The IRS, Congress, and several states have all been looking extensively at whether the benefits received by communities from tax-exempt hospitals justify the tax breaks they receive from federal, state and local governments. Most recently, the IRS issued new proposed revisions to Form 990 and late last week, the Senate Committee on Finance - Minority Staff ("Minority Staff") issued a report which, if implemented, would dramatically change health care financing in the U.S .

Index to Sections identified more fully below (click on subject to skip to that section):

  • Evolving Tax Exemption Standards
  • Community Benefits Currently Provided by Tax-Exempt Hospitals
  • Exempt Organizations Compliance and Revision of IRS Form 990
  • Senate Finance Committee Minority Staff Proposed Cures

1. Proposed Additional Standards Applicable to 501(c)(3) Exempt Hospitals a. Written Charity Care Policy

b. Charitable Care Eligibility Criteria

c. Minimum Actual Annual Amounts of Charitable Care

d. Joint Venture Requirements

e. Community Needs Assessment

f. Community Wellness / Outreach Services

2. Proposed Additional Standards Applicable to Both 501(c)(3) and 501(c)(4) Exempt Hospitals

a. Charges to Medically Indigent Patients

b. Governance

c. Billing and Collection Practices

d. Reporting Transparency Requirements

e. Conversion of Exempt Organization to For-Profit Status—Termination Tax

f. Executive Compensation

3. Proposed Additional Standards Applicable Only to 501(c)(4) Exempt Hospitals

a. Community Needs Assessment

b. Community Benefits / Outreach

4. Proposed Sanctions for Non-Compliance

a. Excise Tax

b. Revocation of Exempt Status

c. Revocation of Medicare Provider Status

  • Looking Ahead
  • Being Proactive
  • For More Information

Evolving Tax Exemption Standards

Historically, hospitals have been considered charitable institutions, entitled to tax exemption because they provided relief to the poor. In 1956, the IRS published Revenue Ruling 56-185, 1956-1 C.B. 202, which established the criteria a hospital must satisfy to be recognized as tax-exempt. The Revenue Ruling required, that to the extent financially able, a hospital must provide services to those unable to pay and must not refuse to accept patients in need of hospital care who cannot pay. With the advent of the Medicare and Medicaid programs, access to health care increased substantially. As a result, the IRS relaxed the criteria for hospital tax exemption in 1969, instituting a flexible "community benefit" standard to reflect the perceived diminished need for charitable care. Revenue Ruling 69-545, 1969-2 C.B. 117.

The community benefit standard generally considers the following factors in determining whether a hospital qualifies for tax exemption:

  • Whether the hospital's governing body is composed of independent members of the community;
  • Whether medical staff privileges are available to all qualified physicians in the area, consistent with the size and nature of the facilities;
  • Whether the hospital operates a full-time emergency room open to all regardless of ability to pay; [1]
  • Whether the hospital admits patients able to pay for care, either themselves or through third-party payers or government programs such as Medicare;
  • Whether the hospital provides free or below cost services to the poor; and
  • Whether the hospital's excess funds are generally applied to expansion and replacement of existing facilities and equipment, amortization of indebtedness, improvement in patient care, and medical training, education, and research. [2]

Under current law, a hospital need not satisfy every factor to be considered tax-exempt. Under the community benefit test, the IRS generally considers all of the hospital's circumstances in determining and evaluating its exemption.

As the number of uninsured and underinsured individuals in the U.S. has risen (that is, those individuals who do not otherwise qualify for the Medicare or Medicaid programs), Congress and others have begun to question whether the current community benefit standard adequately assures tax-exempt hospitals will meet their obligation to provide benefits to the poor. [3]

Community Benefits Currently Provided by Tax-Exempt Hospitals

In an effort to understand and quantify the contributions made by tax-exempt hospitals to their communities, the IRS sent detailed questionnaires to nearly 500 tax-exempt hospitals last year. Recently, the IRS issued an interim report summarizing its preliminary findings. The report concluded:

  • No uniform definition of what constitutes "uncompensated care" exists and measurement of the value of uncompensated care is difficult because no common measurement standard exists (e.g., costs, charges, etc.). This makes assessment difficult;
  • There is significant variation among hospitals in the level of expenditures in furtherance of community benefit;
  • Hospitals use a wide range of income and asset criteria to establish eligibility for uncompensated care;
  • Community benefits averaged 9% of hospital revenues, but vary widely. The median community benefit expenditure, however, was 5% of hospital revenues. On average, uninsured patients accounted for 7% of the total patients seen by nonprofit hospitals; and
  • Community benefits generally included uncompensated and discounted care (56% of total community benefits); medical education and training; research; community programs; studies of unmet community health needs; immunization programs; programs to improve access to health care; and health promotion programs.

