Charity Care and Nonprofit Hospitals

Charity Care and Nonprofit Hospitals Introduction Policymakers and stakeholders at both the state and federal levels continue to scrutinize the favorable tax treatment of nonprofit hospitals. About 247 of California s 387 private hospitals may be eligible for certain tax exemptions due to their nonprofit status in exchange for providing various community benefits, such as charity care. 1 However, these community benefits are not uniformly defined or measured. This ambiguity makes it challenging to hold hospitals accountable for the special tax benefits they receive and determine if they are providing meaningful community benefits. Furthermore, some studies show many investor-owned hospitals provide charity and other community benefits similar to their nonprofit counterparts. In California, oversight of nonprofit hospitals and their tax-exempt status is provided by several entities, including the State Board of Equalization (BOE), Franchise Tax Board (FTB), Office of Statewide Health Planning and Development (OSHPD), and Office of the Attorney General. Evolution of Hospitals as Charity Care Providers As traditional providers of charity care, hospitals were originally established with the mission of caring for the indigent and have long provided services to the poor, infirm, and homeless. 2 Hospital charity care was first federally regulated by the Hill Burton Act in 1946 (and subsequent amendments) by generally requiring charity care in exchange for grant funding. 3 In 1956, tax exemptions specific to nonprofit hospitals were first granted by the Internal Revenue Service (IRS) based on the provision of charity care. A hospital s role as a charity care provider evolved with the development of health insurance in the 1930s and government health coverage programs such as Medicare and Medicaid in 1965. Historically, hospitals relied on charitable contributions and government funding to support their mission. Today, hospitals including those that are nonprofit are more business oriented and are funded primarily by private health insurance payments and government-funded coverage programs. 1

The 2010 federal health reform law, commonly known as the Affordable Care Act (ACA), 4 makes sweeping changes to the health care marketplace. These changes will impact hospitals and the provision of charity care by expanding health insurance coverage to most Americans, reducing supplemental federal funding to hospitals for uncompensated care, and imposing various new requirements on hospitals, including specific provisions for nonprofit hospitals to maintain their federal tax-exempt status. No Uniform Definition, Standard Valuation, or Required Level of Charity Care for Nonprofit Hospitals According to the California Legislative Analyst s Office, there is currently no uniform definition of charity care in state or federal statute. 5 As listed and defined very generally below, several terms may be used to describe charity care that are often included under broader classifications of community benefits provided by hospitals. These broader community benefits may include activities such as research and medical education. Furthermore, no requirement exists in state or federal law for nonprofit hospitals to provide a certain amount of charity care or community benefit in order to maintain their tax-exempt status. 6 (State law requires hospitals to offer reduced rates to certain financially qualified individuals as required by the Hospital Fair Pricing Act of 2006, which is described in greater detail in the following pages.) Generally Accepted Terms Related to Charity Care Pure charity care Services to patients for which payment is not expected, nor is the patient billed. Bad debt Services to patients who were presumed able to pay but for which the hospital was unable to collect payment. Uncompensated care Generally includes pure charity care and bad debt. Shortfall The difference between the cost of care and payment received from government programs, such as Medicare and Medicaid. Unreimbursed care Generally includes pure charity care and shortfalls from Medicare and Medicaid. Methodology for Calculating Charity Care and Community Benefits Varies While there is no uniform definition for charity care, there also is no statutory methodology or standard by which hospitals calculate charity care or community benefits. As a result, hospitals use different methods to calculate the costs of care and community benefits they report. 7 Controversy exists in how these benefits are quantified. For example, many believe bad debt should not count as charity care or 2

