Community service, strongarm collections, lax oversight: Senators demand answers about nonprofit hospitals

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Democratic and Republican senators are asking the Biden administration to take a closer look at nonprofit hospitals to determine if they are meeting the responsibilities that come with their tax-exempt status.

Four senators, including U.S. Sens. Elizabeth Warren, D-Mass., and Chuck Grassley, R-Iowa, are seeking more answers. They have written a letter to the Internal Revenue Service and the Treasury Inspector General for Tax Administration asking for an investigation to determine if hospitals are complying with requirements for nonprofits. The other senators on the letter include U.S. Sens. Raphael Warnock, D-Ga., and Bill Cassidy, a Louisiana Republican and a doctor.

Nationwide, U.S. hospitals received $28 billion in tax breaks in 2020, the senators said. In return for those exemptions, hospitals are required to provide services benefiting the community, but the lawmakers criticized hospitals for cutting some services.

“We are alarmed by reports that despite their tax-exempt status, certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit’ and engaging in practices that are not in the best interest of the patient,” the senators wrote in the Aug. 7 letter. “These practices – along with lax federal oversight – have allowed some nonprofit hospitals to avoid providing essential care in the community for those who need it most.”

The lawmakers noted the growing amount of Americans struggling with medical debt, and they questioned hospitals for their tactics to collect those debts, including reports of garnishing wages and the denial of care.

“It's alarming that some nonprofit hospitals are using predatory tactics to squeeze money from patients who should be receiving free care. I’m calling on IRS to strengthen its oversight of tax-exempt hospitals to protect patients from mounting medical debt,” Warren said in a statement on X (formerly Twitter).

Grassley has frequently argued that hospitals should pay if they’re not meeting their obligations as nonprofit organizations.

The senators are asking the IRS to provide a list of the community benefits provided by hospitals in 2021 and 2022, and how many hospitals have been identified as “at risk” for noncompliance of federal regulations. The lawmakers say they want answers within 60 days.

The lawmakers also pointed to an April 2023 analysis by the Lown Institute, which found that three out of four hospitals spent less on charity care and community benefits than they received in tax breaks. The institute estimated the nationwide “fair share” deficit reached more than $14 billion.

Hospitals have argued that the Lown Institute’s analysis, and other similar reports critical of their charity care spending, don’t accurately account what they contribute to their communities.

The American Hospital Association noted in an April blog post that hospitals contributed $110 billion in total benefits to their communities in 2019.

“Hospitals and health systems are cornerstones of their communities, ready to care for patients 24/7 regardless of their ability to pay for care,” AHA General Counsel Mindy Hatton wrote in April. “They are dedicated to doing everything they can to make their communities healthier and better places to live, work and raise families.”

Hospital trade groups have noted that the federal government isn’t providing sufficient reimbursements to health systems that have struggled financially and face rising costs. Health groups are warning they expect to provide more charity care as millions of Americans are projected to lose Medicaid coverage in the coming months, as states determine eligibility for health benefits.

A bipartisan group of 51 U.S. senators is asking Senate leaders to prevent the planned cuts of billions of dollars in Medicaid assistance to hospitals. Warren, Warnock, and Cassidy all signed the letter seeking to block the Medicaid cuts.