Hospitals in California Seek to Reduce Charity Requirements

February 14, 2018; Pasadena Star-News

This is an update on the ongoing debate about nonprofit status of hospitals that has been raging around the country. Not two months ago, NPQ reported on a call for nonprofit hospitals to do more charitable work to ensure they maintain their nonprofit status. This was based on what appeared to be a growing challenge to their nonprofit status on various fronts. There is the famous case in New Jersey in which a judge challenged the nonprofit structure of a hospital, and a recent IRS ruling revoking the tax exempt status of another hospital. NPQ has reported on this for years, asking questions about how charitable nonprofit hospitals actually are.

A new wrinkle has emerged in California where some hospitals have launched a new preemptive strike, petitioning the state attorney general to reduce the amount of charitable work they are required to do to maintain their tax-exempt status.

It has long been a topic of discussion that nonprofit hospitals are required by law to do some charitable, community-based work to justify the tax exemptions they receive. The IRS does not have a specific amount, however, so there is a lot of room to self-determine how much a hospital is giving back to its community. The IRS Form 990 has a Schedule H devoted to this.

In California, however, there is a separate law that allows the attorney general there to determine exactly how much charitable work a nonprofit hospital has to do, and this is what is being challenged by four different hospitals. Three hospitals have petitioned to have their amount reduced by about 50 percent and another has asked for it to be reduced by 70 percent. One of the hospitals was recently converted to for-profit status, but has to abide by the charitable work amount for six years as part of the agreement to allow the transition.

Advocates for hospitals are saying that they do more than their fair share: They give on average about $11 of charitable work for every $1 in tax deductions they receive. Community advocates, of course, argue the opposite—that hospitals are not doing enough.

The attorney general has a limited amount of time to respond to the petition, and a hearing on one of them has been scheduled. These very petitions were submitted to the current attorney general’s predecessor not long ago and were declined. The hope is that this new attorney general will have a different point of view.—Rob Meiksins