Charitable Hospital Accountability: A Review and Analysis of Legal and Policy Initiatives

Journal of Law, Medicine and Ethics

Volumn 26, Issue 2, 1998, Pages 116-137

  Noble, Alice A ^a   Hyams, Andrew L ^a   Kane, Nancy M ^a  

^a NONE

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[No Author keywords available]

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EID: 0000050609     PISSN: 10731105     EISSN: None     Source Type: Journal    
DOI: 10.1111/j.1748-720X.1998.tb01668.x     Document Type: Article

References (206)

1. The following provides examples of current theories justifying tax exemption. As the wide variety of arguments demonstrates, this is an area of much debate. One justification of tax exemption is the quid pro quo theory that exemption is an exchange for a relief of a government burden. The Supreme Court embraced this theory in Bob Jones v. United States, 461 U.S. 574, 591 (1983) ("Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit that society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues."). See also Utah County v. Intermountain Health Care, Inc., 709 P.2d 265, 267 (Utah 1985). The donative theory holds that tax exemption should be based on an institution's ability to attract voluntary private contributions. See M.A. Hall and J.D. Colombo, "The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory of Tax-Exemption," Washington Law Review, 66 (1991): at 390. The "virtues" nonprofits practice, such as diversity and pluralism, make nonprofits worth the price of their tax exemption. See R. Atkinson, "Altruism in Nonprofit Organizations," Boston College Law Review, 31 (1990): at 605- 06 n.266; and D. Falcone and D.G. Warren, "The Shadow Price of Pluralism: The Use of Tax Expenditures to Subsidize Hospital Care in the United States," Journal of Health Politics, Policy and Law, 13 (1988): at 735-36. Tax exemption exists to encourage the development of certain types of institutions. See, for example, T.R. Marmor et al., "A New Look at Nonprofits: Health Care Policy in a Competitive Age," Yale Journal on Regulation, 3 (1986): at 323-24; Henry Hansmann's "capital subsidy" theory justifies tax exemption as a compensation for the nonprofit's inability to attract private investors due to their "nondistribution constraint." See H. Hansmann, "The Rationale of Exempting Nonprofit Organizations from Corporate Income Tax," Yale Law Journal, 91 (1981): at 59-61, 72-75; and R.C. Clark, "Does the Nonprofit Form Fit the Hospital Industry?," Harvard Law Review, 93 (1980): at 1476 (suggesting repealing property tax exemption for hospitals).
2. The following provides examples of current theories justifying tax exemption. As the wide variety of arguments demonstrates, this is an area of much debate. One justification of tax exemption is the quid pro quo theory that exemption is an exchange for a relief of a government burden. The Supreme Court embraced this theory in Bob Jones v. United States, 461 U.S. 574, 591 (1983) ("Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit that society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues."). See also Utah County v. Intermountain Health Care, Inc., 709 P.2d 265, 267 (Utah 1985). The donative theory holds that tax exemption should be based on an institution's ability to attract voluntary private contributions. See M.A. Hall and J.D. Colombo, "The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory of Tax-Exemption," Washington Law Review, 66 (1991): at 390. The "virtues" nonprofits practice, such as diversity and pluralism, make nonprofits worth the price of their tax exemption. See R. Atkinson, "Altruism in Nonprofit Organizations," Boston College Law Review, 31 (1990): at 605-06 n.266; and D. Falcone and D.G. Warren, "The Shadow Price of Pluralism: The Use of Tax Expenditures to Subsidize Hospital Care in the United States," Journal of Health Politics, Policy and Law, 13 (1988): at 735-36. Tax exemption exists to encourage the development of certain types of institutions. See, for example, T.R. Marmor et al., "A New Look at Nonprofits: Health Care Policy in a Competitive Age," Yale Journal on Regulation, 3 (1986): at 323-24; Henry Hansmann's "capital subsidy" theory justifies tax exemption as a compensation for the nonprofit's inability to attract private investors due to their "nondistribution constraint." See H. Hansmann, "The Rationale of Exempting Nonprofit Organizations from Corporate Income Tax," Yale Law Journal, 91 (1981): at 59-61, 72-75; and R.C. Clark, "Does the Nonprofit Form Fit the Hospital Industry?," Harvard Law Review, 93 (1980): at 1476 (suggesting repealing property tax exemption for hospitals).
3. The following provides examples of current theories justifying tax exemption. As the wide variety of arguments demonstrates, this is an area of much debate. One justification of tax exemption is the quid pro quo theory that exemption is an exchange for a relief of a government burden. The Supreme Court embraced this theory in Bob Jones v. United States, 461 U.S. 574, 591 (1983) ("Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit that society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues."). See also Utah County v. Intermountain Health Care, Inc., 709 P.2d 265, 267 (Utah 1985). The donative theory holds that tax exemption should be based on an institution's ability to attract voluntary private contributions. See M.A. Hall and J.D. Colombo, "The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory of Tax-Exemption," Washington Law Review, 66 (1991): at 390. The "virtues" nonprofits practice, such as diversity and pluralism, make nonprofits worth the price of their tax exemption. See R. Atkinson, "Altruism in Nonprofit Organizations," Boston College Law Review, 31 (1990): at 605- 06 n.266; and D. Falcone and D.G. Warren, "The Shadow Price of Pluralism: The Use of Tax Expenditures to Subsidize Hospital Care in the United States," Journal of Health Politics, Policy and Law, 13 (1988): at 735-36. Tax exemption exists to encourage the development of certain types of institutions. See, for example, T.R. Marmor et al., "A New Look at Nonprofits: Health Care Policy in a Competitive Age," Yale Journal on Regulation, 3 (1986): at 323-24; Henry Hansmann's "capital subsidy" theory justifies tax exemption as a compensation for the nonprofit's inability to attract private investors due to their "nondistribution constraint." See H. Hansmann, "The Rationale of Exempting Nonprofit Organizations from Corporate Income Tax," Yale Law Journal, 91 (1981): at 59-61, 72-75; and R.C. Clark, "Does the Nonprofit Form Fit the Hospital Industry?," Harvard Law Review, 93 (1980): at 1476 (suggesting repealing property tax exemption for hospitals).
