    Ms. BAI. They have been enjoying the tax exemptions.
    Mrs. FISCHBACH. Well, thank you very much, and I appreciate 
it. And I was going to ask about the same thing that Ms. Tenney 
was asking, so I appreciate that she asked that and there was 
that discussion included because that's a concern, too. But 
thank you very much, and I yield back.
    Chairman SCHWEIKERT. Thank you, Mr. Fischbach.
    Ms. Moore.
    Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman, 
Mr. Ranking Member, and our witnesses for being here today. 
This is a very important topic, and I really have been 
listening very carefully to the questions that my colleagues 
have been asking and your responses, and it's really given me a 
lot of thought about whether or not we ought to constrict the 
definition of what community benefits are or whether we ought 
to leave the flexibility there, because communities are so 
very, very different.
    And I also, I'm going to ask a question, I have no idea 
what the answer is to this question, but I know it's a source 
of frustration for me. Ms. Hatton, you talked about social 
determinants of health, and one of the frustrations we have 
around here is that there's not a lot of dynamic scoring on 
healthcare issues so that the predictability--so that they 
won't necessarily score as a benefit or preventive medicine.
    So if I, for example, as a hospital decide I'm in a 
community where there's a lot of diabetes, and say I give six 
workshops a year on cooking and alternative eating styles, and 
so on and so forth, can I only claim as a community benefit the 
amount of money I spent on the lecturer, and the venue, and the 
food, or can I come back and say, we've reduced diabetes by 20 
percent based on our outreach to the community?
    And if you can't do that, then what, Ms. Bai, you might 
want to jump in, how are we accounting for community benefits 
if we aren't allowing the institutions to demonstrate through 
what they're doing that there is some impact? You know, it 
could be any numbers of things. We see that, you know, kids are 
poor, so we're giving out fruits and vegetables to increase the 
fruits and vegetable intake, and, you know, a year later, 
obesity has decreased.
    So I guess who should I ask? Can I ask you, Ms. Hatton, Ms. 
Bai?
    Ms. HATTON. You can do both.
    Ms. MOORE of Wisconsin. Okay.
    Ms. HATTON. You can take an exemption on your--you can take 
the credit for it on your Schedule H for the amount that you 
spend on those workshops. But that's where the second part of 
your question is where the community health needs assessment 
comes in. And that is, if this is a need of the community, and 
again, hospital working with community groups, determine that 
this is need, one of the things that they--among the things 
that they're going to document is what is the need, what's the 
plan to tackle it, and what's the results of tackling it.
    So you get really transparency in two different ways. One, 
you get a number, which will really--which, you know, when you 
come to social determinants of health, the amount that you 
spend on it may not really be commensurate with the impact. It 
may have a huge impact on people's lives.
    Ms. MOORE of Wisconsin. And that's my conundrum because----
    Ms. HATTON. Yeah.
    Ms. MOORE of Wisconsin [continuing]. Ms. Bai said more than 
once that some of the nonprofit hospitals don't necessarily 
provide as much community impact. But, I mean, if we were to 
have this sort of dynamic scoring to be able to say, yeah, you 
know, we reduced diabetes in this community, and to be able to 
add up and count up how much diabetes costs every year and so 
on. Ms. Bai.
    Ms. BAI. Thank you so much, Ms. Moore. One challenge is 
[indiscernible], the impact of the hospital on the health and 
wellbeing of the community residents. And the second, if we 
are--as the GAO report has already mentioned, that right now 
the reporting is already quite complex and their lack of 
standardization. What we have to remember is when we make the 
standards very complex it becomes a very regressive system. The 
rich and the powerful hospitals will be able to hire 
consultants, right, to window dressing--to window dress to make 
themselves look good.
    Ms. MOORE of Wisconsin. What do you think, ma'am? Yeah. 
We've got 27 seconds.
    Ms. LUCAS-JUDY. Well, certainly, I mean, accountable is our 
middle name, and so we do think it's important for there to be 
some accountability, some transparency, some measures in place 
for the community needs assessment. You know, part of it was 
to----
    Ms. MOORE of Wisconsin. But what about the conundrum with 
how they're scored? I mean, prevention--this is why people say 
we have a sick care system instead of a healthcare system, you 
know, because prevention, if it were scorable, maybe people 
would do more of it, and providing it as a general healthcare 
practice, you know.
