Charity Care's new rules

Under the threat of legislation, the not-for-profit hospital industry is taking a giant step forward in establishing a standard for defining the community benefits provided by the hospitals that are supposed to provide charity care. The strong urging of Finance Committee Chairman Sen. Chuck Grassley (R-Iowa) has sparked the recent steps.

In recent years this industry has struggled to both define and communicate its larger community benefits it provides. This has recently been questioned because of its sometimes aggressive billing and collection practices that many have encountered. These practices are necessary to continue to financially survive in the tougher healthcare environment. These practices have come under the scrutiny of Congress, the Internal Revenue Service, state attorneys general, patient advocates and plaintiff’s attorneys -- all of whom question whether the taxpayer is getting enough bang from the tax-exempt buck.

Grassley suggested that the guidelines CHA developed in conjunction with hospital alliance VHA "can serve as a starting point." About 90% of the CHA's which is approximately 565 hospitals and 400, or 35%, of VHA's nearly 1,200 member hospitals have agreed to begin this new reporting methodology.

One of the biggest changes in the CHA's guidelines is how they count charity care. The new methodology will count charity care and Medicaid payment shortfalls based on costs, not charges, as community benefits. This will markedly change the numbers that are now being reported as Charity care. In addition, they don't count bad debt or Medicare underpayments as Charity care. All of this will dramatically lower the supposed amount of charity that is being provided.

"Nonprofit doesn't necessarily mean pro poor patient. Nonprofit hospitals may provide less care to the poor than their for-profit counterparts," Grassley said in a written statement. There also appeared to be "very little difference on executive compensation" between the two sectors as well. "I'm afraid if nonprofit hospital boards are focusing so little attention on what they're paying executives, they're giving even less attention to how the hospitals are helping the community and the poor," Grassley said.

What is at stake for non-profit hospitals are the billions of dollars from local, state and federal tax breaks. It is approximated that about 5% of hospital expenditures is reduced by tax exemptions and another 5-6% is received from disproportionate share payments from the government for charity care. These standard tax exemptions have not changes substantially since 1969.

Significant changes in these policies will make reporting much more accurate, but may show that non-profit facilities do not provide as much charity care as they would like some to believe.