Assignment: Physician Relationship

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Assignment: Physician Relationship

Assignment: Physician Relationship

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A medical center in Illinois lost its tax-exempt status because of aggressive patient-collection tactics and because the organization had contracted with several for-profit entities to fulfill key hospital functions (Pressey 2010).

◆ A New Jersey tax court ordered a health system to pay $15 million in back property taxes on the gift shop and other operations that were operated for a profit (Judge 2016).

Irs cHAllenges to tAx-exemPt stAtus In 1987, in response to public pressure to reduce federal budget deficits, the IRS began to audit tax-exempt organizations, including healthcare organizations. By the end of 1992, the IRS had audited 233 tax-exempt healthcare organizations. Most frequently reported irregularities included inappropriate physician recruiting arrangements and taxable unre- lated business income. For instance, in 1994, a hospital in Houston agreed to pay nearly $1 million in federal income taxes and penalties in response to IRS allegations that the hospital had offered lucrative physician recruitment and retention incentives, including signing bonuses, income guarantees, free office space, malpractice insurance, equipment loans, and loan guarantees (Wang and Wambsganns 1997).

◆ A healthcare system in Texas was challenged by the IRS for its joint venture status (a joint venture between a not-for-profit entity and a for-profit entity). After several appeals, the trial court ruled in the system’s favor and the IRS decided to not appeal (Nowicki 2008).

A clinic in Wisconsin lost its property tax exemption when the court ruled its property was not used exclusively for benevolent purposes as defined by state law (Taylor 2003).

pensions, payroll taxes, income taxes, and tax-exempt bond financing, CEP audits examine the following (HFMA 1992):

◆ Community benefit standard: Auditors check composition of the governing board, amount of charity care provided, and complaints of patient dumping (denying care to or transferring a patient based on the patient’s inability to pay).

◆ Unreasonable compensation and private inurement: Auditors check physician relationships to identify prohibited instances of private benefit, unreasonable compensation, improper disclosure, and inappropriate physician recruiting practices.

◆ Financial analysis: Auditors check all affiliated entities to detect the presence of prohibited proprietary purposes, inurement, serving of private interests, unrelated business income (i.e., income from business activities that is unrelated to the organization’s tax-exempt purposes and therefore must be reported as taxable income), or lobbying activities.

 

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