community benefit. Several organizations offer guidance on how to report community benefits, including the Catholic Hospital Association (CHA), Voluntary Hospital Association (VHA), and American Hospital Association (AHA). The CHA/VHA guidance excludes the reporting of bad debt and Medicare shortfalls, whereas the AHA permits such categories. 8 Furthermore, some hospitals use a cost accounting methodology to measure these costs, while others may use a ratio that converts a hospital s listed charges to the actual cost of the services provided. San Francisco s Charity Care Ordinance Defines Charity Care Passed in 2001, San Francisco s Charity Care Ordinance requires local nonprofit hospitals to report charity-care-related information annually to San Francisco s Department of Public Health (DPH). Intended to better clarify and quantify the charity care provided by local hospitals, this law was the first of its kind in the nation. The ordinance defines charity care as emergency, inpatient, and outpatient medical care, including ancillary services, to those who cannot afford to pay and without the expectation of reimbursement. 9 Each year the DPH produces a summary report of trends and findings from data submitted by hospitals. State Requirements Related to Charity Care California s Community Benefit Program Since the mid-1990s, state law has required private nonprofit hospitals in California to conduct a community needs assessment every three years and, in consultation with the community, develop a community benefit plan to be updated annually. 10 The law also requires these hospitals to annually submit a copy of their plan to OSHPD. 11 While the plan must assign economic values to the community benefits where possible, no standard methodology exists from which hospitals must base their calculations. 12 In addition, state law prohibits the use of a hospital s community benefit plan to justify its tax-exempt status. 13 OSHPD generally serves as a public keeper of these plans and does not review them for consistency in reporting, nor does OSHPD have any authority to apply sanctions if hospitals do not submit their plans. 14 Certain nonprofit hospitals, including public as well as small and rural hospitals, are exempt from these community benefit program requirements. 15 For these reporting purposes, the law defines community benefit as a hospital s activities that are intended to address community needs and priorities through disease prevention and improvement of health status. California s Health and Safety Code Section 127345(c) lists several activities included in this definition, such as health care 3

services provided to vulnerable populations, including the unreimbursed cost of those eligible for Medi-Cal and other programs, prevention services, medical research, healthcare cost containment, and nursing and other professional training. Hospital Fair Pricing Policies As a condition of licensure, California s Hospital Fair Pricing Act of 2006, as amended, requires certain hospitals to offer free or discounted care to low- or moderate-income individuals who are uninsured or have high medical costs. The law also requires hospitals to standardize their collection and billing procedures. Hospitals must maintain written policies for charity care as well as for their debt collection practices and procedures. As of January 2008, these policies must be reported bi-annually to OSHPD and be made available to the public, which OSHPD accomplishes by posting the policies on its Web site. 16 Qualifying as Tax-Exempt Under Federal Law To qualify for tax-exempt status under federal law, the IRS requires nonprofit hospitals to be organized and operated exclusively for a charitable purpose. While the Internal Revenue Code (IRC) does not provide a per se exemption for hospitals, a hospital, clinic, or other similar health care provider (collectively health care provider ) may qualify for tax-exempt status under IRC 501(c)(3) provided it is organized and operated exclusively for charitable purposes. Since 1969, the IRS has applied a broader "community-benefit" standard, rather than a charity-care standard, for determining a hospital s tax-exempt status. According to the IRS, community benefit may include, for example, maintaining an emergency room open to all persons regardless of ability to pay; having an independent board of trustees composed of representatives of the community; operating with an open medical staff policy; providing charity care; and utilizing surplus funds to improve the quality of patient care, expand facilities, and advance medical training, education, and research. 17 IRS Redesigns the Reporting Requirement for Tax-Exempt Status In 2008, the IRS significantly revised Form 990 for the first time since 1979 in an effort to provide transparency and accountability and keep pace with changes in the law with the increasing size, diversity, and complexity of the tax-exempt sector. 18 (The Form 990 is used by the IRS as the primary tax compliance tool for tax-exempt organizations.) The new Form 990 includes a core form to be completed by all tax-exempt organizations, as well as schedules specific to the organization s types of activities. 4