4. The following provides examples of current theories justifying tax exemption. As the wide variety of arguments demonstrates, this is an area of much debate. One justification of tax exemption is the quid pro quo theory that exemption is an exchange for a relief of a government burden. The Supreme Court embraced this theory in Bob Jones v. United States, 461 U.S. 574, 591 (1983) ("Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit that society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues."). See also Utah County v. Intermountain Health Care, Inc., 709 P.2d 265, 267 (Utah 1985). The donative theory holds that tax exemption should be based on an institution's ability to attract voluntary private contributions. See M.A. Hall and J.D. Colombo, "The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory of Tax-Exemption," Washington Law Review, 66 (1991): at 390. The "virtues" nonprofits practice, such as diversity and pluralism, make nonprofits worth the price of their tax exemption. See R. Atkinson, "Altruism in Nonprofit Organizations," Boston College Law Review, 31 (1990): at 605- 06 n.266; and D. Falcone and D.G. Warren, "The Shadow Price of Pluralism: The Use of Tax Expenditures to Subsidize Hospital Care in the United States," Journal of Health Politics, Policy and Law, 13 (1988): at 735-36. Tax exemption exists to encourage the development of certain types of institutions. See, for example, T.R. Marmor et al., "A New Look at Nonprofits: Health Care Policy in a Competitive Age," Yale Journal on Regulation, 3 (1986): at 323-24; Henry Hansmann's "capital subsidy" theory justifies tax exemption as a compensation for the nonprofit's inability to attract private investors due to their "nondistribution constraint." See H. Hansmann, "The Rationale of Exempting Nonprofit Organizations from Corporate Income Tax," Yale Law Journal, 91 (1981): at 59-61, 72-75; and R.C. Clark, "Does the Nonprofit Form Fit the Hospital Industry?," Harvard Law Review, 93 (1980): at 1476 (suggesting repealing property tax exemption for hospitals).
5. The following provides examples of current theories justifying tax exemption. As the wide variety of arguments demonstrates, this is an area of much debate. One justification of tax exemption is the quid pro quo theory that exemption is an exchange for a relief of a government burden. The Supreme Court embraced this theory in Bob Jones v. United States, 461 U.S. 574, 591 (1983) ("Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit that society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues."). See also Utah County v. Intermountain Health Care, Inc., 709 P.2d 265, 267 (Utah 1985). The donative theory holds that tax exemption should be based on an institution's ability to attract voluntary private contributions. See M.A. Hall and J.D. Colombo, "The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory of Tax-Exemption," Washington Law Review, 66 (1991): at 390. The "virtues" nonprofits practice, such as diversity and pluralism, make nonprofits worth the price of their tax exemption. See R. Atkinson, "Altruism in Nonprofit Organizations," Boston College Law Review, 31 (1990): at 605- 06 n.266; and D. Falcone and D.G. Warren, "The Shadow Price of Pluralism: The Use of Tax Expenditures to Subsidize Hospital Care in the United States," Journal of Health Politics, Policy and Law, 13 (1988): at 735-36. Tax exemption exists to encourage the development of certain types of institutions. See, for example, T.R. Marmor et al., "A New Look at Nonprofits: Health Care Policy in a Competitive Age," Yale Journal on Regulation, 3 (1986): at 323-24; Henry Hansmann's "capital subsidy" theory justifies tax exemption as a compensation for the nonprofit's inability to attract private investors due to their "nondistribution constraint." See H. Hansmann, "The Rationale of Exempting Nonprofit Organizations from Corporate Income Tax," Yale Law Journal, 91 (1981): at 59-61, 72-75; and R.C. Clark, "Does the Nonprofit Form Fit the Hospital Industry?," Harvard Law Review, 93 (1980): at 1476 (suggesting repealing property tax exemption for hospitals).
6. The following provides examples of current theories justifying tax exemption. As the wide variety of arguments demonstrates, this is an area of much debate. One justification of tax exemption is the quid pro quo theory that exemption is an exchange for a relief of a government burden. The Supreme Court embraced this theory in Bob Jones v. United States, 461 U.S. 574, 591 (1983) ("Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit that society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues."). See also Utah County v. Intermountain Health Care, Inc., 709 P.2d 265, 267 (Utah 1985). The donative theory holds that tax exemption should be based on an institution's ability to attract voluntary private contributions. See M.A. Hall and J.D. Colombo, "The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory of Tax-Exemption," Washington Law Review, 66 (1991): at 390. The "virtues" nonprofits practice, such as diversity and pluralism, make nonprofits worth the price of their tax exemption. See R. Atkinson, "Altruism in Nonprofit Organizations," Boston College Law Review, 31 (1990): at 605- 06 n.266; and D. Falcone and D.G. Warren, "The Shadow Price of Pluralism: The Use of Tax Expenditures to Subsidize Hospital Care in the United States," Journal of Health Politics, Policy and Law, 13 (1988): at 735-36. Tax exemption exists to encourage the development of certain types of institutions. See, for example, T.R. Marmor et al., "A New Look at Nonprofits: Health Care Policy in a Competitive Age," Yale Journal on Regulation, 3 (1986): at 323-24; Henry Hansmann's "capital subsidy" theory justifies tax exemption as a compensation for the nonprofit's inability to attract private investors due to their "nondistribution constraint." See H. Hansmann, "The Rationale of Exempting Nonprofit Organizations from Corporate Income Tax," Yale Law Journal, 91 (1981): at 59-61, 72-75; and R.C. Clark, "Does the Nonprofit Form Fit the Hospital Industry?," Harvard Law Review, 93 (1980): at 1476 (suggesting repealing property tax exemption for hospitals).
7. See N.M. Kane and W. Wubbenhorst, "Alternative Funding Policies for the Uninsured: Exploring the Value of Hospital Tax Exemption" (forthcoming). Nancy Kane and William Wubbenhorst found that although hospitals in wealthier communities provide considerably less uncompensated care than the value of their tax exemption, hospitals in the poorest communities provide considerably more uncompensated care than the value of their tax exemption. However, even within this latter group, those hospitals with the greatest income-producing capabilities provide the least amount of uncompensated care relative to the value of their tax exemption.
8. See P. Starr, The Social Transformation of American Medicine (New York: Basic Books, 1982): at 72; and Hall and Colombo, supra note 1, at 318-19 .
9. See P. Starr, The Social Transformation of American Medicine (New York: Basic Books, 1982): at 72; and Hall and Colombo, supra note 1, at 318-19 .
10. See Starr, supra note 3, at 436-44; and D.M. Mancino, "Income Tax Exemption of the Contemporary Nonprofit Hospital," St. Louis University Law Journal, 32 (1988): at 1027-28.
11. See Starr, supra note 3, at 436-44; and D.M. Mancino, "Income Tax Exemption of the Contemporary Nonprofit Hospital," St. Louis University Law Journal, 32 (1988): at 1027-28.
12. See generally, Mancino, id. at 1028.
13. See Starr, supra note 3, at 437.
14. See id.
15. See M.A. Potter and B.B. Longest, "The Divergence of Federal and State Policies on the Charitable Tax Exemption of Nonprofit Hospitals," Journal of Health Politics, Policy and Law, 19 (1994): at 408-09.
16. See id.
17. See L.S. Lewin and M.E. Lewin, "Financing Charity Care in an Era of Competition," Health Affairs, 6, no. 1 (1987): at 48; Hall and Colombo, supra note 1, at 408; and American Hospital Association, The State of the Nation's Access to Hospital Services (Chicago: American Hospital Association, 1988).
18. See L.S. Lewin and M.E. Lewin, "Financing Charity Care in an Era of Competition," Health Affairs, 6, no. 1 (1987): at 48; Hall and Colombo, supra note 1, at 408; and American Hospital Association, The State of the Nation's Access to Hospital Services (Chicago: American Hospital Association, 1988).
