On August 7, 2023, a bipartisan group of four senators, Elizabeth Warren, Raphael Warnock, Bill Cassidy, M.D., and Charles Grassley, sent a letter to officials at the Internal Revenue Service (IRS) and the U.S. Treasury Inspector General for Tax Administration (TIGTA) expressing concern about the role they say tax-exempt hospitals play in the growing amount of personal medical debt in the U.S. While increased attention on tax-exempt hospitals has existed at the state level, the senators’ letter attempts to shine a brighter spotlight on the hospitals and specifically on the reports of community benefit from Form 990: Return of Organization Exempt From Income Tax and Schedule H: Hospitals.
What Does the Senators’ Letter Say?
In their letter, the four senators express their concerns about inadequate community benefit, which they illustrate through examples of actions taken by tax-exempt hospitals across the country:
- Filing liens on patient homes in poor or rural areas
- Charging full price for patients who were eligible for free care
- Filing lawsuits and triggering wage garnishments
- Pursuing debt collection practices to include withholding of care
Additionally, the senators’ inquiry focuses on whether the hospitals are providing as much in community benefit as they are receiving in federal and state tax exemptions. They cite a study of more than 1,700 tax-exempt hospitals conducted by the Lown Institute, which provided its own methodology for the calculation of “fair share.” Furthermore, the senators criticize the IRS for “lax oversight” of community benefit and suggest Schedule H relies too heavily on narrative statements and open-ended reporting, making it difficult to analyze data and evaluate community benefit.
In their correspondence to the IRS, the senators list eight points for further research/information, including these:
- A list of the most commonly reported community benefit activities that qualified tax-exempt hospitals for tax exemptions in FY2021 and FY2022
- A description of and justification for updates to Form 990 and Schedule H related to community benefit reporting that have taken place since September 2020
- A list of challenges the IRS faces in its ability to oversee tax-exempt hospitals
In their correspondence to the TIGTA, the senators urge the office to “evaluate compliance with the tax-exempt requirements in its 2024 audit plan” and call for a wide-ranging look at a variety of items, from the Schedule H instructions to ways to identify the extent to which hospitals bill patients for gross charges. Four standout areas of inquiry include these:
- Assessing the effectiveness of the IRS’s controls to detect whether hospitals are providing sufficient community benefit
- Reviewing the overall effectiveness of the community benefit standard outlined in Revenue Ruling 69-545, which is the standard hospitals have been following since it was published in 1969
- Evaluating current standards for financial assistance policies
- Identifying challenges the IRS faces in its ability to oversee tax-exempt hospitals
How Can You Learn More?
Join PYA on Thursday, Sept. 28, 11 a.m.-12 p.m., for a complimentary CPE webinar that will present a more in-depth look at the questions raised in the senators’ letter. During the webinar, you’ll learn what hospitals can do now to capture community benefit as the focus continues on this issue. Attendees of the live webinar can earn 1 CPE* Credit in Specialized Knowledge.
If you would like assistance with assessing community benefit, evaluating regulatory impacts, or any matter involving compliance, valuation, or strategy and transactions, one of our executive contacts would be happy to assist. You may email them below or call (800) 270-9629.
*CPE: Participants can earn one CPE credit in Specialized Knowledge. Program Level: Intermediate. Delivery Method: Group Internet Based. Advanced Preparation: None. Prerequisites: None. No fee. PYA, P.C. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.NASBARegistry.org.
