Senators Push IRS To Launch Nonprofit Hospital Probe

By Sarah Owermohle Aug. 8, 2023

WASHINGTON — A bipartisan group of senators wants federal tax regulators to probe nonprofit hospitals’ compliance with community benefit requirements, ratcheting up a longtime campaign to hold the tax-exempt providers accountable.

Nonprofit hospitals are often subsidized by state or federal funding and exempt from many taxes. In exchange, they are required to aid their surrounding area through public health programs and providing free or discounted care to low-income patients. However, advocates have long argued that the tax code’s broad definition of community benefits has hospitals logging costs like physician training and research rather than direct community benefits like health screenings, free clinics, and care for the uninsured.

Sens. Elizabeth Warren (D-Mass.), Raphael Warnock (D-Ga.), Bill Cassidy (R-La.), and Chuck Grassley (R-Iowa) late Monday sent letters to both the Internal Revenue Service commissioner and the Treasury Inspector General for Tax Administration calling for an investigation into “overly broad” tax wording and oversight of roughly $28 billion in exemptions.

“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,” wrote the senators.

Grassley, in particular, has been waging this war for some time. He launched committee probes into nonprofit tax practices during his time as Finance Committee chairman. In 2020 he issued a report delving into the “aggressive debt-collection practices” of two nonprofit hospital systems, University of Virginia Medical Center and Methodist Le Bonheur in Tennessee.

But while this has been a longtime Republican complaint, momentum is now building among Democratic lawmakers who have previously voiced concerns that tax crackdowns could impact vulnerable people’s access to care.

Both chambers of Congress have already mounted interrogations into nonprofit hospitals this year amid a billionaire-funded campaign to rein in hospital prices and medical debt. A House panel held a hearing on the subject this spring.

At the center of the tax debate is what counts as community care and charity. For instance, 82% of nonprofit hospital systems spent less on community programs than the value of their tax exemptions in 2019, according to a Lown Institute report. The American Hospital Association shot back that Lown ignored a range of community investment categories in its math. Lown research said that was intentional — because many of those categories should not count.

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Federal law does not say how much community benefit hospitals have to provide, but they do have to report their spending to the IRS each year, broken down by free and discounted care, unreimbursed care from government programs, and public health programing.

“The fact that nonprofit hospitals care for Medicaid patients, train residents, and conduct research is undoubtedly a social good. But to justify their tax exemption, the focus should be on programs that address specific community health needs, not on spending for the general good, for which they are already being paid,” Lown policy analyst Judith Garber and president Vikas Saini wrote.

Tara Bannow and Rachel Cohrs contributed to this report.