A review of state legislation and a state legislator survey related to not-for-profit hospital tax exemption and health care for the indigent

Journal of Health Care Finance

Volumn 32, Issue 2, 2005, Pages 36-71

  Jervis, Kathryn J ^a,b  

^a Economics and Politics   (United States)

^b WASHINGTON AND LEE UNIVERSITY   (United States)

Author keywords

Charitable care; Community benefits standard; Not for profit hospital; State legislation; Tax exemption

Indexed keywords

ARTICLE; ECONOMICS; EPIDEMIOLOGY; FACTORIAL ANALYSIS; FEMALE; GOVERNMENT; GOVERNMENT REGULATION; HUMAN; LEGAL ASPECT; MALE; NON PROFIT HOSPITAL; PUBLIC RELATIONS; SOCIAL WELFARE; TAX; UNITED STATES;

CHARITIES; COMMUNITY-INSTITUTIONAL RELATIONS; FACTOR ANALYSIS, STATISTICAL; FEMALE; GOVERNMENT REGULATION; HEALTH CARE SURVEYS; HOSPITALS, VOLUNTARY; HUMANS; MALE; STATE GOVERNMENT; TAX EXEMPTION; UNITED STATES;

EID: 33750475538     PISSN: 10786767     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (106)

1. M. Bookman, Protecting your Organization's Tax-Exempt Status, San Francisco, CA: Jossey-Bass Inc., Publishers, 1992; J.D. Seay, U.S. Congress, House, Hearings before the Committee on Way and Means of the House of Representatives: 102d Congress, Tax-Exempt Status of Hospitals, and Establishment of Charity Care Standards, Comm. Pub. No. 102-73, Washington, DC: Government Printing Office (July 10, 1991).
2. Coalition for Nonprofit Health Care (CNHC), Redefining the Community Benefit Standard: State Law Approaches to Ensuring the Social Accountability of Nonprofit Health Care Organizations, Washington, DC: Coalition for Nonprofit Health Care, 1999.
3. R.E. McDermott, G.C. Cornia, and E. Beck, "Property Tax Exemption for Nonprofit Hospitals," Hospitals and Health Services Administration, 34(4) (Winter 1989): 493-506.
4. S.M. Sanders, "The 'Common Sense' of the Nonprofit Hospital Tax Exemption: A Policy Analysis," Journal of Policy Analysis and Management 14(3) (1995): 446-466.
5. L.M. Salamon, "What Is the Nonprofit Sector and Why Do We Have It?" in America's Nonprofit Sector: A Primer, New York: Foundation Center (1992): 3-11.
6. Id.; B. Hopkins, The Law of Tax-Exempt Organizations, New York: Wiley & Sons, Inc., 1992; H.B. Hansmann, "The Role of Nonprofit Enterprise," in S. Rose-Ackerman (ed.), The Economics of Nonprofit Institutions: Studies in Structure & Policy, New York: Oxford University Press (1986): 57-84.
7. See Hopkins, supra n.6.
8. The meaning of "charitable" is its generally accepted legal sense: "In the general law of charity, the promotion of health is considered to be a charitable purpose" (Revenue Ruling 69-545, 1969-2 CB 117).
9. See Bookman, supra n.1.
10. Revenue Ruling 56-185, 1956-1 CB 202.
11. Revenue Ruling 69-545, 1969-2 CB 117.
12. See Bookman, supra n.1.
13. A. Mancuso, How to Form a Nonprofi t Corporation, Berkeley, CA: Nolo Press, 1996.
14. E.C. Lashbrooke, Tax Exempt Organizations, Westport, CT: Quorum Books, 1985.
15. See Bookman, supra n.1.
16. See supra n.5.
17. See supra n.5; Hansmann, supra n.6.
18. See Hopkins, supra n.6.
19. See supra n.4; Hansmann, supra n.6.
20. See supra n.4.
21. H.B. Hansmann, The Ownership of Enterprise, Cambridge, MA: The Belknap Press of Harvard University Press, 1996.
22. P.D. Hall, "Historical Perspectives on Non-profit Organizations," in The Jossey-Bass Handbook of Nonprofit Leadership and Management, San Francisco: Jossey-Bass, Publishers (1994): 3-32.
23. Id, at 28.
24. See supra n.21.
25. NFP hospitals charitable grants and contributions are less than one half of one percent of average hospital revenues (B.H. Gray, The Profit Motive and Patient Care, Cambridge, MA: Harvard University Press, 1991).
26. Thompson Powers LLC, "The Politics of Exemption: Tax Revenue vs. Community Benefit-Not-for-Profit Hospitals Under Pressure," Irving, TX: VHA Inc., 1999.