    Ms. LUCAS-JUDY. And those are definitely things that 
Congress could consider if it wanted to, you know, put in 
place, like what is it that we want from our hospitals? What is 
it that we think some of these community benefits could be, and 
what kind of reporting, what kind of outcomes is it important 
for them to be able to provide to demonstrate that they are 
making a difference in the community?
    Ms. MOORE of Wisconsin. Okay, thank you. My time is up. 
Thank you, and I yield back.
    Chairman SCHWEIKERT. Thank you, Ms. Moore.
    Ms. Van Duyne.
    Ms. VAN DUYNE. Thank you, Mr. Chairman, and thank you to 
all of our witnesses.
    This hearing is about access to quality care for all 
Americans and having good options for getting that care. And 
while nonprofit hospitals can serve a critical role in 
providing a benefit to our local communities, I have serious 
concerns about the IRS guidelines that are in place that are 
used to identify whether a hospital meets those requirements. 
We've talked about that, you know, pretty much all day.
    But in some cases, it looks like a patient with financial 
insecurity needs to fill out more paperwork to receive 
financial aid than it does for a hospital to obtain nonprofit 
status. In a Wall Street Journal article published in November 
of last year, they detail how a patient must use a 19-item 
checklist that includes three months' worth of bank statements 
that must be shown, and show all deposits and withdrawals, loan 
information on all cars that they may own and, among other 
things, a list of the applicant's monthly expenditures for 17 
different categories.
    They must do all of this while meeting a 10-day deadline 
set by the hospital to file their paperwork to see if they even 
qualify for financial aid.
    Meanwhile, a nonprofit hospital only needs to satisfy 
limited and very vague requirements set by the IRS to maintain 
their status. This is clearly one example of how things can go 
wrong, so I'm glad that we're having this hearing today. That--
it shows that when Congress delegates authority to an executive 
agency without sufficient oversight, agencies like the IRS can 
confuse--can create more confusion and bureaucracy in our 
healthcare system.
    Dr. Bai, is the excessive amount of paperwork required to 
be completed by a patient in financial distress to receive 
access to care, is that a requirement by the IRS?
    Ms. BAI. It is actually indirect requirement from the IRS. 
So the IRS says hospitals must have eligibility policy there. 
What exactly in the policy is up to the hospital to decide.
    Ms. VAN DUYNE. So it's not the IRS then that's requiring 
it, the hospital gets to decide.
    Ms. BAI. [Indiscernible], exactly. But you have to----
    Ms. VAN DUYNE. So the IRS is not requiring that they fill 
out a list of every single expenditure for 17 different 
categories.
    Ms. BAI. Yes, that's correct. So if a hospital wants to do 
good things, they can. They can make it very accessible and 
tell the patients face to face and make it like a one-step 
process; or if they want to do, you know, like try to increase 
their revenue and reduce their charity care, they can make the 
process very, very complicated.
    Ms. VAN DUYNE. Okay. so this sounds like it might possible 
be a hospital that's trying to avoid financial aid----
    Ms. BAI. Exactly
    Ms. VAN DUYNE [continuing]. Through creating a very 
overburdensome paperwork trail for their patients.
    Ms. BAI. Mm-hmm. And also increase eligibility. The, you 
know, floor level. Let's say it's 300 percent, the federal 
poverty line----
    Ms. VAN DUYNE. Is there something that Congress can do to 
address this?
    Ms. BAI. So I think if we have a broad bright-line 
requirement of eligibility, then there will be no variation, 
right. Some hospitals, you know, wealthy neighborhood, they 
wanted them to be more general, right. But some hospitals in a 
poor neighborhood, you want them to be--especially facing 
financial threats, you want them to be more flexible.
    So I think this should be decided at the local level, at 
state or county level. Once they have the information from the 
federal government, they can decide based on their situation.