The new schedule H was provided for nonprofit hospitals and still requires them to report the benefits they provide in specific categories, including charity care, meanstested government programs, research, training and education, and other activities that promote the health of the communities the organization serves. The new form also requires these nonprofit hospitals to report their bad debt expenses and Medicare shortfalls, but excludes them from counting these items as community benefits per se. The bad-debt reporting provisions require a hospital to report aggregate bad debt expense, and provide an estimate of how much of this expense is attributable to persons who had qualified for financial assistance under the hospital's charity care policy. The form also requests hospitals to provide a rationale for the portion of bad debt it believes should constitute a community benefit and to report their aggregate Medicare shortfalls, allowing them to describe the portion of Medicare shortfalls they believe should constitute a community benefit. 19 These new reporting requirements were phased in throughout tax years 2008 and 2009. In 2010, the Affordable Care Act (ACA) added new requirements for these charitable hospitals, as outlined below. New ACA Requirements for Nonprofit Hospitals Mirror California s Requirements To ensure that nonprofit hospitals continue to provide community benefit, the ACA sets forth new requirements for hospitals seeking to maintain their tax-exempt status. The ACA generally mirrors much of California s existing state requirements for nonprofit hospitals. These new provisions require nonprofit hospitals to: Conduct a community-health needs assessment at least once every three taxable years, and adopt an implementation strategy to meet the community needs identified through this assessment. Establish, implement, and widely publicize a financial assistance policy that must indicate the eligibility criteria for financial assistance and whether such assistance includes free or discounted care. The policy must indicate the billing practices and calculations for patients receiving this discounted care. Limit their billing, collection activities, and charges directed to uninsured patients and require them to make reasonable efforts to determine eligibility for financial assistance before engaging in extraordinary collection actions. The ACA also includes new reporting requirements for these hospitals. Nonprofit hospitals are required to report to the IRS the results of the community needs assessment and if all identified needs are not addressed, they are required to provide 5

the reasons why (for example, lack of financial or human resources). Each hospital facility is required to make the assessment widely available. Hospitals also must submit audited financial statements to the IRS. These reporting requirements are in addition to the preexisting requirements of Form 990 and schedule H. Hospitals that fail to comply with the new reporting requirements are subject to an excise tax penalty of $50,000 and the loss of their federal tax exemption. 20 The ACA also charges the U.S. Department of the Treasury with the task of reviewing a hospital s community benefit activities every three years and, in consultation with the U.S. Department of Health and Human Services (HHS), is required to submit an annual report to Congress on the level of charity care, bad debt expenses, and the unreimbursed costs of means-tested and non-means-tested government programs. In addition, the Treasury and HHS must provide a report in five years on the trends of the items they have been reporting on annually. The IRS regulations were proposed at the end of June 2012 for these new ACA requirements. These proposed rules clarify the ACA s provisions with respect to financial assistance policies and the limitations on charges and billing and collection practices. The proposed rules do not address the community-health needs assessment requirement; formal proposed rules on this issue are expected later in 2012. 21 Value of Federal Exemptions Lacking more recent data, hospital tax exemptions were worth an estimated $12.6 billion nationwide in 2002, and approximately half came from federal exemptions. Local property tax exemptions were the single largest component. The Joint Committee on Taxation estimated the following values of exemptions for nonprofit hospitals and their supporting organizations in 2002: $2.5 billion in federal income tax, $1.8 billion in federal bond financing, $1.8 billion in federal charitable contributions, $500 million in state corporate income tax, $2.8 billion in state and local sales taxes, and $3.1 billion in local property tax. 22 Qualifying as Tax-Exempt Under California Law Property Tax Welfare Exemption Under California law, Revenue and Taxation Code Section 214 exempts property used exclusively for religious, hospital, charitable, or scientific purposes, that is owned and operated by nonprofit organizations organized and operating for these purposes. This exemption from property taxation is known as the Welfare Exemption, which was first adopted by voters as a constitutional amendment on November 7, 1944. When the 6