19. See L.S. Lewin and M.E. Lewin, "Financing Charity Care in an Era of Competition," Health Affairs, 6, no. 1 (1987): at 48; Hall and Colombo, supra note 1, at 408; and American Hospital Association, The State of the Nation's Access to Hospital Services (Chicago: American Hospital Association, 1988).
20. See M.G. Bloche, "Health Policy Below the Waterline: Medical Care and the Charitable Exemption," Minnesota Law Review, 80 (1995): at 388-99. Gregg Bloche goes on to say that evidence indicates nonprofit hospital managers are more likely than their for-profit counterparts to use this residual discretion to offer outreach programs to low-income members of the community. According to a 1990 General Accounting Office report, 68 percent of nonprofit hospitals, as opposed to 39 percent of for-profits of similar size, targeted at least one outreach program to low-income people. See General Accounting Office, Nonprofit Hospitals: Better Standards Needed for Tax Exemption (Washington, D.C.: U.S. Government Printing Office, GAO/ HRD-90-84, 1990): at 40.
21. See M.G. Bloche, "Health Policy Below the Waterline: Medical Care and the Charitable Exemption," Minnesota Law Review, 80 (1995): at 388-99. Gregg Bloche goes on to say that evidence indicates nonprofit hospital managers are more likely than their for-profit counterparts to use this residual discretion to offer outreach programs to low-income members of the community. According to a 1990 General Accounting Office report, 68 percent of nonprofit hospitals, as opposed to 39 percent of for-profits of similar size, targeted at least one outreach program to low-income people. See General Accounting Office, Nonprofit Hospitals: Better Standards Needed for Tax Exemption (Washington, D.C.: U.S. Government Printing Office, GAO/ HRD-90-84, 1990): at 40.
22. See J.M. Mann et al., Data Watch, "A Profile of Uncompensated Care 1985-1995," Health Affairs, 16, no. 4 (1997): at 227.
23. See id. (citing the findings of an analysis of uncompensated care by Prospective Payment Assessment Commission (ProPAC). See Prospective Payment Assessment Commission, Medicare and the American Health Care System: Report to the Congress (Washington, D.C.: ProPAC, June 1996)).
24. See id. (citing the findings of an analysis of uncompensated care by Prospective Payment Assessment Commission (ProPAC). See Prospective Payment Assessment Commission, Medicare and the American Health Care System: Report to the Congress (Washington, D.C.: ProPAC, June 1996)).
25. See S. Lutz, Editorial, "Pessimistic Execs Should Take a Closer Look at the Numbers," Modern Healthcare, June 13, 1996, at 102.
26. See Potter and Longest, supra note 8, at 409.
27. See G.M. Gaul and N. Borowski, Free Ride: The Tax-Exempt Economy (Kansas City: Andrews and McNeel, 1993). In 1993, Gilbert Gaul and Neill Borowski wrote, "At the local level, the exclusion of billions of dollars worth of property from the tax rolls of cash-starved school districts and municipalities is increasing budget woes and straining social services." Id. at 3.
28. See G.M. Gaul and N. Borowski, Free Ride: The Tax- Exempt Economy (Kansas City: Andrews and McNeel, 1993). In 1993, Gilbert Gaul and Neill Borowski wrote, "At the local level, the exclusion of billions of dollars worth of property from the tax rolls of cash-starved school districts and municipalities is increasing budget woes and straining social services." Id. at 3.
29. See id. at 2-3.
30. See Hall and Colombo, supra note 1, at 312 n.9.
31. See D. Burda, "Hospital's Office Building Ignites Dispute," Modern Healthcare, Oct. 24, 1994, at 22.
32. See GAO Report to the Chairman, U.S. Senate Committee on Labor and Human Resources, Private Insurance: Continued Erosion of Health Coverage Linked to Cost Pressures (Washington, D.C.: U.S. Government Printing Office, GAO-HEHS-97-122, July 1997).
33. See K.E. Thorpe, "Incremental Strategies for Providing Health Insurance for the Uninsured: Projected Federal Costs and Number of Nearly Insured," JAMA, 278 (1997): at 333. Ken Thorpe states, "This persistent increase in the number of uninsured is projected to occur even with continued robust growth in employment and continued expansions of Medicaid to all children younger than 19 years living in poverty by 2002." Id. at 333. Recent Massachusetts statistics bear this out. Although tens of thousands of jobs were created in 1996, the number of Massachusetts residents without health insurance reached a ten- year high. According to U.S. Census data, one of eight people, or 766,000, in the state are uninsured. See "More in State Lack Health Insurance," Boston Globe, Sept. 30, 1997, at A1.
34. See K.E. Thorpe, "Incremental Strategies for Providing Health Insurance for the Uninsured: Projected Federal Costs and Number of Nearly Insured," JAMA, 278 (1997): at 333. Ken Thorpe states, "This persistent increase in the number of uninsured is projected to occur even with continued robust growth in employment and continued expansions of Medicaid to all children younger than 19 years living in poverty by 2002." Id. at 333. Recent Massachusetts statistics bear this out. Although tens of thousands of jobs were created in 1996, the number of Massachusetts residents without health insurance reached a ten-year high. According to U.S. Census data, one of eight people, or 766,000, in the state are uninsured. See "More in State Lack Health Insurance," Boston Globe, Sept. 30, 1997, at A1.
35. See K.E. Thorpe, "Incremental Strategies for Providing Health Insurance for the Uninsured: Projected Federal Costs and Number of Nearly Insured," JAMA, 278 (1997): at 333. Ken Thorpe states, "This persistent increase in the number of uninsured is projected to occur even with continued robust growth in employment and continued expansions of Medicaid to all children younger than 19 years living in poverty by 2002." Id. at 333. Recent Massachusetts statistics bear this out. Although tens of thousands of jobs were created in 1996, the number of Massachusetts residents without health insurance reached a ten- year high. According to U.S. Census data, one of eight people, or 766,000, in the state are uninsured. See "More in State Lack Health Insurance," Boston Globe, Sept. 30, 1997, at A1.
36. See Thorpe, id. at 333.
37. See J. Needleman et al., Data Watch, "Hospital Conversion Trends," Health Affair, 16, no. 2 (1997): at 187-95.
38. See id. at 189.
39. See Hospital Charity Care and Tax Exempt Status, Restoring the Commitment and Fairness, Hearings Before the House of Representatives Select Comm. on Aging, 101st Cong. 84-86, 88-90 (1990) (statement of Mary O. Boyle, Commissioner, Cuyahoga County, Ohio, representing the National Association of Counties).
40. See id.
41. See K. Barnett, Community Benefit Law and California Hospitals: Opportunities and Challenges of SB 697 (Berkeley: Western Consortium for Public Health, 1995): at 16.
