Nonprofit hospitals and health systems
Caring for our communities - a charge to keep
The Facts
Not-for-profit hospitals, born out of community need, are steeped in the tradition of providing tangible benefit, in the form of healthcare products and services, to their patient populations. To be sure, they persist in that mission—that legacy—today by conducting comprehensive community needs assessments and attending to the needs of low income and other vulnerable individuals in the community at large. Not-for-profit hospitals partner with community groups to identify needs, strengthen existing programs, and plan new needed services. Independently and collaboratively, they plan an array of community benefit services designed to improve collective health, and to increase access to preventive and remedial care. Significantly, they provide free and discounted services to the most needy among us—the uninsured and underinsured.
Not-for-profit health providers are the bedrock of the U.S. healthcare system. They represent most of the nation’s largest and smallest—urban, suburban and rural—hospitals and care sites, and provide the lion’s share of care to a growing uninsured and underinsured population. However, the charity care and community benefit roles of not-for-profit healthcare organizations are often misunderstood. Perhaps we, collectively, need to do a better job communicating the depth and breadth of our activities in this area. Further, in this day and age, state-of-the-art quality care delivery has become increasingly complex. Not-for-profit healthcare organizations are engaged daily in a balancing act between competing priorities and pressures. Still, faced with workforce challenges, cost pressures, and limited, often inadequate reimbursement from all payers, our institutions remain dedicated to acquiring and deploying breakthrough patient safety and information technologies that set the standard for the most advanced healthcare in the world.
The Issues
Across the nation as of late, local and state government, consumer advocacy groups, and other constituents have challenged whether not-for-profit healthcare organizations deserve tax exemption. Those who serve in, sponsor, and govern such groups are questioning whether we remain the “community benefit organizations” we started out as. We can, unequivocally, say ‘yes’—but it is increasingly incumbent upon us to demonstrate—clearly, quantifiably and consistently—the value we represent and the community benefits we provide.
Hospitals are finding themselves on the defensive and under intense scrutiny over billing and collection practices that can result in charging the uninsured—those least likely to be able to pay, and therefore, most subject to collection enforcement—higher prices than other patients. In July, three congressional committees (see resources below) launched investigations into non-profit hospitals (as well as other entities) to examine how the former charge the uninsured, attempt to collect unpaid bills, and provide charity care and demonstrable community benefit. To be sure, legislators are reviewing “alternate” perspectives on and definitions of tax-exemption status, with as-yet-unspecified “reform” as the goal. That’s why it’s so critical for tax-exempt hospitals to show that as a whole, we are, in fact, attaining and exceeding the requisite charitable activities for such status.
Since June, more than 60 class-action lawsuits have been filed by a team of high-profile law firms against not-for-profit hospitals in 21 states. The lawsuits take issue with the way the hospitals reportedly “aggressively overcharge” the uninsured, arguing that tax-exempt status and the requisite provision of charity care and community benefit ought to ensure greater leniency. Not-for-profit hospitals find it unfortunate that such grossly broad-based charges unsupported by the full facts are diverting energy and effort from the issue of how we, as a nation, may best meet the healthcare needs of the uninsured. In the end, we must educate lawmakers, regulators and communities on the extent of the charitable, community service contributions not-for-profit hospitals provide to their patients. In doing so, we can counter erroneous arguments that we fail, collectively, to provide community service sufficient to merit tax-exempt status—which, today, remains in danger of being curtailed or done away with altogether.