    Ms. VAN DUYNE. Okay. So, Dr. Levinson, can you give some 
examples of the different kinds of activities that hospital 
report as a community benefit, considering that no one specific 
type of community benefit is used to determine the hospital's 
nonprofit status?
    Mr. LEVINSON. Yes. So as Director Lucas-Judy described, 
there are six broad categories, examples of community benefits 
that hospitals can provide, and hospitals are also required to 
report specific expenses on specific types of community 
benefits to their Schedule H, so that includes, as we were 
discussing before, charity care, unreimbursed costs for 
Medicaid, unfunded medical research, unfunded medical training, 
and so forth. And then there are also opportunities in Schedule 
H to narratively describe other community benefits that 
hospitals might be providing.
    Ms. VAN DUYNE. All right, I appreciate that. I mean, 
recognizing that the IRS is responsible for enforcing the 
hospital's non-exempt status, I don't think anyone would be 
comfortable knowing that a random IRS agent is charged with 
determining if a hospital in my district is meeting the needs 
of a community. As I can you, the needs of north Texas did not 
reflect necessarily the needs of Congressman Fischbach or 
Congresswoman Malliotakis' district or anyone on this 
committee.
    So I look forward to continuing to further look into this 
issue to see how Congress can do a little bit more. And thank 
you very much for your testimonies today. I yield back.
    Chairman SCHWEIKERT. Ms. Malliotakis.
    Ms. MALLIOTAKIS. Thank you, Mr. Chairman. My home state of 
New York is in a unique situation compared to many other 
districts and the rest of the country because practically all 
our hospitals are nonprofits due to regulations at the state 
level. In my district, in Staten Island in particular, I have 
two nonprofit hospital systems and, you know, they do an 
amazing job. They work tirelessly to serve our community, and 
I'm very proud to represent them.
    And when we're talking about fair share value, meaning how 
hospitals contribute to their communities compared to the tax 
breaks they receive, I think there are some important aspects 
that may get overlooked. For example, more than seven out of 10 
of the patients my hospitals on Staten Island care for are 
either on Medicare, or Medicaid, or both. Public programs that 
have a much lower rate of reimbursement than commercial 
insurers, as you know. Medicaid reimbursement pays 60 cents on 
the dollar compared to private and commercial insurance, 
meaning that the hospital is eating 40 cents for every dollar.
    Ms. Lucas-Judy, my first question is for you. When the IRS 
is evaluating the community benefits of nonprofit hospitals in 
order to maintain their tax-exempt status, does the rate at 
which they treat patients on public health programs such as 
Medicaid factor into the equation?
    Ms. LUCAS-JUDY. So for the community health benefit 
section, you know, what they're looking at is just some of the 
extent to which hospitals report that they are addressing those 
factors. But as I mentioned in the testimony, it's very open 
ended, and so there really isn't necessarily an assessment of, 
you know, what--it's not clear what it is that the IRS would be 
assessing against, I guess is what I was trying to say.
    Ms. MALLIOTAKIS. So there should be better metrics. There 
should certainly be better criteria to make this evaluation, 
and they should specifically take into account Medicaid, 
Medicare at the hospital.
    Ms. LUCAS-JUDY. Well, there--so there are different parts. 
So under the ACA, there are certain requirements that hospitals 
have to meet, and there are other reporting requirements, 
separate from these as well in terms of things getting at some 
of the uncompensated care. But some of the variability in what 
hospitals report and one of the reasons why it's difficult to 
know the extent to which community benefit--or what the full 
extent of community benefits is that hospitals are providing is 
things like to the extent to which the unreimbursed--
uncompensated care for Medicare and Medicaid are included.
    Ms. MALLIOTAKIS. Okay. In addition to filling out the IRS 
tax forms to qualify for nonprofit status, my home state of New 
York goes a step further in requiring nonprofit hospitals to 
include budgets in their community service plans, to 
demonstrate investments in evidence-based community health 
interventions.
    Dr. Bai, what are the advantages of Congress enacting 
changes to the IRS code that would require well-defined charity 
care minimum rates and/or detailed plans as to how nonprofit 
hospitals are providing community benefit?
