Some tax-exempt hospitals are lax at providing charity care and accountability

Garnishing wages. Turning over accounts to collection agents. Withholding services until an individual’s ability to pay is proven. These might seem like the practices of a big bank in the news for financial scandals. Instead, these tactics have surfaced at unexpected places: some of the country’s nonprofit, tax-exempt hospitals.

A woman seeking treatment for leukemia at MD Anderson Cancer Center in Houston said the hospital refused to admit her before she produced $105,000 in cash. The University of Chicago Medical Center pushed to steer poor, uninsured patients with non-urgent needs to local clinics instead of admitting them to its emergency room. A Mosaic Life Care hospital in Missouri referred low-income patients to its in-house, for-profit collection agency for debt collection without offering charity care. I was astounded when NPR and ProPublica shared their investigative findings on the extent of Mosaic’s collection operation.

A recent investigation by Politico shows that these practices are ongoing, with some nonprofit hospitals continuing to improve their revenue while reducing their charity care for the poor.

All of this is contrary to the philosophy behind tax exemption. In exchange for the taxes they’d have to pay if they were for-profit businesses, nonprofit hospitals are supposed to provide treatment for those who can’t pay or can’t pay enough toward the cost of their own care. These hospitals are required to make their payment assistance programs clear to everyone who walks through the door. Patients should know whether they’re eligible for financial help.

The arrangement is a compact between tax-exempt hospitals and the entities that grant tax exemption. Federal, state, and local governments forgo billions of dollars in taxes to tax-exempt entities that have been deemed to meet a pressing societal need.

I’ve been evaluating and investigating tax-exempt hospitals for more than a decade. Most of them work hard to meet their obligations and care for low-income patients to the best of their abilities. But when the wheels fall off at certain hospitals, they fall off badly. Such hospitals seem to forget that tax exemption is a privilege, not a right. In addition to withholding financial assistance to low-income patients, they give top executives salaries on par with their for-profit counterparts. Early on in my oversight of tax-exempt hospitals, the congressional Government Accountability Office concluded that nonprofit hospitals and for-profit hospitals were virtually indistinguishable in their levels of uncompensated care.

All of these findings made clear that tax-exempt hospitals should be more transparent about how they meet their obligations. At my and others’ encouragement, the IRS put out a Schedule H form specifically for tax-exempt hospitals. In 2009, Congress enacted provisions that I co-authored to impose standards for the tax exemption of charitable hospitals for the first time.

These include requiring that a hospital complete a community needs assessment once every three years and adopt and publicize its financial assistance policy. The law prohibits billing those who qualify for financial assistance at the top rates. It bars a hospital from taking extraordinary collection actions if the hospital hasn’t made reasonable efforts to notify patients of its financial assistance policy.

A key requirement is an IRS review of the tax-exempt status of each hospital every three years. The IRS has fulfilled that requirement so far. The agency has completed 968 reviews of tax-exempt hospitals for compliance with their charitable obligations under the law. It made 363 referrals for field examinations for a deeper look and said this work will continue. One hospital reportedly decided to give up its tax exemption, finding it unnecessary.

The IRS is right to monitor compliance with the law and consider enforcement actions where appropriate. For the provisions to have the positive effects that Congress intended, hospitals need to know that consequences exist for failing to comply.

Mosaic Life Care, the Missouri health care system in the headlines for aggressive debt collection practices, ultimately forgave $16.9 million in patient debt. That’s good news, but it came only after media investigation of its disturbing practices and a persistent inquiry from me as a U.S. senator. It shouldn’t take a herculean oversight effort for tax-exempt hospitals to follow the spirit and letter of the law on charitable obligations. Hospitals should do the right thing when no one’s looking. But in case they don’t, the IRS is required to keep them on track.

Enforcing the law is a matter of fairness for the many taxpayers who pay what they owe and subsidize the good works of tax-exempt organizations for the public good.

Republican Sen. Chuck Grassley represents Iowa. He is chairman of the Judiciary Committee, and a senior member and former chairman of the Finance Committee, which has jurisdiction over tax-exempt policy.