42. For example, consumer research performed by the American Hospital Association in 1997 revealed a public backlash against hospitals due to the perception that the health care industry is more concerned about making money than caring for patients. See C. Snow, "A Loss of Confidence: AHA Report: Public Believes Hospitals' Priorities Have Changed," Modern Healthcare, Jan. 13, 1997, at 3. Similarly, the National Coalition on Health Care released a poll showing that 75 percent of those surveyed believed "hospitals have cut corners to save money." See C. Snow, "Profits, PSOS, and Perceptions: PSOS Seen as Cure for Image Woes," Modern Healthcare, Feb. 3, 1997, at 2.
43. For example, consumer research performed by the American Hospital Association in 1997 revealed a public backlash against hospitals due to the perception that the health care industry is more concerned about making money than caring for patients. See C. Snow, "A Loss of Confidence: AHA Report: Public Believes Hospitals' Priorities Have Changed," Modern Healthcare, Jan. 13, 1997, at 3. Similarly, the National Coalition on Health Care released a poll showing that 75 percent of those surveyed believed "hospitals have cut corners to save money." See C. Snow, "Profits, PSOS, and Perceptions: PSOS Seen as Cure for Image Woes," Modern Healthcare, Feb. 3, 1997, at 2.
44. See Potter and Longest, supra note 8, at 394. Put into perspective, the early hospital generally operated in a deficit, thereby producing an insignificant loss of tax revenue. Today, the amount of tax revenue loss might have increased quite substantially, raising questions for taxpayers and governments alike as to the equity of the current situation. See J.B. Simpson and S.D. Strum, "How Good a Samaritan? Federal Income Tax Exemption for Charitable Hospitals Reconsidered," University of Puget Sound Law Review, 14 (1991): at 656.
45. See Potter and Longest, supra note 8, at 394. Put into perspective, the early hospital generally operated in a deficit, thereby producing an insignificant loss of tax revenue. Today, the amount of tax revenue loss might have increased quite substantially, raising questions for taxpayers and governments alike as to the equity of the current situation. See J.B. Simpson and S.D. Strum, "How Good a Samaritan? Federal Income Tax Exemption for Charitable Hospitals Reconsidered," University of Puget Sound Law Review, 14 (1991): at 656.
46. A nonprofit entity must meet both organizational and operational tests to satisfy the exclusivity requirement of section 501 (c)(3). The organizational test requires the charter to be limited to one or more exempt purposes and not to empower the organization to engage, other than as an insubstantial part of its activities, in activities not in furtherance of an exempt purpose, and requires the assets to be dedicated to exempt purposes. See Treas. Reg. § 1.501(c)(3)-1(b) (as amended in 1990). The operational test requires that the organization primarily engage in activities directed toward accomplishment of its exempt purpose. If more than an insubstantial part of its activities is not in furtherance of its exempt purpose or if the net earnings of the organization inure to private individuals, the organization will fail the operational test. See Treas. Reg. § 1.501(c)(3)-1(c)(1) (as amended in 1990).
47. Rev. Rul. 56-185, 1956 C.B. 202.
48. See Bloche, supra note 11, at 307; and D.M. Fox and D.C. Schaffer, "Tax Administration as Health Policy: Hospitals, the Internal Revenue Service, and the Courts," Journal of Health Politics, Policy and Law, 16 (1991): at 262.
49. See Bloche, supra note 11, at 307; and D.M. Fox and D.C. Schaffer, "Tax Administration as Health Policy: Hospitals, the Internal Revenue Service, and the Courts," Journal of Health Politics, Policy and Law, 16 (1991): at 262.
50. See Rev. Rul. 69-545, 1969-2 C.B. 117.
51. The necessity of enacting the Emergency Medical Treatment and Active Labor Act, 42 U.S.C. § 1395dd (1998), in 1985 attests to the low level of Internal Revenue Service (IRS) enforcement of this requirement.
52. See Rev. Rul. 88-157, 1983-2 C.B. 94.
53. Eastern Kentucky Welfare Rights Organization v. Simon, 506 F.2d 1278, 1288-90 (D.C. Cir. 1974), vacated on other grounds, Simon v. Kentucky Welfare Rights Organization, 426 U.S. 26 (1976).
54. See id.
55. Interestingly, in support of its conclusion that the need for nonprofit hospitals to provide free care is decreasing, the court noted that "increasingly counties and other political subdivisions are providing nonemergency hospitalization and medical care for those unable to pay." Id. at 1288.
56. Hall and Colombo, supra note 1, at 323. Although this represents the federal approach, a number of state courts also adopt the "charity is what charity does" rationale. See, for example, Medical Center Hospital v. City of Burlington, 566 A.2d 1352, 1356 (Vt. 1989) (broadening the definition of charity to take into account the "immense sociological and economic changes that have taken place in the health care profession...."). Compare Intermountain, 709 P.2d 265 (noting that the very changes in health care delivery lead to disqualification of nonprofit hospitals as charities).
57. See H.R. 1374, 102d Cong. (1991).
58. See H.R. 790, 102d Cong. (1991) (originally introduced in 1990). For an in-depth discussion of the Brian Donnelly (D. Mass.) and Edward Roybal (D. Cal.) bills, see J.D. Colombo and M.A. Hall, "The Future of Tax-Exemption for Nonprofit Hospitals and Other Health Care Providers," Health Matrix, 2 (1992): 1-34.
59. See H.R. 3600, 103d Cong. § 7601(a) (1993). A similar provision, which also required nonprofit hospitals to provide outreach services to address community needs, was included in the reform bills proposed by George Mitchell (D. Me.) and Richard Gephardt (D. Mo.) in 1994. See S. 2357, 103d Cong. § 7301(a)(n)(1)(b) (1994); and H.R. 3600, 103d Cong. § 3685(b)(4) (1994).
60. See Internal Revenue Service, "Audit Guidelines for Hospitals," in Manual Transmittal 7(10) 60-38 for Exempt Organizations Examination Guidelines Handbook (Washington, D.C.: Bureau of National Affairs, Mar. 27, 1992).
61. See Gaul and Borowski, supra note 16, at 47.
62. See id. at 98-99.
63. See id.; and J. Greene, "Tax Exempts Feeling the Heat," Modern Healthcare, Nov. 20, 1995, at 47 (by 1995, forty audits had been completed).
64. See id.; and J. Greene, "Tax Exempts Feeling the Heat," Modern Healthcare, Nov. 20, 1995, at 47 (by 1995, forty audits had been completed).
65. Taxpayer Bill of Rights of 1996, Pub. L. No. 104-168, 110 Stat. 1452 (1996) (codified as amended in scattered sections of 26 U.S.C.).
66. See 26 U.S.C. § 4958 (1998).
67. See 26 U.S.C. § 6104 (1998).
68. See D. Burda, "New Tax Law Opens Books of Not-For-Profits," Modern Healthcare, Aug. 5, 1996, at 3.
69. See Rev. Rul. 97-21, 1997-18 I.R.B. 8. See also L.J. Gold, "IRS Issues Final Revenue Ruling on Medical Staff Recruiting Incentives," 6 Health Law Reporter (BNA), at 623 (Apr. 24, 1997) (citing text of Revenue Ruling 97-21, at 650).
