JOHN CARROLL

Lawrence Prybil, PhD, Iowa University Professor

Even after a lengthy round of intense criticism from some of the most high-profile lawmakers in Washington, DC, a large swathe of nonprofit hospitals still have done little to outline formal policies on the kind of charity care they have been providing to their communities.

In a new nationwide survey of nonprofit institutions undertaken by a group of researchers at the University of Iowa, the vast majority of hospital administrators pointed out they were working hard to achieve top marks for a set of standards on quality and safety. But only about one-third had a formal policy in place to guide their charity programs.

“All community health system boards and their CEOs should devote concerted attention and resources to meeting the emerging benchmarks of good governance with respect to their systems’ community benefit responsibilities,” the university’s report noted.

But the research team led by Lawrence Prybil, PhD, an Iowa University professor of health management and policy, found in a review of 123 nonprofit community health systems — each with a minimum of two hospitals — that only 36 percent “have formal, board-adopted community benefit plans in place.” And the group urged the systems to shape up quickly, adopting a plan that clearly outlines how they intend to provide charitable services to their communities, with a needs assessment, reporting process and accountability measurements built in to monitor their progress.

“It’s possible that systems with no plans are doing great work but have no formal plan,” noted Prybil. “However, we think that as a benchmark of good government, it would be a good idea to develop a formal plan that spells out objectives and priorities.”

The university isn’t the only group out there surveying the country’s non-profit hospitals. The IRS has also been scouting nonprofits to get a better idea of the kind of charity care they’re providing. And U.S. Sen. Charles Grassley, an Iowa Republican, has asked the Government Accounting Office to probe nonprofit hospitals dealing in joint ventures and to review executive compensation plans after hearing testimony regarding some exotic vacations and other benefits that have been dangled before some eager hospital board members and executives.

“Nonprofit board members are supposed to serve the public, not themselves,” said Grassley. “Public money is at stake. Nonprofit groups are tax-exempt, and other taxpayers pay for that privilege.”

An interim report released by the IRS last summer concluded that nonprofit hospitals’ primary claim to community service involved uncompensated care – providing services to people who couldn’t, or wouldn’t, pay for it.

As a result, Grassley determined that little in the way of real charity care was being done, and offered a set of new rules to prod the hospitals to action. Those demands included:

• A written charity policy.
• A minimum of five percent of revenue or operating expenses for charitable uses.
• A periodic assessment of community needs.
• A rate cap for indigent patients.
• And the loss of tax-exempt status for hospitals that don’t perform.

The emphasis being put on charity care — particularly controversies over executive pay and financial dealings — prompted the IRS to update its Form 990, an annual requirement for nonprofit hospitals that now demands much more meticulous attention to financial transparency and a board certification that they are dotting the i’s and crossing the t’s of the rules and regulations governing nonprofits.

Add all up the criticism and federal probes, say healthcare attorneys, and you can bet the IRS will be following up its probes into charity care and executive compensation with a fresh round of potentially embarrassing audits.

Despite the meager numbers of nonprofit systems that have formal charity plans in place, Prybil believes the message is getting through.

“My hunch would be if this study had been done even three or four years ago, these numbers would have been much lower,” he added. “Boards are paying much more attention to this. And I bet you that if we replicate this study two or three years down the road, the numbers will go up even more.”

Prybil’s survey also found that non-profits are much further ahead when it comes to standards on safety and quality, two key issues that have snared the attention of hospital executive of every stripe. Roughly nine in 10 of the institutions had committees in place to review their performance on safety and quality standards, And almost as many now have standing committees to oversee executive compensation — the kind of performance that Prybil believes is the direct result of the increased sensitivity to the issue since lawmakers began their probes.

“The next phase of this study will involve site visits to a dozen of these systems around the country,” said Prybil. “We want to meet and visit with board members and CEOs and pursue these questions more thoroughly.”

April 2008