Could ObamaCare Cause Hospitals To Lose Tax Exempt Status?

September 18, 2012

       I just read an interesting post by David Whelan on The Health Care Blog. In short, he points out that on full implementation, ObamaCare will drastically reduce the number of uninsured patients seen at most tax exempt hospitals in the United States. Since uninsured patients currently make up the bulk of the “charitable care” required for hospitals to maintain tax exempt status, will the virtual disappearance of the uninsured mean that hospitals can no longer justify their tax exemption? Remember –  the fact that a payor (governmental or otherwise) pays less than cost generally does not qualify a patient\’s care as “charitable.”

       As Mr. Whelan points out, tax exempt hospitals are already working hard to demonstrate they provide the level of “community benefit” required by the IRS, and the dramatic reduction of uninsured could come on rapidly. One possible response is a political solution that mandates a recognition of “charitable” work in the form of below cost services to minimally insured patients. The problem there will be that for-profit hospitals will likely be saddled with the same sort of “charitable” underpayment from their patient mix.

       It may be, as Mr. Whelan suggests, that tax exempt hospitals will need to turn to something truly different from what their for-profit competitors do in order to justify tax exemption in the post-ObamaCare world. That will take some real collaboration by all of the hospitals\’ constituencies. It won\’t be as easy as dropping some money in the meter.

[Image: A kindness meter, using a former parking meter, which allows people to donate money to charity rather than giving it directly to panhandlers, August 16, 2011, Ottowa, Canada, by OttawaAC.]