Legislature enacted Section 214 of the Revenue and Taxation Code to implement the Constitutional provision, a fourth purpose scientific was added to the other three referenced to in the Constitution. 23 The Welfare Exemption is co-administered by the BOE and County Assessors. The BOE determines whether an organization is eligible for exemption and issues an Organizational Clearance Certificate (OCC) to qualifying organizations. An OCC remains valid unless revoked by the Board. The County Assessor determines whether the organization's property qualifies for the exemption, but an exemption may not be granted unless the organization holds a valid OCC. In general, the Welfare Exemption from local property taxes is available for the property of organizations: formed and operated exclusively for qualifying purposes (religious, scientific, hospital, or charitable), using their property exclusively for those qualifying purposes, and possessing a current tax exempt letter from the IRS or the FTB. The above requirements, along with others, must be met for the exemption to be granted. Since tax-exempt status under the IRC includes organizations operating for a broader purpose than what is allowed under California tax laws, not every organization with a 501(c)(3) IRC exemption qualifies for the Welfare Exemption. A hospital, as it is used for the Welfare Exemption, has been defined by the California Supreme Court. 24 Property also may be considered exclusively used for hospital purposes if it is owned and operated by a qualifying nonprofit organization and if it is exclusively used to provide support services for the hospital. Some examples of support services to hospitals include purchasing, food services, laundry, collections, and waste disposal. Value of Welfare Exemption The BOE s annual report identifies values for certain types of exemptions, including the Welfare Exemption for hospitals. As mentioned above, local property tax exemptions are the single largest component of these exemptions. For 2010 11, the BOE reports that exempt assessed values of hospitals reported by county assessors was $30.9 billion statewide. 7

In 2009 the BOE began a review of nonprofit hospital organizations qualified for the welfare exemption. Data was collected on community benefit and charity care, bad debt expense, and care provided to Medicare, Medi-Cal, and county indigent-program recipients. The review encompassed 174 organizations and covered them from 2005 through 2008. The BOE s review resulted in the determination that organizations holding an OCC with a "hospital" purpose, that currently operate a hospital, continue to meet the requirements for the welfare exemption, as set forth in Revenue and Tax Section 214, et seq. Overall, the BOE found that these organizations are properly organized and operated for hospital purposes, and have valid tax-exemption status with the IRS or FTB. Although the BOE discovered hospitals with surplus revenue, their main finding is that the organizations continue to qualify for the welfare exemption and an OCC. 25 State Income Tax Exemption State law gives the FTB the responsibility of determining whether an organization, such as a nonprofit hospital, qualifies for an exemption from paying income taxes. California laws concerning income tax exemption are patterned after IRS rules. However, to obtain an exemption from state income taxes, nonprofit hospitals must file a separate application with the FTB. An organization exempt from federal tax under IRC Section 501(c)(3) can obtain California tax-exempt status by submitting to the FTB a copy of their federal determination letter of exemption under IRC Section 501(c)(3). Thus, any additional federal requirements would automatically have to be met for a hospital to obtain tax-exempt status under California law on the basis of a federal exemption under IRC Section 501(c)(3). 26 In general, current California tax law allows qualifying nonprofit and charitable organizations, including nonprofit hospitals, to be exempt from state income tax. In 2009, the last year from which data is available, the FTB reports that its tax-exempt program cost the state approximately $140 million. 27 Out of the 242,593 tax-exempt organizations that reported in 2009, 213 of them were tax-exempt hospitals. It is difficult to ascertain how much of the $140 million is from nonprofit hospitals, as FTB does not track the expenditures for this program by type of nonprofit organization. However, since less than 1 percent of the tax-exempt organizations in California are nonprofit hospitals, the cost to the state under this program from these hospitals could be insignificant. The Bureau of State Audits (BSA) in 2007 reported that the FTB does not use available tools, such as annual filings and audits, to monitor the continuing eligibility of nonprofit hospitals for income tax exemption. 28 In 2011 the FTB responded to these 8