The survey findings highlighted for the IRS and Senate Finance Committee how difficult it is for policy makers to accurately measure whether the community contribution by tax-exempt hospitals and whether the cost of the tax exemption to the community can be justified by the benefit to the community.

Exempt Organization Compliance and Revision of IRS Form 990

On June 14, 2007, the IRS released a draft Form 990 [4] designed to provide greater transparency and reporting consistency among tax-exempt charitable organizations. [5] For more information on the changes made to the IRS Form 990 see Baker Hostetler's Health Law Update, dated July 18, 2007. [6] After the release of the draft Form 990, members of the Senate Finance Committee urged the IRS to focus its efforts on gathering more detailed information from tax-exempt organizations and to pay particular attention to the operational complexities of nonprofit hospitals. [7]

Chairman Baucus and ranking member Grassley of the Senate Finance Committee affirmed the Committee's views in a letter to the Secretary of the Treasury, following issuance of the draft Form 990. The letter stated "that transparency and openness are pillars in encouraging our nation's charities to be responsive to the needs of the community and to act in accordance with the principles and goals for which they were established and that they seek contributions from the public." The letter urged the IRS to focus its efforts on the following areas for nonprofit compliance activities:

  • Executive compensation, both the source and amount;
  • Endowment management and utilization;
  • Related organizations;
  • Joint ventures;
  • Governance;
  • Dollars raised v. dollars for charity;
  • Community benefit reporting;
  • Disclosure of billing and debt collection policies; and
  • Disclosure of a hospital's charity care policy.

Although the information derived from the revised Form 990 may allow the IRS to reconsider whether Revenue Ruling 69-545 and its progeny should be modified in a new Revenue Ruling, it is unclear whether Congress will wait for the IRS to promulgate the form, receive returns and analyze the data before acting on its own.

In response to an inquiry from Senator Grassley, the Tax-Exempt and Government Entities Division of the IRS [8] outlined the IRS' top exempt organization compliance concerns, some of which were addressed in the proposed Form 990. Some of the other issues, however, await further action by the IRS, Congress or both. The compliance issues identified in the letter applicable to health care facility operations include:

The blurring of distinctions between tax-exempt hospitals and nursing homes as compared to for-profit facilities;

Unrelated business income ("UBI") compliance issues related to (i) distinguishing related from unrelated activities; (ii) allocation of expenses and income between related and unrelated activities; and (iii) losses incurred in unrelated activities;

  • Executive compensation reporting;
  • Loans to executives and disqualified persons;
  • Political activities; and
  • Tax-exempt bond issues
    • Illegal arbitrage;
    • Overpricing of certain financial products; and
    • Record retention issues.

Congressional impatience was demonstrated this week when, shortly after the IRS released the preliminary results of its survey and the revised Form 990, Sen. Grassley publicly released a Minority Staff discussion draft on hospital tax-exemption reforms. The discussion draft suggests a number of reforms to help assure tax-exempt hospitals provide meaningful contributions to their communities.

Senate Finance Committee Minority Staff Proposed Cures

The Minority Staff Discussion Draft of Non-profit Hospital Reforms [9] (the "Discussion Draft") is not legislation. However, it does provide insight into approaches Congress may take to change tax-exempt hospital organizational reporting and additional requirements it may impose on tax-exempt hospitals.

The Minority Staff believes that "the present community benefit standard is extraordinarily vague and does not correlate with the federal tax benefits received by" tax-exempt hospitals. Discussion Draft at 3. The Minority Staff also suggests that legislative mandates are likely necessary. Discussion Draft at 4. Voluntary efforts are, according to the Minority Staff, likely to fail as "many non-profit hospitals . . . say the right words but too often fail to do the right thing when it comes to providing for low-income families." Id.

The Discussion Draft suggests a two-tiered approach to nonprofit hospital community benefit obligations. Hospitals exempt under Internal Revenue Code ("the Code") § 501(c)(3) would have a higher community benefit obligation than hospitals organized under Code §501(c)(4) [10] because the benefits of exemption under Code § 501(c)(3) are greater. In particular, contributions to Code §501(c)(4) organizations are generally not deductible as charitable donations and Code §501(c)(4) organizations are generally not eligible for tax-exempt bond financing. The requirements proposed in the Discussion Draft are detailed below and are in addition to the requirements presently imposed for tax exemption.