70. See D. Burda, "IRS Finally Issues Loose Rules on Doc Recruitment," Modern Healthcare, Apr. 28, 1997, at 2-3, 16.
71. E. Weissenstein, "For-Profit, Not-For-Profits in the Same Boat: Face Peril of Health Reform," Modern Healthcare, Apr. 21, 1997, at 38-40.
72. See E. Weissenstein, "Not-For-Profits Victory: Plan to Raise For-Profits Medicare Payments Nixed," Modern Healthcare, June 23, 1997, at 8.
73. Weissenstein, supra note 53.
74. See id.
75. See id.
76. Id.
77. See Hall and Colombo, supra note 1, at 324. Compare Simpson and Strum, supra note 29, at 647-49 (concluding that, for majority of state courts that have addressed the issue, charity care is an important, if not determinative, factor in entitlement to tax exemption).
78. See Hall and Colombo, supra note 1, at 324. Compare Simpson and Strum, supra note 29, at 647-49 (concluding that, for majority of state courts that have addressed the issue, charity care is an important, if not determinative, factor in entitlement to tax exemption).
79. An example of an area where federal and state/local interests diverge is hospital payrolls. As the various federal reimbursement programs work to trim hospital budgets, the number of employees needed decreases. Conversely, on a community level, hospitals are valued as a source of employment (even though local/state governments share a desire to cut costs). Hospitals that report community benefits often include wages paid as a community benefit. A 1996 California initiative, Proposition 216, called for a tax on nonprofit hospitals that reduced their workforce. The initiative did not pass. See "Election Preview '96: State Ballots Include Healthcare Issues," Modern Healthcare, Oct. 28, 1996, at 32; and "Outliers," Modern Healthcare, Nov. 11, 1996, at 100.
80. An example of an area where federal and state/local interests diverge is hospital payrolls. As the various federal reimbursement programs work to trim hospital budgets, the number of employees needed decreases. Conversely, on a community level, hospitals are valued as a source of employment (even though local/state governments share a desire to cut costs). Hospitals that report community benefits often include wages paid as a community benefit. A 1996 California initiative, Proposition 216, called for a tax on nonprofit hospitals that reduced their workforce. The initiative did not pass. See "Election Preview '96: State Ballots Include Healthcare Issues," Modern Healthcare, Oct. 28, 1996, at 32; and "Outliers," Modern Healthcare, Nov. 11, 1996, at 100.
81. Falcone and Warren, supra note 1, at 738-39.
82. See Hall and Colombo, supra note 1, at 310-11. Mark Hall and John Colombo also note that, until relatively recently, the academic field of nonprofit enterprise has been neglected as a separate topic of serious inquiry.
83. See id. (citing Comment, "Judicial Restoration of the General Property Tax Base," Yale Law Journal, 44 (1935): at 1087); and see Falcone and Warren, supra note 1, at 738-39.
84. See id. (citing Comment, "Judicial Restoration of the General Property Tax Base," Yale Law Journal, 44 (1935): at 1087); and see Falcone and Warren, supra note 1, at 738-39.
85. See Hall and Colombo, supra note 1, at 311 (citing H. Hansmann, "The Two Independent Sectors," Presented at the Independent Sector Spring Research Forum (May 17, 1988) (unpublished), at 5 (multiple citations omitted) (on file with Washington Law Review)). For an example of a circular definition, see Mass. Ann. Laws ch. 15, § 5 (Law Co-op. 1998) (exempting from taxation property of a "charitable organization," defined as "a literary, benevolent, charitable or scientific institution ... incorporated in the commonwealth" (emphasis added)).
86. See Hall and Colombo, supra note 1, at 311 (citing H. Hansmann, "The Two Independent Sectors," Presented at the Independent Sector Spring Research Forum (May 17, 1988) (unpublished), at 5 (multiple citations omitted) (on file with Washington Law Review)). For an example of a circular definition, see Mass. Ann. Laws ch. 15, § 5 (Law Co-op. 1998) (exempting from taxation property of a "charitable organization," defined as "a literary, benevolent, charitable or scientific institution ... incorporated in the commonwealth" (emphasis added)).
87. Scores of Pennsylvania hospitals, for example, have made such payments. See discussion infra note 82 and accompanying text.
88. Notable endeavors in this area include the Catholic Health Association Social Accountability Program, the Voluntary Hospitals of America Voluntary Standards Program, and the Hospital Community Benefits Standard Program (HCBSP). HCBSP was a demonstration project sponsored by the Kaiser Family Foundation and coordinated by the Wagner Graduate School of Public Service at New York University. For a description of each program, see Barnett, supra note 27, at 14-22. In a related matter, the American Association of Certified Public Accountants issued updated health care audit guidelines in 1990. These guidelines revise how hospitals report revenues and expenses, and are the first to be issued since the changes wrought by Medicare prospective payments and the rise in tax-exemption challenges of nonprofits. See K. Pallarito, "Hospitals Must Get Specific on Bad Debt, Charity Care," Modern Healthcare, Feb. 10, 1992, at 70-71; and K. Pallarito, "New Auditing Rules to Better Document Charity-Care Costs," Modern Healthcare, May 28, 1990, at 43. Among other things, hospitals must now segregate bad debt from charity care on their financial statements. Bad debt is now reported as an expense. Charity care, considered services provided without expectation of payment, is reported as a footnote on the financial statement. See Pallarito (1992), id. These auditing guidelines fit within the movement toward heightened scrutiny now afforded nonprofit hospital behavior.
89. Notable endeavors in this area include the Catholic Health Association Social Accountability Program, the Voluntary Hospitals of America Voluntary Standards Program, and the Hospital Community Benefits Standard Program (HCBSP). HCBSP was a demonstration project sponsored by the Kaiser Family Foundation and coordinated by the Wagner Graduate School of Public Service at New York University. For a description of each program, see Barnett, supra note 27, at 14-22. In a related matter, the American Association of Certified Public Accountants issued updated health care audit guidelines in 1990. These guidelines revise how hospitals report revenues and expenses, and are the first to be issued since the changes wrought by Medicare prospective payments and the rise in tax- exemption challenges of nonprofits. See K. Pallarito, "Hospitals Must Get Specific on Bad Debt, Charity Care," Modern Healthcare, Feb. 10, 1992, at 70-71; and K. Pallarito, "New Auditing Rules to Better Document Charity-Care Costs," Modern Healthcare, May 28, 1990, at 43. Among other things, hospitals must now segregate bad debt from charity care on their financial statements. Bad debt is now reported as an expense. Charity care, considered services provided without expectation of payment, is reported as a footnote on the financial statement. See Pallarito (1992), id. These auditing guidelines fit within the movement toward heightened scrutiny now afforded nonprofit hospital behavior.