findings by stating it has commenced its review of tax-exempt hospitals and is working closely with the IRS to receive the federal reports for tax-exempt hospitals. A follow-up audit by the BSA issued in August 2012 (described in more detail in the following pages) reports that FTB has fully implemented the BSA recommendations from the 2007 audit, including adding five audit staff to its Exempt Audit Program to track audits of tax-exempt entities, including tax-exempt hospitals. 29 Oversight by Other State Entities Data collection and oversight of California s tax-exempt nonprofit hospitals is provided by other agencies as well as to those that administer the tax exemptions. In addition to submitting community benefit plans and fair pricing policies and procedures, state law requires hospitals to annually report certain financial and statistical information to OSHPD as specified by the department. OSHPD monitors submission of this data and conducts audits of the financial reports for completeness. Based on financial data provided by hospitals, OSHPD has estimates of uncompensated care defined in three ways; the broadest way includes charity care, bad debt, and contractual adjustments related to county indigent programs. These valuations are available on OSHPD s Web site. State law also requires the Office of the Attorney General to oversee the sale or transfer of a health facility owned or operated by a nonprofit corporation whose assets are held in public trust. The Attorney General s approval process for such transfers may require an independent health-care-impact statement to identify the significant effects on the availability and accessibility of health care services on the affected community. The Attorney General's decision often requires the continuation of existing levels of charity care, continued operation of emergency rooms, and other actions necessary to avoid potential adverse effects on health care in the local community. 30 Summary of State Legislation Impacting Nonprofit Hospitals Over the past two decades, several key laws were passed impacting nonprofit hospitals: Chapter 812, Statutes of 1994 (SB 697, Torres): Requires nonprofit hospitals to conduct community needs assessments and develop community benefit plans and submit those plans to OSHPD. 9

Chapter 582, Statutes of 2003 (AB 1627, Frommer): Established the Payers Bill of Rights, which generally requires certain hospitals to provide written or electronic copies of their chargemaster, as specified. Chapter 532, Statutes of 2005 (AB 1045, Frommer): Revised the Payers Bill of Rights to require hospitals to provide information about their financial assistance and charity care policies, as well as contact information for a hospital employee or office to obtain additional information. Chapter 755, Statutes of 2006 (AB 774, Chan): Established Hospital Fair Pricing Policies, which requires every hospital to offer reduced rates to uninsured and underinsured patients who may have low or moderate income, and to provide policies that clearly state the qualifications for free care and discounted payments. Chapter 347, Statutes of 2007 (SB 350, Runner): Requires the submission of hospital charity care and discount-payment policies to OSHPD. Chapter 445, Statutes of 2010 (AB 1503, Lieu): Requires emergency physicians who provide emergency medical services in a hospital to provide discounts to uninsured patients, establishes limits on the expected payment for emergency medical services as specified, limits debt-collection activities, and requires hospitals to include a written description of the hospital discount policy. In addition to the enacted legislation above, some unenacted bills would have impacted and imposed new requirements on nonprofit hospitals including, but not limited to: SB 24 (Ortiz), 2005: Would have established charity care and reduced payment policies and requirements as a condition for hospitals to maintain their tax-exempt status. AB 2942 (Kuehl), 2008: Would have implemented the State Auditor s 2007 recommendation for a standardized format and methodology to be used when presenting community benefit information, among other requirements. Hospital Charity-Care-Related Requirements in Other States Other states have a mix of rules and laws related to charity care and community benefits interpretation, reporting, and requirements to maintain tax-exempt status. In 2008 the GAO reported that 15 states, including California, had hospital community benefit requirements in law or regulation. About 14 states have mandatory community benefit reporting requirements, while even more have requirements for voluntary reporting. 31 10

At at least 16 states have enacted legislation requiring nonprofit hospitals to report on the level of community benefits they provided as a condition of maintaining their taxexempt status. 32 Furthermore, several states have established minimum charity care requirements. 33 Texas, for example, was the first state to pass legislation requiring a level of community benefit relative to hospital resources, community needs, and tax exemption benefits received in 1993. 34 Many states also have definitions of charity care, including New York, Pennsylvania, Washington, and Wisconsin; however, these definitions vary from state to state and may also vary within states depending on how the definition is being applied. Examples of recent activity in this area include legislation passed in Illinois and Washington. In June 2012 the Illinois Legislature passed, and the Governor signed, Senate Bill 3261 which requires hospitals to provide charity care to low-income individuals, and Senate Bill 2194 which requires nonprofit hospitals to provide charity care that meets or exceeds their estimated property tax liability to maintain their taxexempt status, and broadens the definition of charity care beyond care to the indigent. 35 News reports indicate this legislation was, in part, a response to litigation related to three hospitals denied tax exemptions by the state because they did not provide enough charity care. Effective June 7, 2012, as authorized by House Bill 2341, Washington state law requires tax-exempt hospitals to make their federally required community needs assessment and implementation strategies widely available to the public. In addition, these implementation strategies must be evidence based or subject to evaluation. A prior version of this legislation would have quantified nonprofit hospitals provision of community benefits as either (1) at least equal to 5 percent of the hospital s net patient revenue, (2) at least equal to the hospital s tax-exempt benefits, or (3) reasonable in relation to community needs as determined by the hospital. 36 Are Nonprofit Hospitals Meeting Their Social Obligation? Several studies document the challenges of assessing the value of community benefits reported by nonprofit hospitals and whether they are meeting their social obligations. Since neither federal nor state government has provided sufficient direction in what hospitals are expected to assume as a social obligation or charity care in exchange for 11

