[Congressional Record Volume 153, Number 1 (Thursday, January 4, 2007)]
[Senate]
[Pages S80-S81]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REID (for Mr. Inouye):
  S. 62. A bill to treat certain hospital support organizations as 
qualified organizaitons for purposes of determining acquisition 
indebtedness; to the Committee on Finance.
  Mr. INOUYE. Mr. President, the legislation I have introduced will 
extend to qualified teaching hospital support organizations the 
existing debt-financed safe harbor rule. Congress enacted that rule to 
support the public service activities of tax-exempt schools, 
universities, pension funds, and consortia of such institutions. Our 
teaching hospitals require similar support.
  A New York Times article on June 21, 2002, described the financial 
problems which nonprofit hospitals are facing to modernize their 
facilities and meet the growing demand for charitable medical care. The 
problems have grown more urgent since that article appeared.
  On November 22, 2006, the Wall Street Journal noted the rising 
numbers of uninsured patients who fill hospital emergency rooms without 
paying their bills. In 2005, 46.6 million Americans had no health 
insurance. Compounding the growing demand for charitable care, new 
safety and infection-prevention standards require hospitals to 
undertake massive improvements.
  As a result, the article stated, for-profit hospitals are moving from 
older areas to affluent locations where residents can afford to pay for 
treatment. These private hospitals, the reporter pointed out, typically 
have no mandate for community service. In contrast, nonprofit hospitals 
must fulfill a community service requirement. They must stretch their 
resources to provide increased charitable care, update their 
facilities, and maintain skilled staffing. Both the Wall Street Journal 
and the New York Times noted the resulting closures of nonprofit 
hospitals due to this financial strain.
  The problem is particularly severe for teaching hospitals. As the 
Times article said, nonprofit hospitals provide nearly all the 
postgraduate medical education in the United States. Post-graduate 
medical instruction is by nature not profitable. Instruction in the 
treatment of mental disorders and trauma is especially costly.
  Despite their financial problem the nation's nonprofit hospitals 
strive to deliver a very high level of service. A study in the December 
2006 issue of Archives of Internal Medicine had surveyed hospitals' 
qualify of care in four areas of treatment. It found that nonprofit 
hospitals consistently outperformed for-profit hospitals. It also found 
that teaching hospitals had a higher level of performance in treatment 
and diagnosis. It said that investment in technology and staffing leads 
to better care. And it recommended that alternative payments and 
sources of payments be considered to finance these improvements.
  The success and financial constraints of nonprofit teaching hospitals 
is evident in the work of the Queen's Health Systems in my State. This 
146-year-old organization maintains the largest, private, nonprofit 
hospital in Hawaii. It serves as the primary clinical teaching facility 
for the University of Hawaii's medical residency programs in medicine, 
general surgery, orthopedic surgery, obstetrics-gynecology, pathology, 
and psychiatry. It conducts educational and training programs for 
nurses and allied health personnel. It operates the only trauma unit as 
well as the chief behavioral health program in the State. It maintains 
clinics throughout Hawaii, health programs for Native Hawaiians, and a 
small hospital on a rural, economically depressed island. Its medical 
reference library is the largest in the State. Not the least, it 
annually provides millions of dollars in uncompensated health services. 
To help pay for these community benefits, the Queen's Health Systems, 
as other nonprofit teaching hospitals, relies significantly on income 
from its endowment.
  In the past, the Congress has allowed tax-exempt schools, colleges, 
universities, and pension funds to invest their endowment in real 
estate so as to better meet their financial needs. Under the tax code 
these organizations can incur debt for real estate investments without 
triggering the tax on unrelated business activities.
  If the Queen's Health Systems were part of a university, it could 
borrow without incurring an unrelated business income tax. Not being 
part of a university, however, a teaching hospital and its support 
organization run into the tax code's debt financing prohibition. 
Nonprofit teaching hospitals have the same if not more pressing needs 
as universities, school, and pension trusts. The same safe harbor rule 
should be extended to teaching hospitals.
  My bill would allow the support organizations for qualified teaching 
hospitals to engage in limited borrowing to enhance their endowment 
income. The proposal for teaching hospitals is actually more restricted 
than current law for schools, universities, and pension trusts. Under 
safeguards developed by the Joint Committee on Taxation staff, a 
support organization for a teaching hospital can not buy and develop 
land on a commercial basis. The proposal is tied directly to the 
organization endowment. The staff's revenue estimate show that the 
provision with its general application will help a number a teaching 
hospitals.
  The U.S. Senate several times has acted favorably on this proposal. 
The Senate adopted a similar provision in H.R. 1836 the Economic Growth 
and Tax Relief Act of 2001. The House conferees on that bill, however, 
objected that the provision was unrelated to the bill's focus on 
individual tax relief and the conference deleted the provision from the 
final legislation. Subsequently, the Finance Committee included the 
provision in H.R. 7 the CARE Act of 2002 and in S. 476 the CARE Act of 
2003 which the Senate passed. In the last Congress S. 6 the Marriage, 
Opportunity, Relief, and Empowerment Act of 2005, which the Senate 
leadership introduced, also included the proposal.
  As the Senate Finance Committee's recent hearings show, substantial 
health needs would go unmet if not for our charitable hospitals. It is 
time for the Congress to assist the nation's teaching hospitals in 
their charitable, educational service.
  I ask unanimous consent that the text of my bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 62