  • Proposed Additional Standards Applicable to 501(c)(3) Exempt Hospitals
  • Written Charity Care Policy. Hospitals would be required to develop a written charity care policy in plain language. The policy would set forth eligibility requirements, procedures for obtaining free or discounted care, and identify where a patient could obtain additional information on accessing such care. The policy would be publicized and the Discussion Draft suggests that it would be available on hospital websites, available at all times in emergency rooms and admission areas, and available upon request to members of the public, the IRS and HHS. Finally, the Discussion Draft urges that the availability of charity care be widely posted in the institution.
  • Charitable Care Eligibility Criteria. The Discussion Draft suggests setting the patient financial eligibility threshold for hospital uncompensated care at a level no less than 100% of the federal poverty level ("FPL") for uncompensated medically necessary in- and outpatient hospital services and urges policymakers to consider imposing eligibility levels above the FPL. Hospitals would, however, have considerable flexibility in how they determined patient eligibility.
  • Minimum Actual Annual Amounts of Charitable Care. The Discussion Draft recommends that each exempt hospital, after a transition period, annually provide charitable care in an amount equal to no less than the greater of: (i) 5% of annual patient operating expenses, or (ii) revenues. The 5% test was based on other current charitable care standards and the fact that the IRS had utilized a similar standard prior to implementing Revenue Ruling 69-545. The Discussion Draft recommends that critical access hospitals ("CAH") be exempt from this requirement. Minority Staff considered a net income charitable care requirement, but concluded that such a measure was too easy to manipulate.

Charitable Care Defined. Perhaps most important, the Discussion Draft offered a definition of charity care and its measurement. Charity care would be defined as: (i) care provided "without expectation of payment from or on behalf of" the patient; (ii) the amount of revenue expected to be written off, prior to patient billing, as a result of a patient's inability to pay; (iii) uncompensated medical care provided through free clinics, community medical clinics and other mechanisms designed to serve vulnerable populations; and (iv) grants to other charities to provide free medical care to vulnerable populations. Bad debt was specifically excluded from the definition of charity care.

To assure uniformity in measurement, the value of charity care provided would be determined at the lower of: (i) the rate that would be paid by Medicaid for the services; (ii) the rate that would be paid by Medicare for the services; or (iii) the hospital's actual unreimbursed cost for such services. 

  • Joint Venture Requirements. The Discussion Draft expressed concern that joint ventures between exempt organizations and for-profit entities may divert surplus funds away from charitable care and hospital services that are less profitable. In response, the Discussion Draft proposed that whole hospital joint ventures between exempt organizations and for-profit entities must: (i) implement a charity care policy; (ii) meet the charity care policy proposed for 501(c)(3) hospitals; and (iii) have a board controlled by the exempt hospital(s).

In the case of ancillary service joint ventures between exempt organizations and for-profit entities involving patient care services, the Discussion Draft proposed that the joint venture must: (i) implement a charitable care policy that is controlled by the exempt member hospital(s) that meets the charity care requirements applicable to the exempt member hospital(s) themselves; (ii) have a board including at least one representative of each exempt member hospital; and (iii) provide that no decision may be made by the joint venture's board that affects the charity care policy without approval by the exempt member hospital(s). Charity care provided through the joint venture would be applied to member tax-exempt hospital's charitable care obligations based upon the hospital's pro rata ownership interest in the joint venture relative to total exempt hospital ownership interests in the joint venture. [11] Under this formulation, exempt hospitals likely would be given credit for the value of charitable care services well in excess of their pro rata interest in the joint venture for purposes of computing their annual charitable care obligations, even though the cost of the charitable care was largely imposed upon their for-profit joint venture partners. [12] These charitable care obligations and related costs, however, could make it more difficult for exempt hospitals to participate in joint ventures with for-profit entities. [13]

The Discussion Draft also recommends that the protection available to exempt organizations under the initial contract exception and the rebuttable presumption of reasonableness of compensation for Code §4958 excess benefit transactions [14] be eliminated with respect to joint ventures between for-profit entities and tax-exempt hospitals. In addition, the Discussion Draft recommends expanding the definition of disqualified person for purposes of the excess benefit transaction rules to include any person that participates in a joint venture between an exempt hospital and a for-profit entity where: (i) such person receives an excess financial benefit; or (ii) the exempt hospital suffers a disproportionate financial detriment. Finally, the Discussion Draft proposes that a manager of any exempt hospital who knowingly participates in or authorizes an excess benefit transaction should be subject to an excise tax in an amount equal to 25% of the excess benefit.

