IRS Mulling Accountability Guidelines for Tax-Exempt Hospitals

August 9, 2010

When you think about health care, the US Internal Revenue Service might not spring to mind. But the IRS took an important step last month that could make health care more affordable for millions of Americans, including many right here in Georgia. The agency began a process, established by the Affordable Care Act, to improve protections for consumers who get care at nonprofit hospitals throughout the country, including the more than 120 here in Georgia. Whether they follow through depends on us and Georgia’s congressional leaders.

Nonprofit hospitals serve a critical and unique role. Federal law exempts these hospitals from taxes. In
exchange, they are expected to provide health services that benefit the community. One example is
charity care: by providing necessary care at little or no cost to the uninsured and others who cannot
afford to pay, they protect everyone’s health. The IRS is charged with overseeing these “community

But until the recently-enacted Affordable Care Act, the IRS had never set clear and concrete standards
for acceptable community benefit policies. The consequence: some hospitals with a strong
commitment to serving the public invest in protecting consumers, while others that enjoy the same tax
benefit are not delivering the same public benefit. In fact, IRS data shows that only 25 percent of
nonprofit hospitals are providing 80 percent of the nation’s charity care.

The least-conscientious hospitals actually employ policies that can harm consumers. Some of the most
egregious: charging uninsured and self-pay patients as much as triple what they charge insurance
companies for the same care; requiring significant out-of-pocket payments before providing treatment;
employing aggressive collection practices like property liens or garnishing wages; selling consumers’
debts to other lenders who charge interest rates as high as 18 percent; and, failing to direct the
uninsured and underinsured to Medicaid or the hospital’s own financial assistance programs.

For example, in a recent survey of 24 nonprofit hospitals in the immediate metropolitan Atlanta area,
only 11 had signage up that even indicated financial assistance was available. Such signage is required
by Georgia’s Indigent Care Trust Fund. For less than half of these hospitals to be in compliance with
state regulations is unacceptable.

These unfair practices contribute to one of the leading causes of personal bankruptcy – medical debt.
And with the recession costing Americans both jobs and health insurance at an alarming rate, the need
for affordability and fairness is greater now than ever.

We commend the IRS for initiating the process with a request for input on appropriate standards for
charity care. But we note that this is just the beginning; the stakes are too high to allow this important
reform to become delayed or derailed.

We challenge the IRS to swiftly institute regulations that meets three key consumer protection criteria.
First, it must ensure that there are clear charity care guidelines and streamlined application processes
available for its patients. Second, it must require hospitals to help consumers make informed decisions
by notifying them – in every case – when charity care is available. Third, it must promote affordability,
by requiring that hospitals charge uninsured and other self-pay patients no more than they would
charge Medicare for the same care.

Our leaders in Congress will be home in Georgia during the August congressional recess. Whether it is
through town meetings, consumer group forums or other public debates, families need to know that
their leaders in Washington are playing a leadership role to make health care more affordable.

The IRS has gotten this important process off to a strong start, but we can’t stop here. We must push
for a final rule that ensures you can depend on nonprofit hospitals to deliver the care you need on fair
terms, at an affordable price that is accessible to all.