27. Id.; G. Gaul and N. Borowski, "Warehouses of Wealth: The Tax-Free Economy" (six-part series), The Philadelphia Inquirer (April 18-24,1993); B.H. Gray, "Why Nonprofits: Hospitals and the Future of American Health Care," Exempt Organization Tax Review, 6(3) (1991); J.J. McCormack, "Hospital Strategy and Public Policy: Seeking the 'Just Right' Balance," in J.D Seay and B.C. Vladeck (eds.), In Sickness and in Health, The Mission of Voluntary Health Care Institutions, New York: McGraw-Hill Book Company, 1988.
28. American Hospital Association, Office of Health Finance and Data Analysis and Office of Legal and Regulatory Affairs, Community Benefit and Tax-Exempt Status: A Self-Assessment Guide for Hospitals. Chicago, IL: American Hospital Association, 1988.
29. D. Bellandi, "Good Samaritan Business," Modern Healthcare (Jan. 26,1998): 44-46.
30. See Gray, supra n.27, at 17.
31. See Hansmann, supra n.6, at 367.
32. See Gray, supra n.25, at 5.
33. S.M. Sanders, "Measuring Charitable Contributions: Implications for the Nonprofit Hospitals," Hospital and Health Services Administration, 38(3) (Fall 1993): 401-418; B. Arrington and C.C. Haddock, "Who Really Profits from Not-for-Profits?" Health Services Research, 25(2) (June 1990): 291-304.
34. L.S. Maiuro, H. Schneider, and N. Bellows, "Endangered Species? Not-for-Profit Hospitals Face Tax-Exemption Challenge," Healthcare Financial Managemen, 58(9) (Sept. 2004): 74-84.
35. Hansmann (supra n.6) suggests some inadequacy to this argument because the physician acts as the agent for the patient. Thus, hospitals have remained mostly NFP, because of organizational inertia and because doctors can raise their own fees while using NFP hospitals as a place that provides basic patient services (food, board, nursing), while the doctor attends to the patient (Hansmann supra n.21). See Hansmann, supra n.6.
36. See Seay, supra n.1.
37. See Sanders, supra n.4.
38. The tax-exempt issue has arisen in the following states: Alabama,* Arizona,* California,* Colorado,* Florida,* Georgia,* Illinois,* Iowa, Kansas, Louisiana,* Maryland, Massachusetts,* Michigan,* Minnesota,* Mississippi,* Missouri,* Nebraska, New Jersey,* New Mexico," New York,* Ohio,* Oklahoma,* Oregon, Pennsylvania,* Rhode Island, South Dakota, Tennessee,* Texas,* Utah, Vermont, Virginia," Washington, West Virginia, Wyoming (Not-for-Profit Hospital Class Action Lawsuits 2004 [marked by *] (T. Hudson, "Not-for-profit Hospitals Fight Tax-Exempt Challenges," Hospitals (1990): 32-37.)
39. See supra n.2; Gray, supra n.27; Hudson, supra n.38; Not-for-Profit Hospital Class Action Litigation (Online), available at http://www.nfplitigation.com, 2004.
40. See supra n.2; Bookman, supra n.1; Gray, supra n.27; Seay, supra n.1.; T. Wang and J.R. Wambsganns, "Is Your Organization's Tax-Exempt Status at Risk?" Healthcare Financial Management (Resource Guide) (1997): 4-9; N. Kane, Minutes from presentation to the Financial Accounting Standards Board on Consolidation Issues for Not-for-Profit Hospitals, Norwalk, CT: FASB, July 1993.
41. See Wang and Wambsganns, supra n.40; E.T. Pound, G. Cohen, and P. Loeb, "Tax Exempt!" U.S. News & World Report, 119(13) (1995): 36.
42. See supra n.26; Bookman, supra n.1.
43. See supra n.2; Bellandi, supra n.29; Gray, supra n.27; Seay, supra n.1.; T. Wang and J.R. Wambsganns, supra n.40; Gaul and Borowski, supra n.27; 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(2) (Summer 1994): 393-419.
44. See Not-for-Profit Hospital Class Action Litigation, supra n.39; B. Austin, A. Burton, L. DeFrancesco, I. Friedenzohn, S. Patel, M. Patterson, and M. Trinity, "Lawsuits Challenge Non-Profit Hospitals on Provision of Charity Care: Are the Uninsured Being Charged More than Other Patients?" (Online) Sfafe of the States 2005, available at http://statecoverage.net/pdf/stateofstates2005.pdf(2005) 32-33; J.J. Unland, "Two Years Into the Storm Over Pricing To and Collecting From the Uninsured" (Online), available at http://healthbusinessandpolicy.com/ Exempt Hospitals.htm, 2005.
