Case 11.2 Tax Exemptions for Not-for-Profit Hospitals Not-for-profit hospitals enjoy federal, state,


Case 11.2

Tax Exemptions for Not-for-Profit Hospitals

Not-for-profit hospitals relish federal, state, and national tax licenses, but they countenance challenges from governments in both flatterrooms and statehouses (Santos 2016). Contemporary hospitals differ markedly from those that existed at the adapt of the twentieth generation, which were truthfully compassionate institutions. They were befriended approximately truly by donations and abundantly staffed by volunteers. Thus, it can be argued that tax license for not-for-profit hospitals is a literal relic. When the proceeds tax started in 1894, there was no Medicare, no Medicaid, and no security. Most herd with money got anxiety at home. The role of hospitals was to anxiety for the meagre.

These days, hospitals nurture paying customers, and for-profits, which pay proceeds and nature taxes, collect about as considerable free anxiety as not-for-profits (Valdovinos, Le, and Hsia 2015). (Notfor-profits do answer to exhibit further benevolence anxiety—1.9 percent of total expenses—than for-profits, at 1.4 percent.) Not surprisingly, not-forprofits’ de facto tax-exempt condition has conclude into topic.

The fact of Provena Covenant Medical Center illustrates this. Following a long-drawn flatter conflict, in 2010 the Supreme Flatter of Illinois upheld the Illinois Department of Revenue’s repudiation of an application for license in 2002, sentence that Provena was not a compassionate institution and the nature was not used for compassionate purposes (Santos 2016). Two factors influenced the firmness. First, of the hospital’s $118 darling in total revenue, further than 96 percent came from resigned and insurer payments, and less than $10,000 came from compassionate donations. Second, Provena Covenant Medical Center did not actively excite its benevolence anxiety program. The hospital routinely billed straitened resigneds and constrained them to allot for discounts under the provisions of the financial maintenance program. In less, Provena Covenant Medical Center did not answer to be a benevolence.

In late years, increasing bulk of localities own asked notfor-profits to fabricate payments in lieu of taxes. For example, Boston low $32.4 darling of these payments in 2017 (City of Boston 2018). Such arrangements are decorous further low as nationalities strive to cover the consume of services. Furthermore, abundant vigor systems obbenefit no further like charities than Provena Covenant Medical Center did. One repartee to this situation was the changes in the homogeneity service test precise by the Affordable Anxiety Act (ACA). First, hospitals must arrange a homogeneity vigor needs duty total three years. This repute identifies the expressive vigor challenges facing that homogeneity and lays out a intent for the hospital to address them in the herefollowing years. Second, hospitals must produce a financial maintenance intent that explains the criteria for exhibiting financial maintenance and must fabricate the intent voluntarily unfolded to the exoteric. Third, hospitals cannot entrust resigneds that restrict for maintenance further than they entrust insured patients. Fourth, hospitals must fabricate dispassionate efforts to prove that a resigned is not choice for maintenance anteriorly initiating extraordinary collection actions. However, the ACA did not individualize the provisions of financial maintenance intents.

This effect is not mitigated to go abroad. In states that distant Medicaid following 2014, free anxiety subvert from 3.9 percent to 2.3 percent (Dranove, Garthwaite, and Ody 2017). It subvert singly 0.12 percent in states that did not swell Medicaid. As further and further herd gain vigor security, the fact for tax-exempt condition gets harder to fabricate.

Discussion Questions

• How considerable homogeneity service do not-for-profit hospitals collect?

• How considerable homogeneity service do for-profit hospitals collect?

• Why does using catalogue prices nurture to inflate estimates of homogeneity service?

• Are there other expressive differences between not-for-profit and for-profit hospitals?

• Would national governments be reform off if they taxed hospitals and compensated for benevolence anxiety?

• Is tax license a amiable way to encourage private organizations to nurture the exoteric cause?

• Can you confront examples of controversies about hospitals’ tax-exempt condition?

• Can you confront examples of payments in lieu of taxes?

• Does tax license for not-for-profit hospitals quiet fabricate apprehension?

• Can you intend an choice to tax exemption?