  • Community Needs Assessment. The Discussion Draft also recommends that every three years exempt hospitals conduct a community needs assessment, reviewed and approved by their boards, with a particular emphasis on vulnerable populations (i.e., populations with barriers to care: financial, transportation, disability, language, etc.) in consultation with local advocates and representatives for vulnerable populations as well as state and local Department of Health officials.
  • Community Wellness / Outreach Services . The Discussion Draft urges policymakers to consider whether exempt hospitals also should be required to provide other community benefits, such as education and outreach, training or research, health protection and health promotion for vulnerable populations.
  • Proposed Additional Standards Applicable to Both 501(c)(3) And 501(c)(4) Exempt Hospitals
  • Charges to Medically Indigent Patients. The Discussion Draft recommends charges to medically indigent patients who are uninsured or under-insured should be limited to the lower of: (i) the lowest rate that would be paid by Medicaid for the services; (ii) the lowest rate that would be paid by Medicare for the services; or (iii) the hospital's actual cost for the services. The Discussion Draft suggests that medically indigent patients should be defined to include patients with incomes of not more than 200% of the FPL. [15]
  • Governance.

i. Board Composition. Members of hospital boards would be required to represent the "broad interests of the community," including public officials, individuals with special knowledge or expertise in community health care, community leaders and advocates or representatives of those benefiting (or potentially benefiting) from charity care and discounted care for the medically indigent. Under the proposal not more than 25% of an exempt hospital's board voting interests could be held by members who are employed by the hospital or who would benefit financially, directly or indirectly, from the organization's activities (other than through the receipt of reasonable directors' fees). In addition not more than 25% of a hospital's board or committee membership would be comprised of physicians and/or hospital management, except for committees responsible for quality of care, credentialing, determining medical staff privileges and the like.

ii. Conflict of Interest Policies. Hospitals would be required to implement detailed conflict of interest policies that fully describe covered persons and arrangements (including all officers and directors and joint venture arrangements for-profit entities and other partnering arrangements with for-profit entities), the procedures for addressing an actual or potential conflict of interest, and the consequences of conflict of interest policy violations. At least annually boards would be required to review these policies and the potential conflicts reviewed thereunder.

iii. Board Responsibility for Charitable Care . Hospital boards would be required to determine the following: (i) criteria for charity care; (ii) policies related to discounts for low-income or uninsured patients who have the ability to pay a small portion of their bill; (iii) policies regarding eligibility determinations when there is insufficient information provided by the patient to fully evaluate all the eligibility criteria, and the ability to pay cannot be reliably determined; (iv) policies regarding the extent of verification necessary for charity care eligibility determinations; (v) policies regarding the time frame within which patients are eligible for charity care; and (vi) related issues.

iv. Other Board Responsibilities. Hospital boards would be expected to review the IRS Form 990 tax return and related schedules filed on behalf of the hospital.

v. IRS Exempt Organization Governance Proposals. In February 2007, the IRS issued draft good governance standards. [16] The standards are generally consistent with the Discussion Draft's proposals. Under the proposed standards, an exempt organization's board would:

  • Adopt a clearly articulated mission statement;
  • Implement ethical standards throughout the organization, including the adoption of: (a) a code of ethics; (b) internal complaint reporting policy; and (c) confidential whistleblowing policy;
  • Assure that board members exercise due diligence and receive accurate information to make informed decisions;
  • Assure that board members fulfill their duty of loyalty, that the organization has an effective conflict of interest policy, and that directors and staff annually disclose, direct and familial, business relationships with the organization;
  • Make complete, full and accurate information about the organization's mission, activities and finances public, including on the organization's web site;
  • Assure that fund-raising activities (a) are undertaken in compliance with applicable laws, (b) are undertaken in an accurate, truthful and candid manner, and (c) have reasonable costs;
  • Assure financial responsibility through the use of annual budgets, timely financial statements and review of the IRS Form 990, auditor's letters and committee reports;
  • Assure that compensation not exceed reasonable amounts for services rendered and not compensate directors in most cases; and
  • Develop a document retention policy, including standards for retaining electronic files.