45. US Congress, House, General Accounting Office Report to the Chairman, Select Committee on Aging, "Nonprofit Hospitals: Better Standards Needed for Tax Exemption," in Hearing before the Select Committee on Aging of the House of Representatives: 101st Congress. Hospital Charity Care and Tax Exempt Status: Restoring the Commitment and Fairness, Comm. Pub. No. 101-780, Washington, DC: Government Printing Office, 1990; US Congress, House, Charity Care and Hospital Tax-Exempt Status Reform Act of 1991 [H.R. 790], 102d Congress, 1st session, Feb. 4, 1991; US Congress, House, Hospitals not Providing Certain Benefi ts and Services Not Exempt from Tax [H.R. 1374], 102d Congress, 1st session, March 12, 1991.
46. See Gaul and Borovvski, supra n.27.
47. See Not-for-Profit Hospital Class Action Litigation, supra n.39; Unland, supra n.44; J.J. Unland, "Scrutiny of Not-for-Profit Community Hospitals' Exempt Status Targets Their Pricing/Collection Practices, Charitable Purposes and Finances Resulting in Significant Local, State and National Events That Now Challenge Hospital Managements and Boards" (Online), available at http://healthbusinessandpolicy.com/Exempt Hospitals.htm, 2005; F. Fedor, "Cutting to the Heart of the Theory: The Latest on Charity Care Litigation," Healthcare Financial Management, 59(3) (March 2005): 40-43.
48. See Unland, supra n.44.
49. See supra n.2; Potter and Longest, supra n.43.
50. See Bookman, supra n.1; Seay, supra n.1.
51. See supra n.26.
52. id., at 14.
53. Id.; see supra n.2.'
54. See Bookman, supra n.1, at 159.
55. J.P. Clement, D.G. Smith, and J.R.C. Wheeler, "What do We Want and What do We Get from Not-for-Profit Hospitals?" Hospitals and Health Services Administration, 39(2) (Summer 1994): 159-178.
56. See supra n.34.
57. Id.
58. Only Utah, Missouri, and Texas allow inclusion of shortfalls in the charitable care definition; Rhode Island and Massachusetts specifically exclude these shortfalls. Because some voters feel that Medicare and Medicaid amounts are appropriate for the publicly insured, hospitals cannot consider shortfalls to be community benefits (see supra n.34). See Sanders, supra n.33.
59. See supra n.55.
60. T.C. Buchmueller and P.J. Feldstein, "Hospital Community Benefits Other Than Charity Care: Implications for Tax Exemption and Public Policy," Hospital and Health Services Administration, 41(4) (Winter 1996): 461-471.
61. See Sanders, supra n.33; M. Morrisey, G.J. Wedig, and G.J. Hassan, "Do Nonprofit Hospitals Pay Their Way?" Health Affairs, 15(4) (Winter 1996): 132-144; J.P. Sutton and J. Stensland, "Promoting Accountability: Hospital Charity Care in California, Washington State, and Texas," Journal of Health Care for the Poor and Underserved, 15 (2004): 237-250.
62. See Sanders, supra n.33.
63. See Morrisey, et al., supra n.61; Sutton and Stensland, supra n.61.
64. E.C. Norton and D. O. Staiger, "How Hospital Ownership Affects Access to Care for the Uninsured," RAND Journal of Economics, 25(1) (Spring 1994): 171-185.
65. Many of these studies use California data because it is readily available and detailed. Additionally, California has a mixture of NFP and FP hospitals, and a wide variation in geographical and socioeconomic market conditions (see supra n.55). See Morrisey, et al., supra n.61.
66. See supra n.55.
67. See Sutton and Stensland, supra n.61.
68. See supra n.4.
69. Potter and Longest, supra n.43.
70. See Hudson, supra n.38.
71. About 13% of U.S. hospitals are for-profit, and they are mostly concentrated in the South Atlantic, South Central, and Pacific regions, whereas in the Northeast there are almost no for-profit hospitals (O.D. Gulley and R.E. Santerre, "The Effect of Tax Exemption on the Market Share of Nonprofit Hospitals," National Tax Journal, XLVI(4) (Dec. 1993): 477-486). Gulley and Santerre find that higher state corporate and local property tax rates increase the market share of NFP hospitals and reduce the market share of FP hospitals.
72. P.L. Alreck and R.B. Settle, The Survey Research Handbook, Homewood, IL: Richard D. Irwin, Inc, 1985.