90. Notable endeavors in this area include the Catholic Health Association Social Accountability Program, the Voluntary Hospitals of America Voluntary Standards Program, and the Hospital Community Benefits Standard Program (HCBSP). HCBSP was a demonstration project sponsored by the Kaiser Family Foundation and coordinated by the Wagner Graduate School of Public Service at New York University. For a description of each program, see Barnett, supra note 27, at 14-22. In a related matter, the American Association of Certified Public Accountants issued updated health care audit guidelines in 1990. These guidelines revise how hospitals report revenues and expenses, and are the first to be issued since the changes wrought by Medicare prospective payments and the rise in tax- exemption challenges of nonprofits. See K. Pallarito, "Hospitals Must Get Specific on Bad Debt, Charity Care," Modern Healthcare, Feb. 10, 1992, at 70-71; and K. Pallarito, "New Auditing Rules to Better Document Charity-Care Costs," Modern Healthcare, May 28, 1990, at 43. Among other things, hospitals must now segregate bad debt from charity care on their financial statements. Bad debt is now reported as an expense. Charity care, considered services provided without expectation of payment, is reported as a footnote on the financial statement. See Pallarito (1992), id. These auditing guidelines fit within the movement toward heightened scrutiny now afforded nonprofit hospital behavior.
91. Notable endeavors in this area include the Catholic Health Association Social Accountability Program, the Voluntary Hospitals of America Voluntary Standards Program, and the Hospital Community Benefits Standard Program (HCBSP). HCBSP was a demonstration project sponsored by the Kaiser Family Foundation and coordinated by the Wagner Graduate School of Public Service at New York University. For a description of each program, see Barnett, supra note 27, at 14-22. In a related matter, the American Association of Certified Public Accountants issued updated health care audit guidelines in 1990. These guidelines revise how hospitals report revenues and expenses, and are the first to be issued since the changes wrought by Medicare prospective payments and the rise in tax- exemption challenges of nonprofits. See K. Pallarito, "Hospitals Must Get Specific on Bad Debt, Charity Care," Modern Healthcare, Feb. 10, 1992, at 70-71; and K. Pallarito, "New Auditing Rules to Better Document Charity-Care Costs," Modern Healthcare, May 28, 1990, at 43. Among other things, hospitals must now segregate bad debt from charity care on their financial statements. Bad debt is now reported as an expense. Charity care, considered services provided without expectation of payment, is reported as a footnote on the financial statement. See Pallarito (1992), id. These auditing guidelines fit within the movement toward heightened scrutiny now afforded nonprofit hospital behavior.
92. Medical Center Hospital, 566 A.2d 1352.
93. Id. at 1356.
94. Although these activities were found to be directly and reasonably connected to the hospital's operation, in another Vermont case, a nursing home, although closely affiliated with a hospital, was held to be subject to taxation. The court found the relationship between the hospital and nursing home "cooperative" rather than "integral." Central Vermont Hospital, Inc. v. Town of Berlin, 672 A.2d 474 (Vt. 1995).
95. Intermountain, 709 P.2d at 272.
96. See id. at 269-70.
97. Id. at 274.
98. Although the Vermont Tax Commission has authority to develop such standards, each county is responsible for awarding or denying tax exemption to hospitals within its jurisdiction. See Barnett, supra note 27, at 27.
99. See Memorandum from K.L. Hendrickson, Deputy County Attorney, Salt Lake County Attorney's Office, Health Care Industry Property Tax Exemption, at 10 (undated) (on file with authors).
100. 709 P.2d at 269 (emphasis added).
101. See Barnett, supra note 27, at 27.
102. See Memorandum from Hendrickson, supra note 74, at 8.
103. H.B. 55, Pa. 181st Gen. Assembly (1997).
104. The Pennsylvania Constitution authorizes the legislature to exempt an "institution of purely public charity" from taxation. Pa. Const, art. VIII, § 2(a)(v). The General County Assessment Law exempts from "all county, city, ... and school tax ... hospitals ... founded, endowed, and maintained by public or private charity." 72 Pa. Stat. Ann. § 5020-204(a)(3) (West 1997).
105. Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985).
106. See G.L. Forde Jr. and C.E. Cummings, "Payments in Lieu of Taxes: The Philadelphia Experience," Catholic Lawyer, 37 (Spring 1997): at 139.
107. See "Pa. Hospital Tax-Exemption Lost over Doctor Practices," Modern Healthcare, Nov. 11, 1996, at 42.
108. See H.B. 55, Pa. 181st Gen. Assembly, at § 2(B) (1997).
109. Id. § 5(B)(4).
110. See id. § 5(C).
111. Id. § 5(C)(3).
112. See id. § 5(C)(4).
113. See id. § 5(D).
114. Id. § 5(D)(1).
115. See infra notes 111, 163-73 and accompanying text.
116. See H.B. 55, at § 5(D).
117. Id. § 5(D)(I)(A)-(C).
118. See id. § 5(D)(II)-(V).
119. See id. § 7. Agreements entered into prior to or after the statute's passage are treated similarly.
120. See id. § 7(C)(1)-(3). The amount multiplied depends on the size of the payment relative to overall revenues.
121. See id. § 5(E).
122. See id. § 5(F).
123. According to a recent public opinion poll of 718 Pennsylvania residents, two-thirds believed that Pennsylvania hospitals were run as for-profit businesses. See D. Bellandi, "AHA 100th Anniversary: Good Samaritan Business," Modern Healthcare, Jan. 26, 1998, at 44.
124. See Mingledorff v. Vaughan Regional Medical Center, 682 So. 2d 415 (Ala. 1996); Medical Center Hospital, 566 A.2d 1352; Callaway Community Hospital Association v. Craighead, 759 S.W.2d 253 (Mo. Ct. App. 1988); Downtown Hospital Association v. Tennessee State Board of Equalization, 760 S.W.2d 954 (Tenn. Ct. App. 1988) (specifically rejecting the Intermountain holding); Sebastian County Equity Board v. West Arkansas Counseling and Guidance Center, Inc., 752 S.W.2d 755 (Ark. 1988); Douglas County v. Anneewakee, Inc., 346 S.E.2d 368, 372 (Ga. Ct. App. 1986); Weslin Properties, Inc. v. Illinois Dep't of Revenue, 510 N.E.2d 564 (Ill. App. Ct. 1987) ("urgent care center" owned by exempt hospital where admission and collection policies make clear that free or reduced care cost is available to those patients who are financially unable to pay); compare Highland Park Hospital v. Dep't of Revenue, 507 N.E.2d 1331 (Ill. App. Ct. 1987) ("immediate care" center owned by nonexempt hospital where all patients are billed; no notice of the availability of free care is given in advertisement; and no evidence that general public knew of the availability of free care.)
125. Rideout Hospital Foundation v. Los Angeles County, 10 Cal. Rptr. 2d 141, 8 Cal. App. 4th 214 (1992).
126. Cal. Rev. & Tax. Code, § 214(a)(1) (Deering 1997).
127. St. Elizabeth Hospital v. City of Appleton, 416 N.W.2d 620 (Wis. Ct. App. 1987).
128. Id. at 622. See also Weslin, 510 N.E.2d 564. In Weslin, the court considered the availability of tax exemption during construction of an urgent care facility. The facility was built as part of a hospital expansion and was not located near the hospital. On appeal, no challenge was made to the urgent care center's being "reasonably necessary" to the fulfillment of the exempt purpose.
