Senator Probes IRS About Non-Profit Hospital Compliance

February 27, 2019 - Senator Chuck Grassley is looking into non-profit hospital compliance with IRS rules for community health improvement and financial assistance to patients.

In a Feb. 19 letter to IRS Commissioner Charles P. Rettig, Grassley explained that tax-exempt, non-profit hospitals must meet certain statutory community benefit standards. The standards are detailed in Section 501(r) of the Internal Revenue Code, which states a tax-exempt hospital must meet requirements related to community health needs assessments, financial assistance policies, billing and collection, and on charges billed to patients.

However, the Senator of Iowa questioned if all tax-exempt, non-profit hospitals are complying with the requirements, particularly hospital debt collection policies.

“Making sure that tax-exempt hospitals abide by their community benefit standards is a very important issue for me,” he wrote in the letter. “As chairman of the Senate Judiciary Committee, I oversaw an investigation into the billing practices of the Mosaic Life Care Hospital. That investigation resulted in debt relief of almost $17 million for thousands of low-income patients. This issue is still just as important to me now that I am chairman of the Senate Finance Committee.”

Grassley launched an investigation into Mosaic Life Care Hospital’s practices following a 2014 NPR and ProPublica story about the hospital seizing wages of about 6,000 patients from 2009 to 2013 over unpaid medical bills.

The Senator is now pointing to more recent evidence that at least some non-profit hospitals have reduced charity care despite increasing to the facility’s bottom line.

The 2017 report published on Politico found that the combined revenue of the top seven hospitals in the country increased revenue by $4.5 billion per year after the Affordable Care Act’s coverage gains were implemented. Simultaneously, their charity care dropped by almost $150 million per year.

A year later, the IRS itself also found in its May 2018 Report to Congress on Private Tax-Exempt, Taxable, and Government-Owned Hospitals that the total percentage of unreimbursed Medicaid expenses rose by 20.6 percent from 2011 to 2014 while charity‑care expenses fell by 16.5 percent.

In addition, the IRS  revoked a rural hospital’s non-profit status over the facility’s failure to meet new community health needs assessment requirements under the Affordable Care Act. For most healthcare stakeholders, the revocation was a first for the IRS.

The evidence calls into question if some non-profit hospitals are complying with IRS rules for tax-exemption.

Senator Grassley has been down this road before. He sent a letter about a year ago to the IRS asking about how the agency reviews non-profit hospital compliance with Section 501(r).

By April 2018, IRS Acting Commissioner David Kautter responded that the agency reviews about one-third of non-profit hospitals each year by analyzing Forms 990, hospital websites, and other data. The analysis of financial and other information is meant to identify the chances of noncompliance with community benefit standards.

But Grassley is not satisfied with the state of non-profit hospitals. He aims to further investigate non-profit hospital compliance by asking the IRS to answer additional questions surrounding compliance reviews and results.

Specifically, the Senator called on the IRS Commissioner to elaborate on how many hospitals have been reviewed for debt collection requirement compliance, as well as how non-profit hospitals identify patients who qualify for financial assistance under their policies.

Grassley also wants updates on how many additional non-profit hospitals have been reviewed for compliance since April 2018 and the results of the closed cases.

Senator Grassley requested that the IRS responded no later than April 1, 2019.