Montana’s attempt to enhance oversight of the claimed community benefits provided by nonprofit hospitals, in exchange for significant tax breaks, is being resisted by these healthcare institutions.
The ongoing conflict between policymakers and the industry regarding hospitals’ tax-exempt status revolves around whether their charitable contributions are sufficient.
Montana Department of Public Health and Human Services officials have asked state lawmakers to pass a bill authorizing the agency to create standards and reporting requirements for the community benefits nonprofit hospitals report, saying the information collected now is insufficient. Montana hospitals get state and federal tax breaks each year with little oversight of how that’s earned.
Despite initially stating that it would support the measure if it didn’t violate federal rules, the Montana Hospital Association has now taken a stance against the bill. They are currently requesting modifications to the bill, which, according to state officials, would significantly reduce the department’s supervision, thereby undermining the bill’s original intent.
The Montana debate illustrates a power struggle playing out nationally between state policymakers who want more of a watchdog role and tax-exempt hospitals resistant to added oversight, said Ge Bai, a professor of accounting and health policy at Johns Hopkins University who studies hospital giving.
Bai questioned whether they are truly nonprofit organizations or simply pretending to be for-profit entities. He highlighted the crucial matter of the agreement between taxpayers and nonprofit hospitals. Bai emphasized that we are currently observing a widespread neglect of this agreement, which has persisted for an extended period.
More than half of acute care hospitals in the United States are nonprofit hospitals, which must record community benefits — such as covering a patient’s bill or offering mental health services at a loss — with the IRS for their tax exemptions. But federal rules around how hospitals tally charitable acts are broad, with oversight lacking. Pressure for more transparency has mounted as about 6 in 10 adults in the U.S. with household incomes below $40,000 have medical debt, and altogether Americans owe an estimated $195 billion or more.
Brenton Craggs, the Montana health department’s information and regulatory affairs coordinator, said in a Jan. 25 legislative committee hearing that some of the changes the hospital association proposed would limit information the state could collect from hospitals to reports they already submit to the federal government. Those documents have too few details for the agency to discern whether what nonprofit hospitals count as aid improves the health of their communities, he said.
Craggs expressed a desire for both transparency and accountability.
Twenty-five states have outlined some community benefit requirements through state laws, though those rules can be broad. For example, Montana requires all hospitals to have a charity care policy “consistent with industry standards.” Just five states — Illinois, Nevada, Pennsylvania, Texas, and Utah — have set minimum standards for hospitals to maintain their tax-exempt status.
Bai is among national researchers who have argued that federal standards for community benefits are too broad. She said tax-exempt organizations can count things that are part of normal business as community health improvement, such as renting billboards to outline treatment options, or holding a news conference to announce a hospital expansion — even though both double as advertising.
Despite their charitable status, nonprofit health systems often accumulate millions of dollars in assets and can become the biggest business in town. Additionally, a national 2021 study showed nonprofit hospitals actually spent less on services for patients unable to afford care than did for-profit hospitals.
Some of Montana’s wealthiest tax-exempt hospitals lag behind state and national averages in charitable giving, according to a KHN analysis of the hospitals’ IRS filings. A 2020 audit found that the way hospitals fill out community benefit reports varies, reducing transparency. The audit in part blamed the broad federal rules and called for increased state oversight.
The bill, sponsored by state Sen. Bob Keenan, R-Bigfork, would require the health department to define what hospitals can count as a community benefit, detail how they must report their giving, and create penalties for hospitals that fall short.
When the state first proposed setting standards for the charitable contributions, Montana Hospital Association representatives said they would work with officials. In the Jan. 25 hearing before lawmakers, Duane Preshinger, an association vice president, said it opposes the bill because it couldn’t come to an agreement with the state.
According to Preshinger, the proposed bill would add to the administrative workload of hospitals, despite the fact that they are already heavily regulated by the federal government. He stated that hospitals already provide all the necessary information to the IRS through the documents they submit.
In the past, association leaders and hospital administrators have said those documents aren’t a fair measuring stick to compare hospitals’ community benefit because there has been so much variety in filling out the reports.
In relation to community benefit reporting practices, Bob Olsen, the association’s interim president and CEO, expressed that hospitals are largely in favor of the endeavor to enhance clarity and standardization. Over the past few years, the association has collaborated with hospitals to establish reporting standards that adhere to federal guidelines.
That led to a handbook for members and a goal for hospitals in the state to uniformly report their benefits under self-imposed standards. The association didn’t expand or change the federal criteria but created new tools, examples, and answers to common questions about how to fill out the reports. Olsen said the association launched a training series in January for hospitals on how to use the guidebook.
According to a recent study commissioned by the American Hospital Association, Montana’s 48 nonprofit hospitals contributed $435 million in community benefits in 2019, as stated by Olsen. He further mentioned that hospitals acknowledge the need for better reporting and have already initiated their own measures to improve in this aspect.
According to Craggs from the state health department, although the current law allows the agency to establish standards without legislation, they chose to demonstrate their willingness to collaborate with hospitals. Their aim is to develop strategies for gathering additional information without imposing unnecessary burdens.
Craggs expressed his desire to not frighten the hospital association, but instead, to engage them in meaningful discussions. However, he acknowledged the existence of certain problems.
As of early February, at least one lawmaker has sided with the hospital association. Republican Rep. Ed Buttrey requested an amendment that largely mirrors the association’s requests. Buttrey is chair of the board of directors of Benefis Health System, one of the state’s largest nonprofit hospital systems.
