The Senate Finance Committee is considering the bipartisan proposal. The nonprofit status enables a hospital to avoid paying income tax on profits and property taxes, among other taxes.
The American Medical Association is urging hospital leaders to contact their representatives to oppose the plan.
Before 1968, for a hospital to be a nonprofit it had to provide charity care, said Dr. James Rohack, director of the Scott & White Center for Health Care Policy and president-elect of the American Medical Association.
When Medicare and Medicaid came along in the 1960s, Rohack said, there was concern there might not be enough charity care to go around because more people were being cared for with the new government programs.
Hospitals petitioned the Internal Revenue Service to broaden the definition of charity to maintain nonprofit status to include community benefit.
“Community benefit became the standard back in 1969,” Rohack said. “A hospital could be nonprofit if it provided charity care, education and community benefit through research.”
Since that time, the percentage of uninsured in the United States has climbed back to the level of 1964 and there are questions if hospitals are doing their fair share of charity care.
The federal mandate applies to all hospitals, while individual states have their own requirements. In Texas, there is a defined level of charity care that nonprofits have to meet to maintain tax exempt status.
On the federal level, the government is trying to come up with a standard charity benefit that all hospitals have to meet. But that’s problematic, he said, because not all communities are the same.
If it’s decided that a medical center must devote 10 percent of its billable care to charity, a hospital in an area where the population is mostly insured would have a difficult time meeting that obligation.
“There are also discussions about what is charity care and what is bad debt,” Rohack said.
The American Medical Association and the Scott & White Center for Health Care Policy believe the focus should be taken off charity care, and instead work toward providing individuals with affordable health care coverage, he said.
“We would not want to get into what Texas experienced with the Robin Hood plan for education, where an area that is relatively affluent and has low charity care being required to send money to other places that have higher levels of uninsured,” Rohack said. “You can see what an administrative waste and nightmare it would be.”
Last year, Scott & White spent $77 million in charity care, $25 million in education support and $13 million in research support.
