Fluent Essays

1 . Conduct some research on the community benefits offered by a local tax-exempt hospital. Review its website to see how it describes its community activities and summarize your findings. Are you satisfied that it has met the IRS community benefit standard? Under what section of the Internal Revenue Code are non-profit, tax-exempt entities organized? 2. List a minimum of five components of a compliance program designed to protect a hospital’s tax-exempt status. (Not just its tax-exempt bond financing.) 3. Provide five examples of incentives that hospitals use for recruiting and retaining physicians.  - attached powerpoint to help Chapter 4 Federal Income Tax Learning Objectives Benefits of tax-exempt status Ways that tax-exempt status may be lost IRS pressure on tax-exempt hospitals How a hospital can provide community benefit Problems with “excess benefit transactions” Legally-safe physician recruitment incentives Tax-exempt status in a joint venture Tax-exempt status compliance program Introduction Tax-exemption for health care entities is available under section 501(c)(3) of the Internal Revenue Code. The largest segment of the health care industry composed of non-profit entities are hospitals. Tax-exempt status of non-profit hospitals has become a hot issue, legally and politically. Benefits of Tax-Exempt Status Need not pay federal income taxes Generally need not pay state income taxes, state/local sales taxes, and property taxes Donations to exempt entities are tax deductible Exempt entities may receive foundation and government grants May use tax-exempt bond financing Free from pressure of shareholders Indications That a Hospital Does Not Deserve Tax-Exempt Status Few free or discounted care patients Minimal dollar value of free care Unpaid bills immediately sent to collections Uninsured patients charged full rates Failure to publicize indigent patient policies Failure to provide community benefits No allocation of revenue surplus to research, education, and medical training Requirements for Hospital Tax-Exempt Status Community benefits Excess benefit transactions Unrelated business income Transparency requirements under PPACA Physician recruitment and retention Mergers and acquisitions, joint ventures Tax-exempt bond financing Community Benefit Standard Activities the IRS looks for in determining if a non-profit organization has met its community benefit standard. Community-oriented governing board Open staff privileges Emergency medical care Non-emergency medical care Use of surplus funds Charity care Health promotion 7 Excess Benefit Transactions Providing economic benefit to a “disqualified person” without receiving something of equivalent fair market value in return. Definition of “disqualified person”. Recipient of excess benefit pays excise tax. Managers approving the transaction liable for 10% tax on excess amount. Compensation tied to % of net earnings. Unrelated Business Income Money-making activities unrelated to an entity’s charitable purpose. Hospital gift shops and parking garages. Income generated by an activity “regularly carried on” and not substantially related to charitable purpose is taxed at normal corporate rates. New Transparency Requirements Under PPACA Community health needs assessment every 3 years Written financial assistance policy and emergency care policy Avoid abusive billing and collection practices Hospital emergency care charges for uninsured patients no higher than for insured patients Every 3 years, IRS review of hospital’s community benefit activities Physician Recruitment & Retention In order to offer physician recruitment incentives, hospitals must do the following: Demonstrated community need for physician Or located in Health Professional Shortage Area Formal written physician recruitment policy Recruitment package negotiated at arm’s length Market-reasonable financial incentives Each package approved by board of directors Mergers and Acquisitions These transactions must be conducted at FMV. Hospital buys physician practice at inflated price, or sells assets at below FMV. Be able to demonstrate FMV of the exchange; professional valuation is key. Risk of anti-kickback and Stark violations. For-profit entity buys a non-profit entity. Joint Ventures Tax-exempt entity partners with non-tax-exempt entity. Venture serves hospital’s charitable purpose. Venture gives priority to exempt purposes over maximizing profits. Hospital does not yield control of its activities to its non-tax-exempt partner. Tax-Exempt Bond Financing Must use bond proceeds to advance the hospital’s charitable purposes. Put to a “qualified use” not a “private use”. Management & service contracts present special risk; IRS has defined 6 safe harbors. Reasonable contract compensation, not based on share of profits, qualified user free to terminate contract, and contract term limits. Employment Taxes Are medical directors and clinic physicians employees of a hospital? Hospital’s degree of control over the physician’s work activities is key. Physician has no private practice, paid a fixed salary, hospital provides supplies and support, submits claims for physician’s work, and is on duty at the hospital during specified hours. Steps to Protect Tax-Exempt Status Incorporate exempt status measures in overall compliance program. Concentrate on high risk areas, use checklists to keep transactions and arrangements within legal limits. Document employee training, compliance reviews and other measures, and procedures for identifying & resolving violations.