Health & Medicine

Critics want nonprofit hospitals to account for tax breaks

Rida Villanueva, right, marches with hundreds of members of the California Nurses Association on Tuesday to the California Hospital Association headquarters and then on the Capitol, in part to protest the recent demise of the latest bill requiring nonprofit hospitals to better account for the charity care they provide.
Rida Villanueva, right, marches with hundreds of members of the California Nurses Association on Tuesday to the California Hospital Association headquarters and then on the Capitol, in part to protest the recent demise of the latest bill requiring nonprofit hospitals to better account for the charity care they provide.

It’s been a long-running criticism made by health care unions against nonprofit hospitals: They don’t give enough in return for their hefty tax breaks.

The debate fired up again last week as hundreds of members of the California Nurses Association marched at the state Capitol to promote the union’s legislative agenda, including a recent bill to toughen reporting requirements by nonprofit hospitals on how much community benefit they provide to support their tax-exempt status.

“These corporations are profiting so much,” said Diane McClure, a registered nurse at Kaiser Permanente’s South Sacramento Medical Center, who was part of the march. “They need to put more back into communities. They have the money and get huge tax breaks.”

About two-thirds – or 207 – of California’s 347 hospitals were nonprofit in 2013, according to the American Hospital Association. Of the rest, 63 were local- or state-owned, such as UC Davis medical centers, and 77 were for-profit hospitals.

For decades, hospitals have been granted nonprofit status based on the notion they provide free care to many patients who can’t afford to pay and also provide community benefits through health outreach programs for underserved populations.

A 2014 study commissioned by the California Hospital Association said the state’s nonprofit hospitals provide $5 billion in societal benefit annually. In a separate study, published in 2012, the nurses association said nonprofit hospitals received $1.8 billion more in tax breaks than they provided in charity care in 2010.

Jan Emerson-Shea, vice president for external affairs at the California Hospital Association, said nonprofit hospitals are required by law to return extra earnings to hospital operations and community services, unlike for-profit hospitals that return profits as dividends to investors. She said this year’s bill, by state Sen. Bob Wieckowski, D-Fremont, to change reporting requirements for hospitals is the latest of several similar efforts.

“For the last three years, CNA has been looking for a solution to a problem that doesn’t exist,” Emerson-Shea said.

To maintain their nonprofit status, hospital chains must file yearly tax forms with the Internal Revenue Service outlining their charitable activities and regularly submit plans to the California Office of Statewide Health Planning and Development describing the community benefits they intend to provide.

For example, Sutter Medical Center, Sacramento, said it spent nearly $177 million in 2013 on services for poor and underserved patients and $4 million on programs with broader community benefits.

For the coming year, the hospital submitted a plan in May 2014 that said it would provide free mammograms to uninsured women, participate in a shelter program to help homeless patients and help find primary care doctors for patients who come to emergency rooms with non-emergency conditions.

Critics argue the state and federal reporting requirements are insufficient and should be stricter in order to justify the enormous tax breaks given to nonprofit hospitals.

According to a 2006 study by the Congressional Budget Office, the total value of various tax exemptions – local, state and federal – for nonprofit hospitals nationwide was estimated to be $12.6 billion in 2002. It said the largest categories of exemptions were from local property taxes and state and local sales taxes.

Current requirements give hospitals leeway to define what qualifies as a community benefit. The wording is somewhat vague, such as “healthcare services rendered to vulnerable populations” and “enhancement of access to healthcare.”

According to a 2012 California State Auditor’s report, “neither federal nor state law requires nonprofit hospitals to deliver a specific amount of community benefits to qualify for tax exemptions.” The report recommends that the state Legislature define a standard method of calculating the community benefits that hospitals should provide.

Part of Tuesday’s CNA march was intended to draw attention to the recent demise of Wieckowski’s Senate Bill 346, which would have tightened the state’s definition of what qualifies as a community benefit and would have required more input from community leaders and organizations into hospitals’ giving plans.

The bill was granted reconsideration and can be taken up again in the next legislative session.

Wieckowski said his bill would standardize reporting by nonprofit health care companies and allow the public to better assess whether health care corporations are meeting their obligations as nonprofits.

“If this became law, you’d be able to compare apples to apples and compare private nonprofits to see what they’re doing,” the senator said.

SB 346 fell one vote short of passing the Senate Health Committee on April 29. The nurses union said the bill failed because state Sen. Richard Pan, D-Sacramento, a physician, withdrew his support at the last minute. Pan’s spokeswoman, Shannan Martinez, said in a statement that Pan “expressed concerns from the very beginning and never indicated support” for the measure.

Filling the lobby of the California Hospital Association’s headquarters on K Street last week, CNA nurses and supporters chanted and held up protest signs. They said the hospital association’s lobbying efforts had helped kill the bill and defeated two similar measures by the same lawmaker in the past two years.

“The CHA is against transparency,” said Kathy Dennis, a nurse at Mercy General Hospital in Sacramento.

Hospital association spokeswoman Emerson-Shea said the nurses union had proposed unnecessary changes to state law that would only hamper the ability of hospitals to respond to specific needs in the communities they serve.

“Every hospital plan looks different because community needs look different,” she said, adding that a hospital in a relatively wealthy community such as Palm Desert or Newport Beach, for instance, might have very different community needs from one in downtown Los Angeles.

Anthony Wright, executive director of patient advocacy group Health Access California, said the debate over hospitals’ nonprofit status has been going on for decades and is unlikely to subside soon.

Most hospitals provide valuable services to underserved communities, Wright said, but some appear more like marketing campaigns than charitable benefits. At least one hospital claimed that providing defibrillators to local golf courses counts as a community benefit, he said. Others have given away free infant car seats to promote their labor and delivery units.

Wright said it can be a close call about what counts as a genuine community benefit and what amounts to a marketing strategy.

“Sometimes,” he said, “it’s unclear how nonprofit hospitals act differently from their for-profit brethren.”