Senators ask IRS to launch probe of nonprofit hospitals’ tax-exempt status

A bipartisan group of four U.S. senators has asked the U.S. Treasury Department to investigate whether nonprofit hospitals are abusing their tax-exempt status.

“We are alarmed by reports that despite their tax-exempt status, certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit’ and engaging in practices that are not in the best interest of the patient,” they wrote in a recent letter signed by Republicans Chuck Grassley of Iowa and Bill Cassidy of Louisiana, and Democrats Elizabeth Warren of Massachusetts and Raphael Warnock of Georgia.

More than half of approximately 5,200 community hospitals in the nation are nonprofit and are supposed to provide charity care in return for their tax-exempt status. The letter pointed to cases of nonprofit hospitals charging full price for services that should have been free or discounted. They also said some of these institutions pursued indigent patients for medical debt, including placing liens on their homes.

There are no explicit rules for what constitutes meeting charity-care guidelines. Lawmakers previously have said that disclosure requirements are vague, allowing institutions to avoid their responsibilities, although the hospital industry has disputed these findings. The letter called for the government to update the forms that hospitals file to disclose charity care. They also want to identify hospitals whose tax-exempt status was revoked, as well as those that were audited or deemed at risk for non-compliance.

Lawmakers addressed this issue at a House Ways and Means Committee hearing in April, calling for more clarity and consistency in how hospitals disclose and meet their charity contributions. States and cities also have pushed back on nonprofit hospitals:

• A new Colorado law requires more extensive reporting on the community care these institutions provide.
• Pittsburgh has questioned the tax-exempt status of some property owned by the University of Pittsburgh’s medical center.
• The New York City Council in June voted unanimously to establish an Office of Healthcare Accountability that would scrutinize the prices hospitals charge and the charity-care provisions they have in place.

Related: Profits over patients? States scrutinize nonprofit hospitals’ charity spending

More than three quarters of the 1,773 nonprofit hospitals examined by the health-care think tank Lown Institute spent less on charity care and community investment than the estimated value of their tax break, according to the most recent Fair-Share Spending report. This created what the report called a “fair-share deficit” of $14.2 billion in 2020.