129. St. Clare Hospital of Monroe v. City of Monroe, 563 N.W.2d 170 (Wis. Ct. App. 1997).
130. Wisconsin specifically disallows tax exemption for doctors offices. See Wis. Stat. § 70.11(4m)(a) (1995-1996).
131. 563 N.W.2d at 174-75.
132. Chisago Health Services v. Commissioner of Revenue, 462 N.W.2d 386, 391 (Minn. 1990).
133. See also St. Mary's Medical Center of Evansville, Inc. v. State Board of Tax Commissioners, 571 N.E.2d 1247 (Ind. 1991) (medical office building owned by nearby nonprofit hospital and occupied and used by staff doctors and dentists for their private practices in order to "cluster" and concentrate these providers who admit their patients into their hospital not "reasonably necessary."). As of 1995, Indiana statutory law requires that nonprofit health facilities owned by nonprofit hospitals must meet one part of a two-part test to qualify for a tax exemption. The acquisition must either support the provision of charity care or support the provision of community benefits. See Ind. Code § 6-1.1-10-18.5 (Michie 1998). Also, in North Shore Medical Center v. Bystrom, 461 So. 2d 167 (Fl. Dist. Ct. App. 1984), the court held that a medical arts building built by an adjacent hospital was not tax exempt because less than 50 percent of it was used for an exempt purpose. The court emphasized that it is the actual use of the medical arts building seeking an exemption, not that of the adjacent hospital, that determines its exempt status. Id. at 168. See also Highland Park, 507 N.E.2d 1331; In Re Tax Appeal of the Queen's Medical Center, 715 P.2d 349 (Haw. Ct. App. 1985) (even if physician offices and parking lot were reasonably necessary for the hospital's exempt purpose, they were not eligible for exemption because they were not used exclusively for exempt purposes).
134. See "Texas to Appeal Dismissal of Methodist Suit," Modern Healthcare, Mar. 1, 1993, at 2.
135. The attorney general initially appealed the dismissal. The lawsuit was settled as moot with the passage of the subsequent legislation.
136. See Tex. Health & Safety Code Ann. § 311.031 et seq. (West 1997).
137. See D. Burda, "Are Hospitals Giving Their Fair Share?," Modern Healthcare, June 15, 1992, at 28.
138. See J. Morrissey, "A Nudge, Not (Yet) an Order in Mass.," Modern Healthcare, Mar. 28, 1997, at 22.
139. See Cal. Health & Safety Code §§ 127340-127365 (Deering 1997).
140. See Ind. Code Ann. § 16-21-6-6 et seq. (Michie 1997).
141. See N.Y. Public Health Law § 2803-1 (Consol. 1998).
142. See Tex. Health & Safety Code Ann. § 311.031 et seq. (West 1997).
143. See "Benefits with Tax Exemptions," Modern Healthcare, Nov. 20, 1995, at 22 (noting reporting law proposals in Florida, Nebraska, and Pennsylvania). See supra notes 78-97 and accompanying text for discussion of recent developments in Pennsylvania.
144. See Mont. Code Ann. § 50-4-601 et seq. (1997).
145. See Physician Cooperation Act of 1995, N.C. Gen. Stat. §§ 900-21.24 to -21.36 (1997).
146. See Health Care Cooperation Act, S.C. Code Ann. §§ 44-7-500 to -7-590 (Law Co-op. 1997).
147. See C. Snow, "S.C. Hospitals Latest to Win State Anti-trust OK," Modern Healthcare, May 12, 1997, at 4.
148. See J. Greene, "Miss. Links CON, Community Benefit," Modern Healthcare, Mar. 28, 1994, at 22.
149. See id.
150. See D. Burda, "Charity Care: Are Hospitals Giving their Fair Share?," Modern Healthcare, June 6, 1992, at 25 (noting District of Columbia regulation adopted as a means of requiring charity care as Hill-Burton commitments expire).
151. See Ind. Code § 6-1.1-10-18.5 (1997).
152. See "Florida Bill Sets Charity Care Minimum," Modern Healthcare, Feb. 28, 1994, at 18.
153. See "Benefits with Tax Exemptions," supra note 118.
154. See Regional News, "This Week in Healthcare," Modern Healthcare, Jan. 3, 1994, at 22-23.
155. See "Kansas, Colorado Scale Back Efforts," Modern Healthcare, Jan. 31, 1994, at 16. Interestingly, a voter referendum in Colorado in November, 1996 calling for the end of tax exemption for all nonprofits, was voted down by a large margin. See "Voters Overwhelmingly Defeat Measure to End Non- Profit Property Tax," 6 Health Law Reporter (BNA), at D36 (Nov. 14, 1996).
156. See "Kansas, Colorado Scale Back Efforts," Modern Healthcare, Jan. 31, 1994, at 16. Interestingly, a voter referendum in Colorado in November, 1996 calling for the end of tax exemption for all nonprofits, was voted down by a large margin. See "Voters Overwhelmingly Defeat Measure to End Non-Profit Property Tax," 6 Health Law Reporter (BNA), at D36 (Nov. 14, 1996).
157. See House Enrolled Act 1023, Ind. Code § 16-18-2-342.4 (1994).
158. See id. § 16-21-9.
159. See B. Japsen, "Ind. to Solicit Charity-Care Reports," Modern Healthcare, Mar. 21, 1994, at 28. Prior to passage, the legislature had debated tougher measures, such as mandating levels of charity care or even revoking hospitals' tax-exempt status. Hospitals must report: 1. A statement including (A) Medicare gross revenue; (B) Medicaid gross revenue; (C) other revenue from state programs; (D) revenue from local government programs; (E) local tax support; (F) charitable contributions; (G) other third party payments; (H) gross inpatient revenue; (I) gross outpatient revenue; (J) contractual allowances; (K) any other deductions from revenue; (L) charity care provided; (M) itemization of bad debt expense; and (N) an estimation of the unreimbursed cost of subsidized health services. 2. A statement itemizing donations. 3. A statement describing the total cost of reimbursed and unreimbursed research. 4. A statement describing the total cost of reimbursed and unreimbursed education separated into the following categories: (A) Education of physicians, nurses, technicians, and other medical professionals and health care providers. (B) Scholarships and funding to medical schools, colleges, and universities for health professions education. (C) Education of patients concerning diseases and home care in response to community needs. (D) Community health education through informational programs, publications, and outreach activities in response to community needs. (E) Other educational services resulting in education and related costs. 5. The number of inpatient and outpatient admissions categorized by: (A) Medicare admissions; (B) Medicaid admissions; (C) Admissions under a local government program; (D) Charity care admissions; and (E) Any other type of admission. Ind. Code §§ 16-21-6-3, -6 (1998).
