Hospitals under scrutiny of IRS
Some believe surveys signal tighter
oversight
Christina Olenchek
Central Penn
Business Journal Staff
8/11/2006
The Internal Revenue Service
recently started to take a closer
look at the practices of nonprofit
hospitals, a move that could lead to
more intense questioning of whether
some of the organizations deserve
tax-exempt status.
A couple of months ago, the IRS sent
questionnaires to hundreds of
nonprofit hospitals nationwide
asking about their billing
practices, uncompensated-care
policies and community programs. The
questionnaire is designed to help
the agency examine its standards for
nonprofit hospitals, and some
observers believe it is a signal of
a more hands-on approach by the
revenue service.
“If they see anything that
doesn’t seem right, they will follow
up,” said Richard Imbimbo, chief
financial officer at Memorial
Hospital in York County.
The Spring Garden Township hospital
was the only one in the region to
report that it received a
questionnaire. WellSpan Health,
Lancaster General Hospital, Ephrata
Community Hospital, Holy Spirit
Hospital and PinnacleHealth System
did not receive questionnaires.
Representatives from other nonprofit
hospitals in the area did not know
if their organizations had been
questioned or did not return calls
seeking comment.
The nonprofit hospital sector has
come under fire during the past
couple of years as critics complain
that the line between charitable
organizations and for-profit
entities has blurred too much.
Controversy has surrounded
hospitals’ treatment of the
uninsured, their billing practices
and their investments in for-profit
entities. One of the most vocal
critics is U.S. Sen. Charles
Grassley. The Iowa Republican,
chairman of the Senate Finance
Committee, has repeatedly pressured
the IRS to take a closer look at
nonprofit hospitals.
The hospitals that received the
questionnaires are likely to be the
first ones the IRS will put under
the microscope, said Alvin S. Brown,
a tax attorney in Fairfax, Va., who
worked for the revenue service for
27 years. Eventually, that scrutiny
will expand to other nonprofit
hospitals.
“(The questionnaires) are certainly
going to identify some things that
(the IRS) doesn’t like,” said Brown,
who recently launched
www.irsforum.org to provide a place
for people to share their IRS
experiences.
The Hospital & Healthsystem
Association of Pennsylvania doesn’t
feel the questionnaires are a cause
for concern, said Tina Latin-True,
vice president and controller at the
organization in Swatara Township,
Dauphin County. The association
issued a memo letting members know
that the government is simply
looking for information at this
point.
“It’s a way for hospitals to tell
their stories so the IRS can
understand it better,” she said.
A tax-exempt hospital must file a
990 form with the IRS each year.
This form includes data about the
hospital’s financial results, the
compensation of its executives and
how it benefits the community. The
best thing hospitals can do in the
face of greater scrutiny is to
perform internal reviews to make
sure they are meeting their
charitable missions, Brown said.
That will help them stay out of
trouble if the IRS comes around.
“I call it the IRS tsunami,” he
said. “It’s coming, and you better
be prepared.”
Many area hospitals already perform
such reviews. One example is
WellSpan Health, which prepares an
annual report examining its
charity-care and community-outreach
efforts, among other topics. The
report ensures that the York-based
system is ready whenever it faces
inquiries, said Maria Royce, the
system’s vice president of community
relations.
“We’ll be able to pull it out and
talk about it,” she said.
State regulations imposed on
Pennsylvania’s nonprofit hospitals
might better prepare them for
further IRS examination, said Chris
P. Markley, senior vice president of
community relations for
Harrisburg-based PinnacleHealth. In
1997, the General Assembly passed
the Institutions of Purely Public
Charity Act. The law sets standards
for tax exemption that are more
specific than those outlined at the
federal level, Markley said.
Limitations at the IRS might give
hospitals some breathing room, too.
The agency does not yet have enough
staff to perform widespread reviews
and audits, Brown said. That labor
shortage will buy hospitals time to
comply.
Imbimbo wasn’t concerned when he
sent Memorial Hospital’s
questionnaire back to the IRS in
July. He’s confident that his
hospital is following the rules.
“If we’re doing the job, then I have
nothing to fear,” he said.
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