73. In survey research, Foddy (Constructing Questions for Interviews and Questionnaires, Cambridge, UK: Cambridge University Press, 1993) suggests that an "importance" measure is preferable to asking for respondents' "intensity" and "sureness" of agreement about survey items because "agreement" is subjective. The researcher might also ask the respondent to estimate the magnitude of each item relative to a reference item that acts as a middle-level stimulus.
74. A member of the Roper Center at the University of Connecticut, and two accounting faculty members, evaluated the questionnaire and made suggestions that were incorporated into the questionnaire design. In addition, the survey instrument was pilot tested by legislators from Rhode Island for readability and clarity. No further changes were made to the instrument as a result of pilot testing.
75. M.J. Norusis, SPSS Professional Statistics 6.1, Chicago, IL: SPSS Inc., 1994.
76. Id.
77. Cronbach's alpha, a measure of internal consistency of the items loaded on each factor, was .86 for the community benefit standard, .74 for the second factor, and .69 for the third factor.
78. K.E. Aupperle, "An Empirical Measure of Corporate Social Orientation," in L.E. Preston (ed.), Corporation and Society Research, Greenwich, CT:JAI Press Inc, 1990.
79. See Hudson, supra n.38.
80. Levine (Canonical Analysis and Factor Comparison, Beverly Hills, CA: Sage Publications, Inc., 1977) suggests that pattern similarity of the factors between two groups is a more crucial issue than pattern and magnitude comparison. For this study, the analysis focuses on whether factors cluster together or are similarly interrelated for the two comparison groups, that is, with and without tax exemption challenges.
81. See supra n.80.
82. See supra n.80; B.G. Tabachnick and L.S. FidelI, Using Multivariate Statistics, New York: Harper Collins Publishers, Inc., 1989.
83. See supra n.75.
84. Id.
85. See supra n.78.
86. Differences between means between the first and third factors, and the second and third, were highly significant (p = .000), which suggests that the third factor, related to NFP hospital profitability, is simply not as important as the other two.
87. See supra n.2; supra n.26.
88. See supra n.60; Sutton and Stensland, supra n.61.
89. K. Biehl, "Federal, State and Commercial Bill Tracking Resources-Updated" (Online), Research Roundup, available at http://www. llrx.com/columns/roundup23.htm (April 15, 2002).
90. S. Gied and D. Could, "Variations in the Impact of Health Coverage Expansion Pro- posals Across States," (Online), Health Affairs Web Exclusive, available at htlp:// content.healthaffairs.org (June 7, 2005).
91. See supra n.2; Sutton and Stensland, supra n.61.
92. See Sutton and Stensland, supra n.61.
93. See supra n.60.
94. See Unland, supra n.44.
95. Id.
96. Id.
97. See supra n.2.
98. These states are California, Indiana, Massachusetts, Minnesota, New York, Pennsylvania, Texas, and Utah (see supra n.29).
99. The Coalition for Nonprofit Health Care, a national membership organization that engages in research, advocacy, and education, published a report that provides a history and state-by-state analysis of NFP hospital legislation for tax exemption. See supra n.2; supra n.29.
100. See supra n.2; supra n.55; Gray, supra n.27; W. Becker, E.L. Enke, and F.G. Duser-ick, "Mandated Social Reporting: The New Social Responsibility Report Required for Hospitals in New York," Alfred University Working Paper, 1992; T. Eckels and J. Trocchio, "Model Refines Quantification of Community Service," Healthcare Financial Management (1992): 34-37.
101. See Eckels and Trocchio; supra n.100.
102. See Unland, supra n.44.
103. According to a 1999 report, six hospitals of approximately 160 that filed reports failed to meet any of the quantitative standards required understate tax exemption laws (Texas Department of Health, Office of Policy and Planning, Annual Statement of Community Benefi ts Standard: Texas Nonprofi t Hospitals, 2000). See supra n.26.
104. See Eckels and Trocchio, supra n.100.
105. From another viewpoint, it may be hard to distinguish whether these programs are intended to meet community needs or are intended as marketing initiatives (Buchmueller and Feldstein, 1996).
106. See supra n.2.