AHA meeting spotlights Medicare capital payments - American Hospital Association

Healthcare Financial Management, April, 1991 by Joseph A. Kuchler

Tax-exempt status

In 1990, Congress discussed legislation that would have linked hospitals' tax-exempt status to the provision of specified levels of charity care. Similar legislation will be introduced this year and may receive serious consideration.

AHA believes that not-for-profit hospitals' tax-exempt status should be based on the broad community benefits they provide, not specified levels of charity care. This concept of community benefit is the basis for tax exemption in current Federal regulations.

AHA said the community benefit standard emphasizes hospitals' responsibility to their communities and allows them to respond to their community's special needs. By contrast, efforts to base tax exemption solely on levels of charity care fail to recognize that it is not just the poor but the entire community that depends on a hospital.

Further, imposing a specific indigent care requirement on hospitals would fail to recognize the way the indigent care population is distributed, AHA said. Although inner city hospitals have large indigent populations that require charity care, many rural and suburban hospitals have little demand for charity care.

HFMA also believes that tax-exempt status should be based on the overall community benefit provided by hospitals and not solely on levels of charity care. HFMA has developed information that will help hospitals address questions raised about their tax-exempt status or tax-exempt activities.

An HFMA Chairman's Task Force on Tax-Exempt Status identified 10 attributes that characterize tax-exempt healthcare organizations. The attributes include mission, use of financial surpluses, accountability, charity service, reduced government burden, and education. A discussion of the attributes is contained in a recently released report on the task force's findings.

In cooperation with Arthur Andersen & Co., HFMA also has published a revised preparation guide for assisting tax-exempt hospitals and other healthcare organizations in filling out Internal Revenue Service Forms 990 and 990T.

Outpatient payment reform

Changes enacted by Congress in recent years have created a fragmented payment system for outpatient services. Congress wants to convert outpatient payments to a prospective basis and in OBRA '90 established a schedule for outpatient payment reform.

AHA said it opposes Congress' past piecemeal approach to outpatient payment reform, favoring instead "enactment of a thoughtful, coherent payment system for outpatient services, with sufficient time set aside for implementation so hospitals can convert efficiently to the new system." In the interim, Congress should not further modify payment provisions in this area, it said.

To address rising outpatient expenditures, AHA supports a new method of payment for outpatient services that would promote appropriate utilization and efficient delivery of care. Over the long term, AHA's approach calls for a prospectively determined, procedure-based fee schedule that includes appropriate adjustments for differences among hospitals (and between hospitals and other providers) in both service offerings and patients treated, and differences in the economic pressures faced by hospitals in different markets. Utilization review would be used along with the procedure-based schedule.