The IRS stated that the board should be composed of persons who are informed and active in overseeing the exempt organization's operations and finances. Successful governing boards, according to the IRS draft, should include individuals not only knowledgeable and passionate about the organization's programs, but also those with expertise in critical areas involving accounting, finance, compensation, and ethics. The IRS also stated that transparency was critical because charitable assets are more likely to be misused in a climate of secrecy or neglect.

In a subsequent letter to Senator Grassley, the IRS questioned whether it was appropriate to require adoption of a core set of "good governance principles" as a condition to an organization's exemption from tax. [17] More concerning, the IRS also questioned whether exempt organizations should be required to demonstrate that (1) they are efficiently using their resources; (2) their expenses are reasonable; and (3) they are not accumulating resources beyond the organization's needs. [18]

  • Billing and Collection Practices. Exempt and public hospitals would be required to comply with the Fair Debt Collection Practices Act (FDCPA") prohibitions against unfair and deceptive collection practices. Normally, the FDCPA is applicable only to third party debt collectors and attorneys who regularly collect debts. The Minority Staff specifically requested comments on debt collection practices that should be prohibited.
  • Reporting and Transparency Requirements. The following information would be reported annually to the IRS and the public by exempt and public hospitals: (i) composition of board of directors; (ii) total patient operating expenses and revenues for the year; (iii) total amount of charity care provided, number of people receiving such care, and number of people who applied to receive such care; (iv) the total amount of community benefits provided disaggregated by type of community benefit provided and the total number of persons who benefited; (v) amounts reimbursed by private and governmental insurers; (vi) amounts paid to the hospital from special indigent funds, such as charitable care pools; and (vii) the purpose of each joint venture, copy of any charity care or community benefits policy of each joint venture, number of persons benefiting under such policies, and a description of the composition of the board. In addition, the exempt organization would be required to make publicly available the comparables survey on which it relied to establish the salaries of executives. These disclosure proposals are consistent with recent legislation enacted as Code §6104(d)(1)(A)(ii) (§1225 of the Pension Protection Act of 2006) which requires organizations that file unrelated business income tax returns (Form 990-T) to also make the UBI returns available for public inspection and copying. [19]
  • Conversion of Exempt Organization to For-Profit Status - Termination Tax . Exempt hospitals, may, in some cases, convert their assets for use by a taxable entity through a sale of assets, joint venture, merger, and change in form of the corporation or a reorganization of the entity. According to a report prepared by the staff of the Joint Committee on Taxation [20] the conversion of public charities, especially of hospitals and other health care providers, has resulted in significant amounts of charitable assets being converted to for-profit uses. The Discussion Draft proposes imposing a termination tax on the liquidation or conversion of a charitable organization in an amount equal to the value of the organization's net assets that will not be dedicated to charitable purposes after the liquidation or conversion transaction. The termination tax would be paid from assets other than the exempt organization's remaining charitable assets.
  • Executive Compensation. The Discussion Draft recommends that Congress consider prohibiting the provision of certain executive perks, including payments for country club fees, spousal travel, private airplanes (unless for provision of medical services), and loans to executives and it would place significant restrictions on first class travel. Recently, the IRS also has examined exempt organization executive compensation and found that significant reporting issues exist. [21] The IRS found that 25 exempt organizations studied paid excessive compensation to 40 employees. As a result, the IRS imposed $21 million in excise taxes. Based upon the IRS' recent study of 500 exempt hospitals, the IRS has begun investigation of more than 20 hospitals. The IRS expects to review executive compensation in all future compliance initiatives. [22] Consequently, exempt organization executive compensation is likely to remain a prominent issue for reform.

The Discussion Draft also proposes eliminating the exception to the excess benefits transaction rules for initial employment contracts of hospital affiliated personnel. Current law excepts a disqualified person's first written employment agreement with an exempt organization from the excess benefit transaction rules, if the person prior to entering into the contract was not a "disqualified person" as to the exempt hospital, if the contract calls for a fixed amount of compensation.

Proposed Additional Standards Applicable Only to 501(c)(4) Exempt Hospitals

Community Needs Assessment. Every three years, hospitals exempt under Code § 501(c)(4) would be required to conduct a community needs assessment with a particular emphasis on vulnerable populations. It is unclear whether these assessments would be required to meet all of the requirements associated with those performed by hospitals exempt under Code § 501(c)(3).

