On November 19, 2024, a bipartisan pair of senators, Sen. Charles E. Grassley (R-Id.) and Sen. Elizabeth Warren (D-Ma.) united again, a year after a similar letter, to urge the Internal Revenue Service (IRS) to increase oversight of nonprofit hospitals to ensure that those hospitals are operating consistent with their charitable status.
About half of U.S. hospitals are nonprofit hospitals and exempt from taxation, which has drawn legislative oversight recently. For example, in August 2023, a bipartisan group of senators, including Senators Grassley, Warren, Bill Cassidy (R-La.), and Raphael Warnock (D-Ga.), sent a letter to the IRS requesting information on how it scrutinizes tax-exempt community hospitals, as discussed in Health Headlines previously here. Then, in October 2023, Sen. Bernie Sanders, (I-Vt.), Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, released a report alleging that certain nonprofit hospital systems may not be providing the community benefits required by their tax-exempt status, as discussed in Health Headlines previously here.
The 2024 letter to the IRS from Senators Grassley and Warren is consistent with recent legislative oversight efforts. The letter explained that under current IRS rules, nonprofit hospitals must “primarily benefit the community” to qualify for a federal tax exemption, but that the senators are concerned that some nonprofit hospitals may fall short of this measure. The letter identified that the tax exemptions afforded to nonprofit hospitals will total roughly $260 billion over the next decade, while expressing skepticism that the current community benefit standard for nonprofit hospitals was working given what the letter described as a crisis of medical debt. For instance, the letter asserted that medical debt affects roughly one of every three adults in the United States and accounts for 57 percent of all debt in collections.
The Senators expressed appreciation in their letter for the fact that, in response to a prior letter from the Senators, the IRS plans this year to audit 35 nonprofit hospitals regarding their community benefit activities and issue guidance on the application of IRS Code Section 501(r) regulations, and the Treasury Inspector General for Tax Administration is conducting an audit of nonprofit hospital compliance efforts.
The Senators further urged the IRS to strengthen and enforce regulations under Section 501(c)(3), the tax code section applicable to nonprofits generally, and Section 501(r), the tax code section pertaining to nonprofit hospitals specifically, which also contains specific community benefit requirements for nonprofit hospitals added by the Patient Protection and Affordable Care Act.
Specifically, the letter recommended that the IRS do the following:
- Increase oversight of tax-exempt hospitals to enforce existing requirements and ensure consequences for negligent noncompliance with current requirements.
- Clarify requirements for financial assistance policies, so that patients who qualify for financial assistance under existing hospital policies receive that assistance.
- Prohibit nonprofit hospitals from using aggressive collections practices before comprehensive efforts to determine patient eligibility for financial assistance.
- Issue a new Revenue Ruling reinstating previous guidance requiring nonprofit hospitals provide charity care to the extent of their ability, including guidance on when charity care is appropriate.
A copy of the Senators’ full letter can be read here.