their tax-exempt status, there are claims that this has resulted sometimes in nonprofit hospitals providing little charitable patient care or community benefits. 37 Many for-profit hospitals that do not enjoy such favorable tax benefits provide uncompensated care and related community benefits. Furthermore, hospitals count and measure these benefits in different ways, making it difficult to make meaningful assessments and comparisons. Federal Studies The Government Accountability Office (GAO) and Congressional Budget Office (CBO) have conducted a few studies of nonprofit hospitals and the community benefits they provide in several states, including California. In 2008 the GAO found that variations in activities nonprofit hospitals define as community benefits lead to significant differences in the amount of community benefits they report. A 2005 GAO study found that only a slightly larger number of nonprofit hospitals had a greater share of uncompensated care than for-profit hospitals. Furthermore, the GAO did not find clear distinctions between nonprofit and for-profit hospitals when considering other community benefits. And a 2006 CBO study suggests that some nonprofit hospitals provide substantially less uncompensated care than their for-profit counterparts. Nonprofit Hospitals Reviewed by the State Auditor At the request of the Joint Legislative Audit Committee (JLAC), the BSA conducted a review to determine whether activities of tax-exempt nonprofit hospitals truly qualify as charitable activities that are consistent with tax-exempt purposes and provide public benefits. The audit report, issued in 2007, found that, as a percentage of net revenues, the value of uncompensated care 38 provided by nonprofit hospitals was not significantly different from what the for-profit hospitals provided. The Auditor stated that benefits provided to the community did differentiate nonprofit hospitals from their for-profit counterparts. Due to inconsistent reporting of the economic value of these community benefits, meaningful comparisons of these benefits were not possible. However, the auditor reported that for 2005, community benefits provided by tax-exempt nonprofit hospitals were greater than those provided by the for-profit hospitals in California. In response to continuing concerns about the adequacy of charity care provided by nonprofit hospitals, the JLAC requested a follow-up audit, which was released on August 9, 2012. The BSA looked at how hospitals calculated uncompensated care and whether they were meeting their public benefit requirements. In addition, the audit examined the impact of nonprofit purchases and consolidations on patient access to care and hospital pricing of health care. The BSA found that because no statutory requirements exist, each reviewed hospital provided different levels of charity care and 12

had their own methods for calculating uncompensated care costs. Insufficient data prevented the BSA from determining whether changes in ownership or operatorship directly impacted changes in hospital prices for health care services. Moreover, the BSA was unable to determine the effects on the community from changes in health care pricing. In reviewing hospitals charity-care pricing policies, the BSA found that a family that receives free medical care at one hospital may need to pay for part of that care at another hospital, due to differences in each hospital s charity care policies. As a result of their audit, BSA offers three recommendations to the Legislature: 39 If nonprofit hospitals tax-exempt status depends on the amount of community benefits they provide, state law should be amended to include such requirements. If nonprofit hospitals are expected to follow a standard methodology for calculating community benefits, this methodology should be defined in state law. To ensure compliance of all hospitals required to submit community benefit plans, state law should be revised to include a penalty assessment for hospitals that do not comply. Issues for Legislative Consideration California policymakers have a growing interest in whether a hospital is truly providing the community benefits that entitles it to its tax-exempt status. Some questions the Legislature may want to consider in its mission to better understand the costs and benefits of nonprofit hospital tax exemptions include: Should California have a uniform definition of charity care? Should California require a specific level of charity care or community benefit in exchange for a hospital s tax-exempt status? Should a standard methodology be required for calculating community benefits reported by nonprofit hospitals? What criteria should determine which activities and services are sufficient for hospitals to qualify for tax exemption? 13