Early victories for nonprofit hospitals named in charity care suits
In an October 20, 2004 victory, the U.S. Judicial Panel on Multidistrict Litigation refused to consolidate 28 class-action lawsuits concerning nonprofit hospitals’ billing practices. The plaintiffs’ attorneys had requested consolidation over the objection of the defendants, which include the American Hospital Association and several individual health systems. Now, the lion’s share of the suits will proceed separately in federal district courts. Two days later, on Oct. 22, a judge dismissed one such lawsuit on the grounds that the charges had previously been tried in state court, and more importantly, and that its foundation—the Emergency Medical Treatment and Labor Act (EMTALA)—did not apply. It was the first dismissal not requested by plaintiffs in the series of suits filed by a coalition of law firms led by attorney Richard Scruggs of Oxford, MS. The suit against the nine-hospital Baptist Health System, Birmingham, AL, and the American Hospital Association was dismissed by U.S. District Judge Virginia Emerson Hopkins in Birmingham. Plaintiffs had already lost in state court before the class-action suit was filed, and the federal court could not rule on the same charges under the legal concept res judicata, the judge said. She rejected the contention that EMTALA still applied to the case because of continued collection efforts and other ongoing activities, ruling that the two-year time limit on EMTALA charges had passed. She also said the case did not qualify as a personal injury suit under EMTALA because the plaintiffs had not suffered physical harm as a result of Baptist’s actions, a requirement in Alabama.
In recommending that claims allegedly rising under federal tax law should be dismissed, a U.S. District Court on Nov. 23 handed nonprofit hospitals named in charity care litigation another victory (Amato v. University of Pittsburgh Medical Center, W.D. Pa., No. 04-1025). The ruling suggested that federal claims brought as a proposed class action by four patient plaintiffs against the University of Pittsburgh Medical Center—based on an alleged breach of its obligations to provide charity care to uninsured patients—in fact, lacked merit. The court found no basis for the plaintiffs to sue as ‘third-party beneficiaries’ of an implied contract between the tax-exempt hospitals named and the federal government, stemming from the facilities’ status as tax-exempt entities under Section 501(c)(3) of the Internal Revenue Code.
“There is no indication that Congress intended to create contract rights inuring to any citizen,” the court ruled, citing appellate decisions that have “long denied attempts to characterize a tax exemption as a contract.” The court also rejected the plaintiffs’ claim that the hospitals’ 501(c)(3) designation created an “implied charitable trust,” and that they were appropriate parties for purposes of enforcement. “To the extent the plaintiffs argue that UPMC has not fulfilled its tax-exempt obligations, only the IRS, not the plaintiffs, may pursue a civil action against them,” the court said.
On Nov. 30, a California federal court ruled that all of the federal claims asserted in two consolidated lawsuits brought by uninsured plaintiffs against Sutter Health hospitals for allegedly inflated rates had to be dismissed (Darr v. Sutter Health, N.D. Cal., No. 04-2624). The court ruled that the plaintiffs could not pursue their claims under federal tax laws or the Fair Debt Collection Practices Act (FDCPA). It found no authority for the plaintiffs to assert that they had an “implied right of action” to bring claims to enforce hospitals’ alleged obligations under Section 501(c)(3). “That section creates no contract between the government and exempt entities, so no right to enforce such a nonexistent contract can be implied,” the court said.
Further, as in the earlier Pittsburgh, PA case, the plaintiffs lacked standing to assert these claims as alleged “third-party beneficiaries” of the nonprofit hospitals’ commitment to further charitable purposes, the court said. At best, the court said, the plaintiffs were “incidental beneficiaries” of any tax-based relationship the hospitals had with the Internal Revenue Service and federal government. With respect to the FDCPA claims, the court said the law applies only to debt collectors and not to creditors, like the Sutter Health hospitals named. Although the FDCPA can apply to creditors in certain circumstances, the court found that those exceptions did not apply.
The Response
For Premier hospitals and allied healthcare sites, it goes without saying that even as the number of uninsured rises, all individuals continue to need and deserve quality healthcare services, regardless of insurance status or ability to pay. Not-for-profit hospitals are committed to meeting the healthcare needs of their communities and responding to all who walk through their doors—emergency included. As one of the nation’s largest alliances of not-for-profit hospitals and health systems, Premier stands ready to work with legislators and policymakers to address the complex issue of care delivery for the uninsured and the demonstration and accounting of charity care and community benefit. We believe that achievable deployable and fruitful solutions for all stakeholders are not far from reach.