Legislation questions hospitals’ nonprofit status

By LAURA OLSON | 04/07/2013 10:01:41 AM PDT

SACRAMENTO, Calif.—Some of California’s most powerful unions are pressuring nonprofit hospitals to prove that they provide enough charitable care to justify their tax-exempt status.
The California Nurses Association is pushing legislation that would set statewide standards for what hospitals can count as charity care. Under the bill, a hospital would have to show why it should keep its nonprofit status if revenue exceeds spending by more than 10 percent.

Hospitals also would be fined if they fail to submit timely reports detailing their charity care.

The nurses and other labor groups supporting the bill say the tax benefits the hospitals receive as nonprofit organizations are far larger than the value of their charitable work. The groups also say hospitals currently count their charity care in different ways, making it difficult to compare the efforts.

“It’s so broadly defined, it’s extremely hard to actually measure precisely how much community benefit or lack thereof the hospitals are putting back in the community,” said Bonnie Castillo, legislative director for the nurses union.

The California Labor Federation, the California Teamsters Public Affairs Council and the California Domestic Workers Coalition also support the bill.

The organization representing hospitals in the state says it’s unfair to look solely at a hospital’s costs and revenue because a wider margin in a given year might be needed to cover updates to a facility or subsidize a struggling clinic under the same ownership.

If hospitals with a wider gap between revenue and expenditures have their nonprofit status revoked, some might look at reducing or eliminating community services such as adult day-care centers so they can cover their new tax bills, said Jan Emerson-Shea, a spokeswoman for the California Hospital Association.

“It’s not just about revenues and expenditures,” Emerson-Shea said. “It’s about what they’re doing to serve these communities.”

She also noted that hospitals file annual reports describing the benefits they provide to communities.

Assemblyman Rob Bonta, an Oakland Democrat, is carrying the bill with Democratic Assemblyman Bob Wieckowski of Fremont. Bonta said a hospital would have a chance to explain its excess revenues before the organization’s nonprofit status and accompanying tax benefits would disappear.

“They just have to explain why it’s OK and show it,” he said. “If it’s not OK and they’re giving it in the form of bonuses, this would make sure that we know it.”

Bonta and other supporters point to several state auditor reports issued since 2007 that highlighted discrepancies in what nonprofit hospitals currently disclose as charity care.

Last year’s report found that out of 218 nonprofit hospitals required in 2010 to report on their charitable work, 15 did not submit any documents. The state auditor recommended that lawmakers clarify what constitutes charity care and set a standard amount if that work determines whether a hospital can be a nonprofit.

A nonprofit can be granted an exemption from paying state corporate income tax and local property taxes based on a variety of factors, including how its earnings are distributed.

Private nonprofit hospitals must review community needs every three years. They also must submit a report on how they attempt to meet those needs each year to the Office of Statewide Health Planning and Development.

The office makes those documents publicly available but is not tasked with evaluating the amount of the charity care being provided.

The bill from Bonta and Wieckowski does not set a minimum for the amount of care a nonprofit hospital would need to deliver, but does narrow the definition of charity care. It defines it as health care services provided to those who are not expected to provide payment.

The cost of a vaccination program for low-income families could count, but hospitals could not include uncollected payments or the difference between what Medi-Cal pays and what a hospital thinks a service should be worth.

Some nonprofit hospitals, such as rural, district and children’s facilities, would be exempted from the bill’s requirements. Jeff Barbosa, a spokesman for Wieckowski, said those hospitals were removed because they already serve those without health insurance or with inadequate coverage.

The nurses association said more narrowly defining charity care will help provide a more accurate assessment of how hospitals are giving back to their communities.

“There are some that are doing more than their share,” Castillo said. “What we’re looking at are the big players who haven’t been doing their fair share.”

Officials with two of the state’s largest health care organizations, Kaiser Permanente and Sutter Health, declined to discuss the pending bill. They deferred comment to the state hospital association.

Emerson-Shea, the association’s spokeswoman, said there is no evidence that hospitals are failing to meet the law’s requirements.

The legislation, AB975, cleared the Assembly Health Committee last week on 12-7 vote, with Democratic Assemblyman Wesley Chesbro of Arcata joining Republicans in opposition.

Committee approval, however, came with some concerns from chairman Richard Pan, D-Sacramento, who said the definition of charity care should be modified to better reflect the types of cases on which nonprofit hospitals lose money.

“Just because you’re a nonprofit doesn’t mean you can lose money all of the time,” said Pan, a pediatrician, who said he provided a “courtesy vote” to move the bill forward.