How might health care marketplace changes resulting from the ACA impact hospitals provision of charity care and community benefits? To what extent does California need to amend state law to address the new federal laws? Do tax-reporting laws promote increased compliance and transparency? How might a more prescriptive charity care and community benefit standard influence a hospital s decision to maintain its nonprofit status? Could this lead to more for-profit conversions or other changes to nonprofit hospital behavior? How do state laws impact the provision of charity care? Prepared by the California Senate Office of Research August 13, 2012 14

Endnotes 1 Number of licensed nonprofit and for-profit hospitals provided by the California Department of Public Health, August 10, 2012. 2 Wendy Dyer, Biyi Adesina, Rachael Kagan, Hospital Charity Care: Recent Research on Defining, Policy, and Market Impact, Nicholas C. Petris Center on Health Care Markets and Consumer Welfare, School of Public Health, University of California, Berkeley, December 2001, p. 2; Hospital Charity Care in the United States, Missouri Foundation for Health, Summer 2005. 3 Donna C. Folkemer, Laura A. Spicer, Carl H. Mueller, Martha H. Sommerville, Avery L.R. Brow, Charles J. Milligan, Jr., Cynthia L. Boddie-Willis, Hospital Community Benefits After the ACA: The Emerging Federal Framework, The Hilltop Institute, January 2011, p. 2. 4 The Patient Protection and Affordable Care Act, P.L. 111-148 (2010), as amended by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152, together referred to as the Affordable Care Act (ACA). 5 2011 Initiative Analysis: Charity Care Act of 2012, California Legislative Analyst s Office, January 3, 2012, p. 2. 6 Martha H. Somerville, Community Benefit in Context: Origins and Evolution ACA 9007, The Hilltop Institute, June 2012. 7 Nonprofit Hospitals: Statute Prevents State Agencies From Considering Community Benefits When Granting Tax-Exempt Status, While the Effects of Purchases and Consolidations on Prices of Care Are Uncertain, California State Auditor, August 2012, p. 1. 8 Eileen Salinsky, What Have You Done for Me Lately? Assessing Hospital Community Benefit, National Health Policy Forum, April 19, 2007, p. 16 17. 9 San Francisco Hospitals Charity Care Report FY 2010 10 Years of Charity Care Reporting, San Francisco Department of Public Health, October 2011, p. 5. 10 Chapter 812, Statutes of 1994 (SB 697, Torres). 11 Office of Statewide Health Planning and Development, The Hospital Community Benefit Program, www.oshpd.ca.gov/hid/submitdata/communitybenefit/. 12 Nonprofit Hospitals: Statute Prevents State Agencies From Considering Community Benefits When Granting Tax-Exempt Status, While the Effects of Purchases and Consolidations on Prices of Care Are Uncertain, California State Auditor, August 2012, p. 15. 13 Ibid., p. 6. 14 Ibid., p. 4. 15 Office of Statewide Health Planning and Development, FAQs: Hospital Community Benefit Programs, www.oshpd.ca.gov/hid/submitdata/communitybenefit/faq.html#q4. 16 Office of Statewide Health Planning and Development, Hospital Fair Pricing Policies, www.oshpd.ca.gov/hid/products/hospitals/fairpricing/. 17 Summary of Federal Income Tax Changes, Franchise Tax Board, 2010, p. 186. 18 Background Paper: Summary of Form 990 Redesign Process, Internal Revenue Service, August 2008, p. 1. 19 Senate Health Committee Analysis of AB 2942, as amended June 17, 2008, p. 5. 15