    Ms. BAI. Thank you. I think there will be several 
unintended consequences if we set a bright-line rule. Let's 
say, you know, two percent of revenue. I'm just making it up. 
That will discourage current good performers if there are, 
right, to reduce their charity care.
    Number two, there are some financially vulnerable hospitals 
already struggling, especially in rural areas. If we set a 
standard apply to every hospital, then these, you know, 
financially vulnerable hospitals would be more vulnerable.
    And number three, no, we--these hospitals will lose a 
signaling channel, right. If they want to show the community, 
you know, we are doing something that--right now they can show 
in there a higher provision of charity care or community 
benefit. But if--I know we have seen evidence from academic 
studies. Once you start this bright-line, and then the 
hospitals might converge to that level, then we lose the 
signaling factor.
    Ms. MALLIOTAKIS. Okay. And one other issue that I heard a 
lot from my hospitals--not just mine but across New York City, 
is the influx of the undocumented immigrants receiving care. 
It's placing a tremendous strain on the hospitals, it's 
overcrowding our emergency rooms, and it's obviously coming at 
a burdensome cost to taxpayers. Hospitals, you know, now have 
to shift critical resources, and I'm concerned about how that 
may diminish care for my constituents.
    And, Ms. Hatton, is there something that you--is this 
something that you've been hearing from hospitals, and how 
would that factor in to nonprofit charity care requirements?
    Ms. HATTON. If I could go back to your very first question 
about Medicare and Medicaid underpayments, which are pervasive 
in New York and other places, those are counted on Schedule H, 
and there's a specific way that they're counted on Schedule H. 
So they do--the hospitals do get credit for those 
underpayments, which again, in New York are quite significant. 
And those show up right in the numbers and are very explicit on 
the form, so they're definitely getting credit for that.
    With respect to patients who are--patients without 
insurance, hospitals--and who have no--you know, have no access 
to insurance, hospitals can do a couple of things. They can 
write it off as uncompensated care and then estimate the amount 
of uncompensated care that--that's attributable to patients who 
don't have insurance, which all these patients wouldn't have 
insurance.
    So there's a way to sort of account for the care and for 
the amount of care they're providing without any pay for that 
care right on Schedule H. And we encourage hospitals to do that 
so that you get a more accurate picture of how much care that 
they're--how much community benefit they're providing in free 
and unreimbursed care.
    Ms. MALLIOTAKIS. The Chairman is giving me the eye. My time 
is up. Thank you.
    Chairman SCHWEIKERT. Thank you, Ms. Malliotakis.
    Dr. Murphy.
    Mr. MURPHY. Thank you, Mr. Chairman.
    Let me just start out first, Dr. Wenstrup was not able to 
come, so I would like to ask unanimous consent to enter Dr. 
Wenstrup's statement into the record, as he was unable to be 
here today, but as a physician colleague, has valuable insights 
into this topic.
    Chairman SCHWEIKERT. So ordered.
    [The statement of Mr. Wenstrup follows:]
    [GRAPHIC] [TIFF OMITTED] T3243A.071
    
    Chairman SCHWEIKERT. And thank you for joining us on the 
subcommittee.
    Mr. MURPHY. Yeah, thank you.
    Thank you guys for coming, I appreciate you all bringing 
your expertise. Just as a point of reference, I've been a 
physician for over 30 years, was chief of staff of a Level 1 
trauma center, close to a thousand beds. We had a 12 hospital 
system, close to a two billion dollar budget, so I know some of 
the language. We are a non-for-profit entity.
    I know some of the challenges over the last two years have 
been extraordinary, things we've actually--hospitals have never 
faced before, travel nurses especially. Who would have foretold 
this and the exponential rise in the cost for travel nurses.
    I--you know, I want people to earn the highest wage as 
possible, but it got to be the point where hospitals were 
actually closing beds because they could not afford the care of 
nurses. And I'm sorry, I took an oath as a physician, and I 
know nurses took an oath to care for patients, and I think 
fortunately the pendulum has swung back and hopefully will stay 
there. You know, you want people to earn, but our first and 
primary goal--or first and primary oath is to take care of 
patients, as are all people on the medical staff, including 
executives, C-suite people, and everything. I know medical 
supplies have grown. The inflation rate to Medicare is 
essentially nonexistent comparatively. Absolutely abusive 
practices by insurance companies.
