Lawmakers Urge Stronger Regulation of Nonprofit Hospitals

April 4, 2024

The Honorable Daniel Werfel
Commissioner Internal Revenue Service
1111 Constitution Avenue, NW
Washington, D.C. 20224

The Honorable Janet Yellen
Secretary U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Commissioner Werfel and Secretary Yellen:

We write to request new regulations and guidance on nonprofit hospitals from the Department of Treasury and Internal Revenue Service (IRS). These actions could alleviate medical debt for millions of individuals, particularly working-class families who are already struggling to make ends meet.

Despite local and state actions to address medical debt, the problem remains common and destructive to the economic stability of families across the country. More than 41 percent of U.S. adults currently have unpaid medical or dental bills.¹ Significantly, about two-thirds of people with medical debt reported delaying care that they or a family member needed because of cost. ² Further, medical debt exacerbates existing disparities because of its disproportionate impact on Black and Hispanic households, which are more likely to hold medical debt.³

While local governments have used their executive authority to address medical debt, the IRS is in a unique position to reduce medical debt at an even greater scale at the federal level. Most U.S. adults with medical debt owe money to hospitals, and nearly 60 percent of hospitals have nonprofit status under federal law.⁴ We urge the IRS to clarify, strengthen, and enforce requirements for nonprofit hospitals relating to financial assistance and collection actions.

I. Congressional Intent Behind the Section 501(r) Regulations

The Affordable Care Act (ACA) added new requirements for nonprofit hospitals through Section 501(r) of the Internal Revenue Code. Generally, nonprofit hospitals are required to: (1) conduct a community needs assessment every three years; (2) adopt and publicize a financial assistance policy; (3) cease billing gross charges; and (4) limit the use of extraordinary collections actions until the hospital has made reasonable efforts to determine whether the patient is eligible for financial assistance.⁵

These requirements were intended to increase charitable care and decrease aggressive collections practices. For instance, Senator Chuck Grassley (R-IA) explained in a March 2010 press release about the ACA:

Tax-exempt hospitals don't [currently] have many measures of accountability for their special status. . . . Sometimes that's resulted in [nonprofit hospitals] providing very little charitable patient care or other community benefits, failing to publicize charitable care to patients, charging indigent, uninsured patients more than insured patients, and using very aggressive collection practices. [. . .]

The provisions [in Section 501(r)] take steps to differentiate tax-exempt hospitals from for-profit hospitals and provide further transparency about tax-exempt hospitals' fulfilling their charitable mission. Congress, the IRS, and the public will now have the additional tools and information to ensure that charitable hospitals act charitably.⁶

Unfortunately, many nonprofit hospitals have not complied with Section 501(r). For instance, instead of complying with the requirement to “widely publicize”⁷ their financial assistance policies, 45 percent of nonprofit hospitals routinely bill patients whose incomes are low enough to qualify for financial assistance.⁸ Indeed, one of the nation's largest nonprofits provided its employees “with a detailed playbook for wringing money out of patients — even those who were supposed to receive free care because of their low incomes.”⁹

At the same time, many nonprofit hospitals have pursued aggressive collections practices that harm patients. Nonprofit Allina Health, which has over $4 billion in annual revenue, denied medical care to patients with outstanding bills, including children and those with chronic illnesses like diabetes and depression.¹⁰ Nonprofit Mary Washington Healthcare sued so many patients that the court reserved special time for its cases, and one patient noted: “I literally have no food in my fridge because they're garnishing my check.”¹¹ While the egregious practices listed above ceased after press attention,¹² systemic change is needed to prevent this from happening again.

II. Recommendations for the IRS

Using its existing authority, the IRS should strengthen and enforce the regulations for nonprofit hospitals under Section 501(r) and issue much-needed guidance to nonprofit hospitals on expectations for charity care. First, the IRS should consider:

Second, the IRS should issue a Revenue Ruling clarifying that nonprofit hospitals are expected to provide charity care commensurate with their financial resources. This standard should be flexible to account for the variety of financial circumstances among nonprofit hospitals. However, the guidance should emphasize that nonprofit hospitals, which are exempt from taxes as “charitable organizations,” may not operate primarily to pursue profits, at the expense of patients who cannot afford necessary care. In sum, the IRS should provide clearer guidance on the level of charity care that is expected of nonprofit hospitals.

The IRS has an important role to play in reducing medical debt, which remains an unfortunate reality for millions of families in the United States. We urge the IRS to ensure accountability for nonprofit hospitals and to protect families from the destructive effects of medical debt.

Sincerely,

Nydia M. Velázquez
Member of Congress

Ted W. Lieu
Member of Congress

Barbara Lee
Member of Congress

Rashida Tlaib
Member of Congress

Pramila Jayapal
Member of Congress

Jonathan L. Jackson
Member of Congress

Eleanor Holmes Norton
Member of Congress

Summer Lee
Member of Congress

Yvette D. Clarke
Member of Congress