States debate hospital tax exemption bills

Hospitals in Pennsylvania and California may see changes to tax exemption rules--lawmakers in both states are considering legislation that would clarify the work hospitals need to do to preserve their not-for-profit status.

In California, Assembly Bill 975  would mandate not-for-profit hospitals spend a minimum of 8 percent of their annual operating margin on charity care starting in 2015, according to California HealthLine. If the hospital operates any outpatient clinics, the clinics would have to spend 5 percent of their net annual revenues on charity care.

In Pennsylvania, the Senate recently passed a bill that would amend the state Constitution and give the legislature the sole authority over defining tax exemptions for hospitals and other public charities, Thomson Reuters reported. The legislation came in response to a Pennsylvania Supreme Court ruling last year that required non-profit organizations operate entirely free of profit motive and donate a substantial portion of its services--components of a five-prong test to determine a tax exemption, according to Thompson Reuters.

The hospital lobbies in California and Pennsylvania have opposing roles regarding the bills. The California Hospital Association has denounced AB 975, which has labor backing. The bill "replaces local control with a 'guilty until proven innocent' burden on well-managed hospitals and impacts the implementation of the Affordable Care Act," CHA said in a statement.

On the national level, the American Hospital Association has urged Congress to maintain non-profit hospitals' access to tax-exempt financing, AHA News Now reported. "[M]arket forces are driving an urgent need for hospitals to make significant capital investments while reducing costs, both of which require continued access to low-cost capital through tax-exempt financing," AHA said in a statement to the House Committee on Ways and Means.

To learn more:
- read the Thomson Reuters article
- here's the California HealthLine article
- read the AHA News Now brief and statement (.pdf)
- check out the CHA statement