Assignment: Providence Health System

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Assignment: Providence Health System

Assignment: Providence Health System

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In 2006, Providence Health System, along with Legacy Health System and Sutter Health, settled the uninsured billing cases while denying wrongdoing. As part of Providence’s settlement, the system agreed to refund or adjust $1 million in past bills (Becker 2006).

In response to the increasing public pressure caused in part by the Scruggs lawsuits, the healthcare industry initiated a flurry of activity related to increasing community benefit. However, industry efforts to establish a voluntary standard for both the amount and what counts as community benefit stalled as the American Hospital Association (AHA) and the Catholic Health Association (CHA) offered competing proposals. The AHA proposal counted the cost of bad debt and Medicare losses in addition to the cost of charity care and Medicaid losses as community benefit. But CHA argued that the costs associated with bad debts and Medicare losses should not be counted (Modern Healthcare 2006).

In December 2006, the Congressional Budget Office (CBO) released a report on the provision of community benefit by not-for-profit hospitals. Both for-profit and not- for-profit hospitals in five states—California, Florida, Georgia, Indiana, and Texas—were examined (N = 1,057). Acknowledging the lack of industry consensus on what constitutes community benefit and how such benefits should be measured, the CBO report defined community benefit as the provision of uncompensated care, the provision of services to Medicaid patients, and the provision of certain specialized services that have been tradition- ally identified as unprofitable. In general, comparing for-profit and not-for-profit hospitals produced mixed results. The CBO found, on average, that not-for-profit hospitals provided higher levels of uncompensated care and were more likely to provide unprofitable special- ized services. For-profit hospitals provided care to more Medicaid patients as a percentage of their total patient population and were found to operate in areas with lower average incomes, higher poverty rates, and higher rates of uninsurance (CBO 2006).

A study published in the New England Journal of Medicine (Young et al. 2013) found that community benefit averaged 7.5 percent of operating expenses in community, not- for-profit hospitals, and that 85 percent of the community benefit reported were charity care. The study also found great variation among hospitals in the amount of community benefit provided, ranging from 1 percent to 20 percent of operating expenses.

The CBO report also provided the results of the Joint Committee on Taxation, which valued the total 2002 tax exemptions for the nation’s not-for-profit hospitals at $12.6 billion, with exemptions from federal taxes accounting for about half of the total (CBO 2006).2

judIcIAl cHAllenges to tAx-exemPt stAtus The previously mentioned research findings question the community benefit standard; courts have also reviewed the appropriateness of tax-exempt status. Since the 1980s, state attorneys general have challenged the tax status of many healthcare organizations. Here are some examples:

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