20 Donna C. Folkemer, Laura A. Spicer, Carl H. Mueller, Avery L.R. Brow, Charles J. Milligan, Jr., Cynthia L. Boddie-Willis, Hospital Community Benefits After the ACA: The Emerging Federal Framework, The Hilltop Institute, January 2011, p. 3-6. 21 Sara Rosenbaum, Health Reform GPS: Update: Financial Assistance Policies for Nonprofit Hospitals That Seek Federal Tax Exempt Status, July 2012, p. 1. 22 Nonprofit Hospitals: Variation in Standards and Guidance Limits Comparison of How Hospitals Meet Community Benefit Requirements, U.S. Government Accountability Office, September 2008, p. 1. 23 Property Tax Welfare Exemption Publication 149, California State Board of Equalization, May 2012, p 1 4. 24 Ibid., p. 5. A hospital is primarily a service organization. It serves three groups: the patients, its doctors, and the public. It furnishes a place where the patient, whether poor or rich, can be treated under ideal conditions. It makes available room, special diet, X-ray, laboratory, surgery, and a multitude of other services and equipment now available through the advances of medical science. Essential to the administration of these techniques is the corps of highly trained nurses and student nurses who is on duty twenty-four hours per day. In the large hospitals there are the interns and residents whose presences make it possible for the hospital to do a better job. In addition, the hospital... must have administration to see that its services function properly and are coordinated, and that patients are received and cared for regardless of the hour or the patient s condition. Nothing can be left to chance because a slip may mean a life or many lives. These facilities also stand ready to serve the community in times of epidemic or disaster. 25 Review of Organizational Clearance Certificate Holders Nonprofit Hospital Organizations, California State Board of Equalization, March 2012, p. 16. 26 Summary of Federal Income Tax Changes, Franchise Tax Board, 2010, p. 190. 27 California Income Tax Expenditures, Report for 2009 Tax Data, Franchise Tax Board, June 2012, p. 77. 28 Nonprofit Hospitals: Inconsistent Data Obscure the Economic Value of Their Benefit to Communities, and the Franchise Tax Board Could More Closely Monitor Their Tax-Exempt Status, California State Auditor, December 2007, p. 35. 29 Nonprofit Hospitals: Statute Prevents State Agencies From Considering Community Benefits When Granting Tax-Exempt Status, While the Effects of Purchases and Consolidations on Prices of Care Are Uncertain, California State Auditor, August 2012, p. 36, Table B. 30 Office of the Attorney General, California Law on Nonprofit Hospital Transactions, www.oag.ca.gov/charities/nonprofithosp. 31 Donna C. Folkemer, Laura A. Spicer, Carl H. Mueller, Martha H. Sommerville, Avery L.R. Brow, Charles J. Milligan, Jr., Cynthia L. Boddie-Willis, Hospital Community Benefits After the ACA: The Emerging Federal Framework, The Hilltop Institute, January 2011, p. 3. 32 Ibid., p. 4. 33 Community Benefit Briefing, The Hilltop Institute, July 2012, p. 3. 34 Eileen Salinsky, What Have You Done for Me Lately? Assessing Hospital Community Benefit, National Health Policy Forum, April 19, 2007, p. 9. 16

35 Bethany Krajelis, Quinn Signs Bill to Clear up Court s 2010 Provena Ruling, The Madison Record, June 14, 2012. www.madisonrecord.com/news/244730-quinn-signs-bill-to-clear-upcourts-2010-provena-ruling.; Community Benefit Briefing, The Hilltop Institute, July 2012, p. 3. 36 House Bill 2341, http://apps.leg.wa.gov/documents/billdocs/2011-12/pdf/bills/house%20passed%20legislature/2341-s.pl.pdf; Community Benefit Briefing. The Hilltop Institute, May 2012, p. 2. 37 Jenny Gold, Nonprofit Hospitals Faulted For Stinginess With Charity Care, April 27, 2012, www.npr.org/blogs. 38 Uncompensated care included charity care, bad debts, county indigent program contractual adjustments and Medi-Cal unreimbursed costs. 39 Nonprofit Hospitals: Statute Prevents State Agencies From Considering Community Benefits When Granting Tax-Exempt Status, While the Effects of Purchases and Consolidations on Prices of Care Are Uncertain, California State Auditor, August 2012, p. 4. 17