Officials Say "Prove It!" On Charity Care

Over the past year, regulators kept up the pressure on voluntary hospitals to prove that they were providing a reasonable level of charity care. Not only did the IRS continue to scrutinize tax-exempt hospitals, state tax authorities and federal legislators got their licks in, too. Overall, over the past 12 months the hospital industry has taken a pounding on this issue.

As has been the case for decades, much of the controversy has centered around the day-to-day accounting definition of charity care, with battles erupting left and right over the extent to which uncompensated care and insurance shortfalls should be counted. For example, when the American Hospital Association told members of the U.S. Senate Finance Committee that hospitals wanted to include bad debt and the gap between Medicare/Medicaid payments and costs in the tally, it didn't go over very well.

Hoping to create common ground, a number of industry organizations came out with charity care guidance for hospitals this year. For example, Catholic Hospital Association and the Healthcare Financial Management Association weighed in on how to account for such care appropriately, while consulting firm PriceWaterhouseCoopers issued its own guidelines coaching hospitals on how to get their charity care contributions publicity and buy-in from their communities.

While these guidelines are spurring discussion--and serving as a handy yardstick for hospital administrators--I don't think any major new ground was broken here. Still, the fact that several groups chose 2006 as the year to take a stand on charity care means something. Look for the charity care issue to get even hotter in 2007, as the Democrats hit their stride as the majority party in Congress and work to make some visible reforms prior to the '08 presidential campaign.