Community Benefits / Outreach. Hospitals exempt under Code § 501(c)(4) would be required to dedicate a minimum of 5% of their annual patient operating expenses or revenues to the provision of community benefits. The Discussion Draft would exempt critical access hospitals from this requirement.

The following services, under the proposal, would be deemed per se community benefits: (1) charity care; (2) an emergency room open to all, regardless of ability to pay; (3) burn units; (4) trauma centers; (5) health profession education and training programs; (6) health research; and (7) activities conducted in response to issues raised by a community needs assessment. Under the proposal, the IRS would have authority to designate additional items and services as per se community benefits. Other community benefit activities would be subject to written approval by the IRS. The Minority Staff suggests that the Catholic Health Association's " Community Benefit Categories and Standard Definitions—Hospitals" could serve as a template for defining community benefits. [23]

  • Proposed Sanctions for Non-Compliance
  • Excise Tax. An excise tax would be imposed on hospitals that fail to meet the proposed applicable quantitative requirements in an amount at least equal to twice the hospital's shortfall. However, the IRS would be authorized to be flexible in measuring compliance. In addition, smaller fines could be imposed if a hospital could demonstrate that it had met the requirements over a period of years (e.g., 4 out of 5 years) and that the shortfall was due to a lack of demand for services by medically indigent persons.
  • Revocation of Exempt Status. Under the proposals, the IRS also would be able to revoke a hospital's exempt status if it failed to meet any of the foregoing requirements. Repeated violations of the charity care requirement also could result in ineligibility to raise additional tax-exempt bonds, ineligibility to raise tax deductible charitable contributions and a recapture of tax benefits relating to such subsidies.
  • Revocation of Medicare Provider Status. The Discussion Draft also suggests that consideration be given to terminating an exempt hospital's Medicare provider status if it fails to meet the foregoing requirements over time. However, the Discussion Draft recognizes the harm that could result from such an action and suggests that the decision be weighed carefully.

Looking Ahead

While the proposals discussed herein are still formative, it is clear reforms and additional requirements for tax-exempt hospitals will be a topic of keen interest in Washington in the coming months. The Senate Finance Committee has stated that it is "clear [Congress] need[s] to do more work." [24] It is also likely that the IRS will advocate that the reforms be based, to the extent possible, on bright line tests to help relieve the IRS of its current "difficult and fact intensive" exemption administration requirements. [25] The standards proposed in the Discussion Draft go beyond the pre-Medicare I.R.S. standards and may be impossible for many exempt hospitals to meet, especially if they are implemented in a rigid quantitative bright line manner.

In addition, many states are carefully redefining charitable care and requiring the provision of minimal levels of care and/or reporting of charitable care by exempt hospitals. See, e.g., Tex. Health & Safety Code §311.041 et seq., California Health & Safety Code §127340 and Minnesota H.R. No. 1078 (legislation that would establish a minimum charity care requirement of 6% that hospitals must satisfy in order to qualify for property tax exemption). As states grapple with how best to treat the growing uninsured population, it is likely that more states will make mandatory exempt hospital charitable care obligations and subject the requirement to specific definitions and limitations. Moreover, states are encouraging consumers to take advantage of charitable care provided by hospitals. [26]

More frequently, states are seeking to revoke ad valorem tax exemptions for hospitals that fail to provide sufficient charitable care. For example, the Illinois Department of Revenue ruled in 2006 that Provena Covenant Medical Center and, later, that Richland Memorial each failed to prove that it provided enough free medical care to the needy to qualify for a tax exemption and revoked its ad valorem tax exemption. While the Illinois Circuit Court of Sangamon County recently reversed the Provena decision and restored the ad valorem exemption, the state's objective may have been served because Provena Covenant expanded its charity care guidelines to provide more uncompensated care. [27]

Being Proactive

All exempt hospitals should review their organizational and governance structures, as well as policies and procedures, to assure they can reasonably comply with the new evolving federal and state standards. In addition, exempt hospitals should start planning actions to ameliorate the impact of these proposals and should consider preparing comments to these proposals.

The Minority Staff has requested comments on the proposals in the Discussion Draft, and the IRS has requested comments on the new Form 990. It is critical that hospitals provide substantive comments on both proposals to assure that their interests are properly considered. Baker Hostetler's Health Industry team will be collaborating with the firm's Legislative and Tax-Exempt teams to assure clients are able to make these critical evaluations of their infrastructures and are well represented as these matters are considered by Congress and the IRS as well as regulators at the state level.