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Issue Date:  September 22, 2006

Catholic hospitals to report on 'community benefit'


It’s Capitol Hill 101: When the chairman of the Senate Finance Committee hints that he is considering taking away billions of dollars in tax benefits from your industry, it’s wise to do what you can to get in his good graces.

That’s exactly what the Catholic Health Association has been doing over the past year with Sen. Charles Grassley, R-Iowa, a persistent and powerful critic of the way nonprofit hospitals manage their businesses. The conservative five-term senator “is ever alert for abuse of power,” notes the authoritative Almanac of American Politics.

Grassley, 73, clearly believes that a significant number of the nation’s 4,900 nonprofit hospitals, more than 12 percent of which are Catholic-sponsored, are gaming the system, using their valuable tax exemptions to line the personal pockets of board members and CEOs at the expense of the uninsured and the federal treasury.

“Nonprofit doesn’t necessarily mean pro-poor patient,” Grassley said last week as he released a 116-page summary of responses the Finance Committee received to a questionnaire that asked 10 large nonprofit hospitals to describe their charity programs. The survey demonstrated, said Grassley, that “nonprofit hospitals may provide less care to the poor than their for-profit counterparts” and that some “may charge poor, uninsured patients more for the same services than they charge insured patients.”

“They sometimes give their executives gold-plated compensation packages and generous perks such as country club memberships,” he said. “All of this calls into question whether nonprofit hospitals deserve the billions of dollars in tax breaks they receive from federal, state and local governments.”

It’s a theme Grassley has been developing for more than a year. “Tax-exempt status is a privilege,” Grassley said last May after requesting that the large nonprofit hospitals provide information to his committee. “Unfortunately some charities abuse that privilege. By gathering information from nonprofit hospitals, I hope to learn whether the benefits they provide to the needy justify the tax breaks they receive.”

Enter the Catholic Health Association, the Washington-based professional association and advocacy group for more than 600 Catholic hospitals.

A key challenge Grassley put before the hospital industry was to develop a method of accounting for and documenting the “community benefit” they provide -- a baseline from which policymakers could determine which hospitals are serving the community and which are serving themselves. The need for such data is clear: “Several studies have shown that the majority of tax-exempt hospitals do not provide charity care commensurate with the value of their tax exemptions,” Nancy Kane, professor of management at the Harvard School for Public Health, told a Senate Finance Committee hearing Sept. 13. “Many organizations, including hospitals, do not report on how they are meeting their charitable mission in a meaningful or consistent way,” Kane told the committee.

Catholic Health Association, working with Grassley’s staff and hospital industry numbers crunchers, took up the challenge, ultimately producing their “Guide for Planning and Reporting Community Benefit.” The task of developing apples-to-apples standards was formidable, given that the hospital industry can’t agree among itself on how best to account for the good they do. If Medicare payments are included in the equation, for example, the community benefit numbers look better, but since Medicare is essentially a government mandate such reporting doesn’t demonstrate going above and beyond the normal course of business.

Meanwhile, some hospitals claim community benefit based on the charges they levy for health care, while others argue that the numbers should reflect actual cost.

Catholic Health Association’s new guidelines took the more conservative approach, not counting Medicare and basing benefit on costs rather than charges. Grassley was delighted. The association’s standards, he told a Sept. 7 news conference, “can serve as a possible standard for all nonprofit hospitals.” Said Grassley, “I will be urging other hospitals to use this as a template because I think this is an honest approach.”

Under this approach, “community benefit” includes programs that generate a low or negative return, respond to the needs of special populations or other public health needs, supply services that would be discontinued if the decision to continue was based purely on finances, or involve education “that improves overall community health.” Hospitals typically get community-benefit credit under the guidelines for their charity care programs, community health services such as support groups and prevention-promotion activities, subsidized services such as hospice care, conducting health research, and “community building activities” such as providing neighborhood improvements or building housing.

More than 90 percent of Catholic Health Association’s member hospitals have adopted the guidelines, Sr. Carol Keehan, association president and chief executive officer, told the Sept. 13 hearing.

Harvard’s Kane was supportive of the Catholic Health Association guidelines, but told the committee they were just a step toward the ultimate objective. “You’re talking about a reporting system,” said Kane, but the question remains: “What are you going to use it for?” Grassley and his colleague, Sen. Max Baucus, D-Mont., indicated that the new data produced under the association’s guidelines would be a tool for the Internal Revenue Service, which is charged with ensuring that nonprofit organizations use their tax-exempt status to serve the public good.

Meanwhile, Raymond Hartz, executive director of the Legal Aid Society of Eastern Virginia, told the Finance Committee that any new standards must address a nonprofit hospital culture that too often puts the bottom line ahead of its charitable mission. Nonprofit hospitals around the country do not routinely inform the uninsured of their charity programs even as they hire aggressive third-party bill collectors to harass those who haven’t paid, Hartz said.

“Over the past week, our staff has spoken with more than 20 clients burdened by unpaid hospital debt,” he said. “Not one of them reported being informed of a charity care program at any time during their hospital stay.”

Still, Catholic Health Association president Keehan was clearly pleased that the organization’s guidelines were well-received. But she remains concerned that the unquantifiable good provided by community hospitals might be overlooked.

“I am confident that the value of tax exemption for Catholic hospitals and the communities they serve will be borne out,” Keehan told NCR. “But if you’re saying that every single year you’re going to say, ‘They gave this much charity care versus this much tax,’ then that’s not a good understanding of community benefit. Sometimes, in some communities, just keeping a hospital in the community is enormously valuable and the most important thing they can do is to keep that hospital and the 60 people it employs.”

Grassley, however, is still not satisfied. At the conclusion of the Sept. 13 hearing he directed committee staff to develop a “discussion paper” on the range of issues -- standardized reporting on community benefit, charity care, bill-collection procedures and hospital executive compensation -- discussed at the hearing. It’s a process Grassley has used previously to lay the groundwork for legislation.

Joe Feuerherd is NCR Washington correspondent. His e-mail address is

National Catholic Reporter, September 22, 2006

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