Hospital’s nonprofit status revoked by IRS for the 1st time

In a first for the Internal Revenue Service (IRS), it stripped a hospital’s nonprofit tax status over failing to meet charity care requirements which went into effect, though the unnamed hospital also claimed it didn’t want or need tax-exempt status.

The hospital, which wasn’t identified, received a letter from IRS dated Feb. 14, 2017, informing it of the change in tax status under 501(r) requirements to “conduct a community health needs assessment (CHNA), adopt an implementation strategy and make it widely available to the public.” The letter was posted along with other documents just this month. The additional documents explained the hospital was a “dual status” 501(c)(3) facility operated by a county-level government agency and was a “small rural facility.”

The IRS documents said the hospital didn’t make its CHNA report available to the public as required, claiming it could be distributed in paper form but only when and if it was requested. The hospital CEO also failed to meet the implementation strategy requirements and indicated they “may” have acted on some of its recommendations. Additionally, the CEO indicated to IRS auditors the hospital “really did not need, actually have any use for, or want their tax-exempt status.”

“They maintained that there were times that their tax-exempt status actually prevented the facility from becoming involved in some of the various Medicare reimbursement or payment arrangements,” the IRS report said.

While the hospital reportedly said it lacked the financial resources or necessary staff to carry out a CHNA every three years, as required by law, the IRS deemed its failure to meet requirements “willful” in part because of the CEO’s comments.

According to the Healthcare Financial Management Association, this is the first time a hospital has been stripped of its nonprofit status.

Nonprofit hospitals have been criticized over their commitments to charity care. A recent POLITICO investigation found while nonprofit facilities had seen big increases in revenue since the Affordable Care Act has been past, they’ve spent less on community benefits and charity care—an assertion disputed by the American Hospital Association.