    This--I mean, this is going to be a little political here. 
There was a bipartisan law, bicameral law sent over to the 
President that was signed during the last Trump Administration, 
and this Administration has absolutely disregarded the intent 
of the law, giving everything to insurance companies, and such 
to the effect that they send out letters to attack physician 
repayments and some of the other things. Absolutely wrong.
    So let's get back to the order of the day, and that's the 
tax-exempt status of a non-for-profit, which I think is a good 
thing. It allows institutions to actually be able to serve at 
risk communities. I live in one, a very, very poor rural area 
in eastern North Carolina.
    But a couple things I'm going to ask different folks to 
give me some help with. Dr. Bai, I'm in receipt of some things 
I just don't quite understand, some 990 forms, from one of the 
institutions in North Carolina I won't name, that shows some 
significant, and I mean billions of dollars of offshore 
accounts from a non-for-profit institution. Can you tell me why 
would any non-for-profit do that? Why are they hiding money 
offshore? What's the purpose of that?
    Ms. BAI. Well, we have seen evidence that nonprofit 
hospitals have been engaged in all sorts of activities that you 
would only expect in for profit entities. For example, this 
offshore hiding, and then investment in private equity and 
venture capital, and then investing the income, doing some 
quite risky investment and going after return. So this is only 
one of the examples of this underlying trend that nonprofit 
hospitals have been behaving more and more profit oriented like 
their for profit counterpart.
    Mr. MURPHY. I mean, what's the motive for that? Is it to 
avoid taxes or some--what--why were--why are they doing this? 
Because it--honestly, it just doesn't pass the smell test.
    Ms. BAI. I think these activities, none of them is random, 
none of them is accidental, everything is strategic. For, you 
know, expanding market share, making more money, you know, 
profit driven, yeah.
    Mr. MURPHY. Okay. I just--you know, it just looks kind of 
funny when you've got all of the sudden non-for-profits that 
are supposed to be charity institutions shifting money 
offshore.
    I will tell you, Ms. Matton--or Hatton, I got a pet peeve, 
and that's CEO administrative compensation in this country. And 
especially, you know, in the chairman's remarks that the top 10 
nonprofits average seven million. I'm a physician, and I take 
care of patients, nurses take care of patients, and I love my 
CEOs, one of my best friends is a CEO, but this is absurd. 
Absolutely absurd, when we have charity care going in this 
country where the CEOs, Executives are paid millions of 
dollars, getting taxpayer money to get these--to run their 
hospitals. I'd love for you to comment on that.
    Can I have an extra two minutes?
    Ms. HATTON. First of all, let me thank you for your support 
for trying to get at the price gouging by staffing agencies, 
and I think you were talking about surprise billing----
    Mr. MURPHY. Yep.
    Ms. HATTON [continuing]. And thank you for your support 
there, we very much appreciate it. As you know, we were one of 
the original groups that went to court over surprise billing--
--
    Mr. MURPHY. Right.
    Ms. HATTON [continuing]. To vindicate that.
    In terms of CEO compensation, for tax exempt executives, 
they typically go through a process to have the amount of their 
compensation reviewed by an independent committee that has 
comparability data. And again, everyone on the committee is 
independent to try to determine whether or not that 
compensation is reasonable and fair for that job. It's called 
the rebuttable----
    Mr. MURPHY. Yeah. And I'll just tell you, I'm familiar with 
that.
    Ms. HATTON. Yeah.
    Mr. MURPHY. But let me tell you, being on the other side of 
the coin, being up at 2:00 in the morning and repair--saving 
the life of a gunshot victim and everything, I kind of get 
honestly ticked off about that because I know boards do that in 
compensated care, but here we are, we're taking care of the 
patients. They're running hospitals. Why are they being paid 
more than the people who take care of the patients?