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. TREATMENT OF CERTAIN HOSPITAL SUPPORT 
                   ORGANIZATIONS AS QUALIFIED ORGANIZATIONS FOR 
                   PURPOSES OF DETERMINING ACQUISITION 
                   INDEBTEDNESS.

       (a) In General.--Subparagraph (C) of section 514(c)(9) of 
     the Internal Revenue Code of 1986 (relating to real property 
     acquired by a qualified organization) is amended by striking 
     ``or'' at the end of clause (ii), by striking the period at 
     the end of clause (iii) and inserting ``; or'', and by adding 
     at the end the following new clause:
       ``(iv) a qualified hospital support organization (as 
     defined in subparagraph (I)).''.
       (b) Qualified Hospital Support Organizations.--Paragraph 
     (9) of section 514(c) of the Internal Revenue Code of 1986 is 
     amended by adding at the end the following new subparagraph:
       ``(I) Qualified hospital support organizations.--For 
     purposes of subparagraph (C)(iv), the term `qualified 
     hospital support organization' means, with respect to any 
     eligible indebtedness (including any qualified refinancing of 
     such eligible indebtedness), a support organization (as 
     defined in section 509(a)(3)) which supports a hospital 
     described in section 119(d)(4)(B) and with respect to which--
       ``(i) more than half of its assets (by value) at any time 
     since its organization--

       ``(I) were acquired, directly or indirectly, by 
     testamentary gift or devise, and
       ``(II) consisted of real property, and

       ``(ii) the fair market value of the organization's real 
     estate acquired, directly or indirectly, by gift or devise, 
     exceeded 25 percent of the fair market value of all 
     investment assets held by the organization immediately

[[Page S81]]

     prior to the time that the eligible indebtedness was 
     incurred.
     For purposes of this subparagraph, the term `eligible 
     indebtedness' means indebtedness secured by real property 
     acquired by the organization, directly or indirectly, by gift 
     or devise, the proceeds of which are used exclusively to 
     acquire any leasehold interest in such real property or for 
     improvements on, or repairs to, such real property. A 
     determination under clauses (i) and (ii) of this subparagraph 
     shall be made each time such an eligible indebtedness (or the 
     qualified refinancing of such an eligible indebtedness) is 
     incurred. For purposes of this subparagraph, a refinancing of 
     such an eligible indebtedness shall be considered qualified 
     if such refinancing does not exceed the amount of the 
     refinanced eligible indebtedness immediately before the 
     refinancing.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to indebtedness incurred on or after the date of 
     the enactment of this Act.
                                 ______