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Nonprofit Hospitals Cooking the Books? Staff Writer

Monday, July 07, 2014

Nonprofit Hospitals Cooking the Books?
Hospital Expenses

According to California state law, every hospital with not-for-profit tax exempt status must legitimize that status by a yearly showing of “community benefit” through free care to poor patients and/or “activities that are intended to address community needs and priorities primarily through disease prevention and improvement of health status.” The returns for not-for-profit status can be considerable, as in 2010, the California nonprofit hospital industry received approximately $3.3 billion in exemptions.

Surprisingly, nonprofit hospitals are allowed to calculate their “community benefit” through their own arguably creative accounting methods; the results from the state’s various nonprofit hospitals vary widely, do not necessarily comply with federal tax requirements and some are reportedly questionable. For example, the California Nurses Association’s Institute for Health and Socio-Economic Policy calculated that in 2010, Cedars-Sinai Hospital’s charity care amounted to a little over $16 million but its tax exemptions totaled more than $104 million above the charity care. In addition the Institute estimated that tax exemptions for California nonprofit hospitals in 2010 were approximately $1.8 billion more than actual charity care.

A bill intended to remedy these difficulties is currently in California’s legislature and scheduled for consideration by the state’s Senate Health Committee June 25, 2014. Assembly Bill 503 attempts to: finally define “charity care” as direct care rather than sometimes promotional/marketing activities; conform the accounting methods; add transparency to the “community benefit” calculations; comply with federal laws; require nonprofit hospitals to dedicate at least 25% of their community benefit budge to public health programs; require that the majority of dollars spent on community benefits are received by the state’s neediest groups.

The bill has several sponsors, including the California Nurses Association, the Greenlining Institute - a policy, research, organizing, and leadership institute working for racial and economic justice, and California Rural Legal Assistance. On the other hand, the bill is strongly opposed by the state’s hospital industry, which maintains that there is already sufficient transparency in “community benefit” calculations and that the bill is an unnecessary repeat of a bill defeated just last year. You can be sure that the bill will receive both strong support and powerful opposition in the state’s legislature.

By Kathy Catanzarite

Source: Kathy Catanzarite - Staff Writer

Note from This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither the author,, or any of its affiliates shall have any liability stemming from this article.

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