Lawmakers question tax breaks and benefits from Montana’s nonprofit hospitals
(Daily Montanan) Montana nonprofit hospitals can choose what they consider charitable or community care, and assign whatever dollar amount they believe is reasonable, to justify their tax-exempt status in Montana, according to a legislative audit meeting Tuesday.
Not only that, but recommendations made more than two years ago that suggested the state’s Department of Public Health and Human Services adopt rules or laws about how to count charity or community care appear to have been ignored, lawmakers heard on Tuesday.
“Goodness,” said Legislative Audit Committee Chairwoman Rep. Denise Hayman, D-Bozeman.
Montana lawmakers from both political parties expressed frustration that the largest healthcare systems in the state can claim whatever amount they want as community or charitable care with little oversight from the Internal Revenue Service or the State of Montana.
Nonprofit hospitals comprise the bulk of healthcare facilities in the state and are among the largest, including SCL-Intermountain and the Billings Clinic. As nonprofits, they have a federal tax exemption as well as not being required to pay state corporate income tax, state property tax, state personal property tax (which is often called “business equipment tax”) or local property taxes.
In turn, those hospitals are required to report on their federal tax returns how much charity or community care they have given. However, what they report and the value assigned to that care is not checked by auditors or federal authorities.
“Our impression is not much of an active effort is given to scrutinize the return on these,” said Legislative Auditor Angus Maciver on IRS oversight.
In return for that tax exemption, healthcare facilities are expected to provide services to their communities that justify the tax break. In a state audit report, many of those organizations reported giving back more to the community than the exemption was worth; however, some reported giving back less.
The audit report, issued in 2020 during Gov. Steve Bullock’s administration, found that Montana hospitals receive more than $146 million in exemption benefits and reported giving back $257 million.
Representatives from the Montana Hospital Association both acknowledged that there are no standardized reporting requirements, and said that nonprofit providers provide more in value than the tax breaks. They said that the organization has developed a Montana guidebook on how to classify those expenses, utilizing best practices around the country.
“We support improvements to community benefit reporting that bring greater clarity to the work that hospitals do to improve the health of their communities,” said Katy Peterson, vice president of communications for MHA. “Montana’s nonprofit hospitals provide significant benefit to the communities they serve, including free care, discounted care and subsidization of essential services (such as ambulance services, labor and delivery units, emergency rooms, etc.).”
Charitable care vs. tax exemption
Most nonprofits reported spending more on community or charitable care than the value of their tax exemption. These organizations are not required to spend more. However, a few reported less, according to the legislative audit report. Those include:
Name (Location) Est. tax exemption Community benefit spending
Beartooth Billings Clinic (Red Lodge) $404,188 $271,938
Big Sandy Medical Center (Big Sandy) $222,479 $147,168
Billings Clinic (Billings) $36,592,399 $28,582,326
Cabinet Peaks Medical Center (Libby) $1,310,075 $690,037
Deer Lodge Medical (Deer Lodge) $746,029 $138,094
Livingston Health Care (Livingston) $5,966,247 $513,924
Mineral Community Hospital (Superior) $486,300 $146,784
North Valley Hospital (Whitefish) $1,461,260 $891,035
Northern Montana Hospital (Havre) $11,740,513 $6,954,285
St. Vincent Healthcare (Billings) $29,394,471 $27,446,993
Note: This data was taken from 2016, the year used by state auditors for purposes of this report.
Does charity care make a difference?
However, the audit’s findings also revealed that there are no consistent standards for what should be reported, and that there was little evidence to suggest that those reported benefits were making a positive impact.
“Voluntary guidelines developed by a nationwide hospital association regarding what kind of activities should, and should not be, reported as community benefit spending exist, but not all hospitals know about or use them,” the audit report said
Furthermore, the audit urged DPHHS to develop standards that help measure charitable and community care.
Former DPHHS Director Sheila Hogan responded to the auditors’ findings on Sept. 22, 2020 saying it concurred and would be implementing rules to “identify the criteria for charity care policies in nonprofit hospitals.”
However, the Legislative Audit Committee on Tuesday heard that none of the recommendations of the reporting, including work by the DPHHS, has been implemented.
The committee learned the department had requested a bill for the upcoming 2023 legislative session in the Children, Families and Human Services Committee, but as of right now, legislative bill drafters have received no instruction on the specific wording and the bill has no legislative sponsors.
“I am a little bit incensed that no one has acted on it. Why have a legislative audit committee? Why leave this issue dormant?” asked Sen. Tom McGillvray, R-Billings. “Someone has to pick it up. We have to have accountability. Clearly, we’re in the same place (as two years’ ago) and that’s not a good place to be.”
Peterson said the MHA stands ready to work with lawmakers to improve and clarify reporting.
“Montana’s hospitals look forward to working with lawmakers and the State on improving the way we report community benefit. The current federal-level reporting requirements are broad, and as a result it is not uncommon to see hospitals classify certain expenses differently, or even under-report in some areas when it is unclear whether or not activities or expenses that qualify as community benefit,” Peterson said. “Hospitals see the value in standardizing definitions, criteria and how certain activities are categorized.”
McGillvray expressed further frustration that there was not a way to look at what nonprofit hospitals had reported and analyze it further.
“It could be above board, but we don’t have a way to analyze it,” he said.
The report backs up McGillvray’s concerns.
One of its key findings was that often the charity and community care nonprofit hospitals report has a weak link or no tie to Community Needs Assessments, which are conducted every three years in communities.
“Our analysts found community benefit spending has no clear impact on four priorities identified in most recent community health needs assessments of the 47 nonprofit hospitals,” the audit report said.
Fellow Republican Billings lawmaker Rep. Terry Moore said he and McGillvray will carry a bill in the upcoming session to provide some oversight and rules.
“We have to take some ownership on this as legislators,” Moore said, which brought some informal support from members of both political parties.