160. Ind. Code § 16-21-9.
161. Telephone conversation with Molly Flooder, Vice President, Ball Memorial Hospital, Muncie, Indiana (Feb. 14, 1997).
162. Id.
163. See N.Y. Public Health Law § 2803-1 (Consol. 1998).
164. Id.
165. To protect this official, we withhold his/her identity.
166. See Memorandum from New York Department of Health 93-2, at 3 (Jan. 20, 1993) (on file with authors).
167. See Community Benefits Guidelines for Nonprofit Acute Care Hospitals
168. See id. at 18.
169. Id. at 18-19.
170. See Mass. Gen. Laws ch. 66, § 10 (1998); and Mass. Gen. Laws ch. 4 § 7(26) (1998).
171. Interviews with Staff Personnel of the Massachusetts Division of Health Care Financing and Policy, in Boston, Mass. (Feb. 28, 1997).
172. The Attorney General's 1997 Report on Hospital Community Benefits (Boston: Office of the Attorney General of Massachusetts, Sept. 1997): at 7-8 (citing reports for fiscal year 1996).
173. Id.
174. Id. at 10.
175. Id.
176. See D. Burda, "Calif. Gets Tough on Charity Care," Modern Healthcare, Oct. 10, 1994, at 22.
177. See Cal. Health & Safety Code §§ 127340-127365 (Deering 1997).
178. Id. § 127355.
179. See id. § 127345. This section also defines "community" as "the service areas or patient populations for which the hospital provides health care services."
180. Those examples are community-oriented wellness and health promotion; prevention services; adult day care; child care; medical research; medical education; nursing and other professional training; meals to the housebound; food, clothing, and shelter for the homeless; and clinics in socioeconomically depressed areas.
181. See California Office of Statewide Health Planning and Development, Report to the Legislature, Not-for-Profit Hospital Community Benefit Legislation (Senate Bill 697) (Jan. 1998).
182. See id.
183. See id.
184. ACCESS is an acronym that stands for the various categories for reporting community benefits: Access to financial assistance Community health status assessment Community health status improvement Educational support and quality improvement State and local economic benefits Social accountability and uncompensated care
185. See Burda, supra note 150.
186. Memorandum from Missouri Hospital Association to Members, The ACCESS Community Benefits Recognition Program: Background Information (undated) (on file with authors) (program description sent to Missouri Hospital Association members with ACCESS survey form).
187. Id.
188. See supra notes 109-11 and accompanying text.
189. Tex. Health & Safety Code Ann. § 311.403(b) (West 1997).
190. Ses id. § 311.044(a), (b).
191. Id. § 310.044(c).
192. See id. § 311.046, as amended by Tex. S. 788, 75th Leg. (1997).
193. Id. § 311.045(b)(1), as amended by Tex. S. 788. This amendment subsumes a former standard, requiring that 4 percent of net patient revenues be spent on charity care and government-sponsored indigent health care, into the 5 percent requirement, permitting 1 percent to be expended on other community benefits.
194. Id. § 311.042(9)(B)(12)(B).
195. See id. § 311.045(b)(1), as amended by Tex. S. 788.
196. See id. § 311.031(16).
197. Id. § 311.031(14) (unamended 1994).
198. A comparison may be difficult because the Medicare Cost Report worksheet has a separate due date from the April 30 filing date for community benefit reports.
199. See Tex. Health & Safety Code Ann. § 311.0455(D), as amended by Tex. S. 788.
200. Note that the income standards for eligibility for charity care vary from hospital to hospital and state to state. A nationally recommended standard would be helpful here.
201. In Community Benefit Inventory for Social Accountability, the Catholic Healthcare Association makes a distinction between what is expected of all health care organizations, regardless of ownership, and what is expected of voluntary, nonprofit health care organizations: "Voluntary, not-for-profit, tax-exempt health care organizations are held to a higher standard of community accountability." Catholic Healthcare Association, "What Counts: Identifying True Community Benefits," in Community Benefit Inventory for Social Accountability: A Comprehensive Guide to Reporting Community (Washington, D.C.: Catholic Healthcare Association, rev. 1985): at 3. The document goes on to define a "true" community benefit as one that meets at least one of the following: • financed through philanthropic contributions, volunteer efforts, or endowment • respond[s] to a unique or particular health problem in the community • generate[s] low or negative margin • respond[s] to needs of special populations, such a minorities, frail elderly, poor persons with disabilities, the chronically mentally ill and persons with AIDS • the service or program would likely be discontinued if the decision were made on a purely financial basis. Id. at 4. It further modifies what services should be quantified as those that "result in a financial loss to the organization, requiring subsidization of some sort"; are "best quantified in terms of dollars spent rather than hours spent or numbers of participants"; and "are not of a questionable nature that jeopardizes the credibility of the (benefit) inventory, [and] survives the laugh test." Id. at 4. Another distinction they encourage is between services to the poor and services to the broader community, and it offers useful suggestions on how to determine which services are delivered to poor populations.
202. In Community Benefit Inventory for Social Accountability, the Catholic Healthcare Association makes a distinction between what is expected of all health care organizations, regardless of ownership, and what is expected of voluntary, nonprofit health care organizations: "Voluntary, not-for-profit, tax-exempt health care organizations are held to a higher standard of community accountability." Catholic Healthcare Association, "What Counts: Identifying True Community Benefits," in Community Benefit Inventory for Social Accountability: A Comprehensive Guide to Reporting Community (Washington, D.C.: Catholic Healthcare Association, rev. 1985): at 3. The document goes on to define a "true" community benefit as one that meets at least one of the following: • financed through philanthropic contributions, volunteer efforts, or endowment • respond[s] to a unique or particular health problem in the community • generate[s] low or negative margin • respond[s] to needs of special populations, such a minorities, frail elderly, poor persons with disabilities, the chronically mentally ill and persons with AIDS • the service or program would likely be discontinued if the decision were made on a purely financial basis. Id. at 4. It further modifies what services should be quantified as those that "result in a financial loss to the organization, requiring subsidization of some sort"; are "best quantified in terms of dollars spent rather than hours spent or numbers of participants"; and "are not of a questionable nature that jeopardizes the credibility of the (benefit) inventory, [and] survives the laugh test." Id. at 4. Another distinction they encourage is between services to the poor and services to the broader community, and it offers useful suggestions on how to determine which services are delivered to poor populations.
203. For instance, if the hospital subsidizes a rural physician's primary care practice, the "loss" should be offset by any gains the hospital realizes from patients referred by the practice to the hospital.
204. See Kane and Wubbenhorst, supra note 2.
205. Individual states would have to decide whether to assign the unreimbursed cost of teaching and/or research under a priority status as a community benefit, based on health care manpower needs deemed important to the state, juxtaposed against the competitive value of being a teaching and referral hospital. It may also be worthwhile to examine the unreimbursed costs of research and to exclude, for instance, the unreimbursed costs associated with commercial efforts such a clinical trials of drugs.
206. Deposition of Larry Mathis, Chief Executive Officer of Methodist Hospital, Houston, Tex. (Nov. 23, 1992) (on file with authors). This hospital's admission policy denied services to uninsured Houstonians who could not afford to make large cash deposits to the hospital prior to receiving their care.