Calif. charity care standards questioned

Nonprofit hospitals in California are facing the possibility of having to prove they provide the necessary amount of charity care to justify their tax-exempt status.
In February, two Democratic California Assembly members, Rob Bonta and Bob Wieckowski, wrote a bill to require private, nonprofit hospitals to provide charity care in an amount equal to at least 8 percent of their operating margins, and they would not be able to have operating margins exceeding 10 percent. Hospitals would also be fined if they failed to submit timely reports detailing their amount of charity care. Some nonprofit hospitals, such as rural, district and children's facilities, would be exempted from the bill's requirements.
At the end of April, Bonta and Wieckowski amended the bill with the removal of the "rebuttable presumption" provision that stated a hospital is rebuttably presumed to be organized or operated as a for profit if, during the previous year, the operating revenues of the hospital were in excess of the operating expenses by 10 percent or more. They removed this part of the bill because existing California law already presumes that a company exceeding 10 percent of its operating expenses is for profit. The bill's more stringent charity care requirements remain, as well as certain health and safety mandates.
The legislation has support from members of the California Nurses Association (CNA), the California Labor Association Federation, California Alliance for Retired Americans and the Greenlining Institute and is opposed by the California Hospital Association, the California Chamber of Commerce and some of the state's largest hospital systems, like Kaiser Permanente, Sutter and Cedars-Sinai.
The bill "is a solution in search of a problem that doesn't exist," said Jan Emerson-Shea, vice president of external affairs at the California Hospital Association.
Hospitals, for instance, already file annual reports describing the benefits they provide to their communities.
And it's not fair to look only at a hospital's costs and revenue, she said, because in many cases hospitals may be saving a wider operating margin in a given year in order to cover state-mandated safety standard updates to the facility or subsidize a struggling clinic under their ownership.
"Every hospital in the state must meet very strict safety standards, especially for earthquake safety, and in most cases many hospitals have to rebuild certain areas. It's cheaper to rebuild rather than add on to their existing facilities in many cases, and they get no government money for this," said Emerson-Shea. "If a hospital is part of a large system like Kaiser, this bill [would have applied] to every individual hospital. In many cases, the operating margins might be higher for a hospital in a more affluent area but is helping to keep the doors open at a hospital within the same healthcare system located in a more poor area."
Supporters of the bill acknowledge that reporting requirements already exist but say there are too many inconsistencies. They point to several state auditor reports issued since 2007 that highlight a number of discrepancies in what nonprofit hospitals report as charity care.
Last year's report found that out of 218 nonprofit hospitals required in 2010 to report on their charitable work, 15 did not submit any documents. The state auditor recommended that lawmakers clarify what constitutes charity care and set a standard amount if that work determines whether a hospital can be a nonprofit.
"This is the biggest reason to have a standard definition for charity care - for indicators to see the transparency of how much community benefit is being provided at each hospital," said Deanna Johnston, legislative and community advocate for the CNA. "We found that it's really hard to determine who is doing what because there are no penalties in regards to when they report their charity care and no uniformity. As a state auditor mentioned at a state hearing last August, it's about having greater transparency and accountability to the community since these organizations enjoy the benefits of all the tax exemptions relative to property taxes, state taxes, federal taxes, and this is at a time when many of our communities are really struggling.
"I think overall what we have seen in a lot of our communities is that our nonprofit hospitals are nonprofit in name only, and in studying it and looking at state auditor reports, it demonstrates what we had suspected," said Bonnie Castillo, government relations director for the CNA.
According to Castillo, there are 11 states in the U.S. that already mandate that nonprofit hospitals provide specific levels of charity care, including Texas and Alabama.