Sen. Grassley Calls for More Scrutiny of Not-for-Profit Hospitals’ Community Benefits

Not-for-profit hospitals have too much flexibility in defining the "community benefits" they are required to provide to maintain tax-exempt status, Senate Finance Committee ranking member Chuck Grassley (R-Iowa) said in response to a recent Government Accountability Office report, CQ HealthBeat reports. The report found that "determination and measurement of activities as community benefit for federal purposes are still largely a matter of individual hospital discretion." In addition, variations in what not-for-profit hospitals define as a community benefit "lead to substantial differences in the amount of community benefits they report," according to GAO. The report states that even when hospitals define the same activities as providing a community benefit, "they may measure the costs of these activities differently, which can lead to inconsistencies in reported community benefits."

Grassley said the report "makes clear that tax-exempt hospitals are free to define community benefit as they see fit. While the definition is vague, hospitals are left to fill the void. Ten different hospitals will give 10 different answers." Grassley added, "Congress may need to fill in the blanks since hospitals still get to choose how they calculate their costs. Just like tax-exempt colleges and universities, tax-exempt hospitals need to be accountable for rising costs and the benefits of their special tax status."

He said that the Internal Revenue Service "needs a bright line test to be able to determine whether hospitals are meeting the standard necessary to maintain their tax exemption. On Wednesday, Grassley spokesperson Jill Gerber said that the lawmaker hopes to introduce legislation in the next Congress that would create such a test. She said, "The legislation would define standards for tax-exemption for nonprofit hospitals, including community benefit," adding that the proposal would be based on a July 2007 "discussion draft" prepared by Grassley's staff.

According to the American Hospital Association, legislation is not needed because IRS has a new reporting schedule that will clarify the contributions not-for-profit hospitals are making through their community benefit activities. AHA general counsel Melinda Hatton said, "We ought to give the IRS reporting mechanism an opportunity to play out before we look at this again" (Reichard, CQ HealthBeat, 10/15).

The GAO report is available online.