     I get it. It's important to run hospitals, big systems and 
everything. But it doesn't pass the smell test for patients 
when they hear about that. I've had patients come and bring 
their Medicare bill to me and apologize to me for the amount of 
money I get. And so when the cuts go through and we're trying 
to trim healthcare costs, guess who gets cut? The people who 
deliver the care.
    And so I think this needs to be a reckoning with boardrooms 
across the country, especially in nonprofits. Nonprofits. 
Charity care. That we need to reexamine CEO pay because it's 
just not right. I believe in people earning as much as they 
can, but when physicians, the people who are delivering the 
care, when they've had a 20 percent cut in their average care 
in the last 20 years, but CEO pay keeps rising. It's absolutely 
absurd.
    So I--you know, I know you're not controlling it, but it's 
something that's really important to patients. And at the end 
of the day, that's what we're talking about.
    Ms. HATTON. Yeah, we understand. And just want you to 
understand that the process of setting that is a fair and 
independent process and----
    Mr. MURPHY. I get it.
    Ms. HATTON. And, you know, you can certainly argue with the 
results, but all the nonprofit CEOs use that to try to come up 
with a compensation that's fair and reasonable.
    Mr. MURPHY. I get it. I get it. But I'm sorry, I just don't 
get that they should be earning more than the people who 
deliver the care.
    Ms. HATTON. I understand.
    Mr. MURPHY. So, all right, thank you, Mr. Chairman. I'll 
yield back.
    Chairman SCHWEIKERT. Thank you, Dr. Murphy.
    Mr. Hern.
    Mr. HERN. Thank you, Mr. Chairman, thank the witnesses for 
being here for a couple of hours now talking about this issue.
    I'm not a doctor, certainly don't play one on TV, but I'm a 
business person, and somebody that's concerned about where the 
cost for healthcare industry is going. And, you know, as we 
know, and I'm going to state some obvious here, hospitals play 
a very important role in delivering cares to--care to Americans 
in our rural areas, which I grew up in. They are usually the 
largest employer and the first line of defense for miles when 
an accident happens. But the role hospitals play in urban areas 
is evolving. And I live in Tulsa, and we have really great 
hospitals there doing a lot of great work.
    In the 1960s, hospitals popped up all over the country as 
the only site of care, and more than 60 years later, there's 
several different types of hospitals that are not only the--not 
the only option for care. There are family physician offices, 
ambulatory surgical centers, urgent care centers, rehab 
centers, nursing homes, and the list goes on and on and on. The 
diverse options patients have speaks to the American 
entrepreneurial spirit and the freedom to choose.
    And as our healthcare system evolves, Congress must examine 
each sector of the industry to root out bad actors. And what 
we're seeing in these--and, Dr. Bai, you did a great job. I 
read your article, your research on that. We see the benefit 
from nonprofit tax status while delivering less charity care 
than their profit competitors. Abused federal programs like the 
340B to prop up their bottom lines instead of helping the 
members that they are supposed to be serving. Buy off-campus 
physician offices and immediately increase the prices by 200 
percent.
    This is totally unacceptable. As a member of Congress who 
must ensure the people represent--that we represent are not 
taken advantage of and that the taxpayer money is well spent. 
Again, I want to reiterate my interest in rooting out the bad 
actors doing this. And there are many hospitals throughout the 
country earning their community benefit.
    I am fortunate, as I mentioned, to be in Tulsa, and we have 
several world-class hospitals that innovate and cut costs to 
compete with their competitors down the street. They invest in 
the community and make tough decisions while closing down units 
to keep their businesses running.
    Many hospitals across the country similarly contribute to 
their communities. For example, there are over 250 physician-
owned hospitals which collectively paid more than 1.2 billion 
dollars in taxes in 2021, and over 1,000 investor-owned 
hospitals similarly paid billions in taxes and provided 65 
percent more charity care than their exempt counterparts. 
However, I can't say the same for many bad actors nationwide.
    So I want to insert for the record, Mr. Chairman, a report 
from the Progressive Institute--Lown Institute. Mr. Chairman, 
if I could enter this for the record. Thank you.
    [The information follows:]

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

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