BILL ANALYSIS Ó
AB 975
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Date of Hearing: May 8, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 975 (Wieckowski) - As Amended: April 25, 2013
Policy Committee: HealthVote:12-7
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill revises California's nonprofit community benefits
requirements to create a definition of charity care, and
requires the Office of Statewide Health Planning and Development
(OSHPD) to develop a standardized methodology for calculating
community benefits, calculate the value of community benefits
for submitting entities, and issue civil penalties for
noncompliance with filing requirements.
FISCAL EFFECT
Costs to OSHPD (California Health Data and Planning Fund) of
approximately $2.2 million in FY 2014-15 and FY 2015-16 with
ongoing costs of approximately $900,000 annually.
Costs include information technology staff for various data
functions and accounting and reporting services staff to ensure
compliance with reporting, audit complex documents, develop
regulations, monitor overall compliance and assess penalties.
COMMENTS
1)Rationale . This bill is sponsored by the California Nurses
Association (CNA) to define charity care for nonprofit
hospitals and refine what is considered community benefits to
ensure California's nonprofit hospitals are fulfilling their
mission statements and providing community benefits in
exchange for their tax-exempt status. CNA states in 2010,
more than seven million Californians lacked health insurance,
yet California's nonprofit hospitals benefited $1.8 billion
from their tax-exempt status. This bill includes a refined
definition of community benefits for nonprofit hospitals,
AB 975
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which must be a direct provision of care, not promotional
activities or cost containment, as currently provided within
the guidelines of community benefit. This bill is intended to
improve reporting requirements for greater public transparency
in how hospitals meet their charity care obligation, with
rigorous financial penalties for hospitals that fail to meet
reporting requirements.
2)Background . According to a 2012 Senate Office of Research
(SOR) report, about 247 of California's 387 private hospitals
may be eligible for certain tax exemptions due to their
nonprofit status in exchange for providing various community
benefits, such as charity care. Community benefits are not
uniformly defined or measured. This ambiguity makes it
challenging to hold hospitals accountable for the special tax
benefits they receive and determine if they are providing
meaningful community benefits. Furthermore, some studies show
many investor-owned hospitals and public hospitals provide
charity care and other community benefits similar to or
greater than their nonprofit counterparts.
There appears to be no uniform definition of charity care nor
a requirement in state or federal law for nonprofit hospitals
to provide a certain amount of charity care or community
benefit in order to maintain their tax exempt status.
According to the Legislative Analyst, of the private hospitals
in California, about 30% are for-profit and about 70% are
nonprofit. The for-profit hospitals pay corporate income taxes
to the state. Nonprofit hospitals are exempt from state
corporate income taxes, local sales taxes, and property taxes.
The tax exemptions are intended to allow nonprofit hospitals
to use the funds that would have been paid in taxes to provide
patient care, invest in their facilities and equipment, and
implement other measures that would be beneficial to their
delivery of healthcare services. Controversy exists in how
charity care and community benefits are quantified. Some
hospitals use a cost accounting methodology while others use a
ratio that converts a hospital's listed charges to the actual
cost of the services provided. SOR also reports in 2008, the
federal Internal Revenue Service revised its nonprofit
reporting form in an effort to provide transparency and
accountability and keep pace with changes in the law for the
tax exempt sector. The new form requires nonprofit hospitals
to report their bad debt expenses and Medicare shortfalls, but
excludes counting these as community benefits.
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3)State audits . The California State Auditor audited the
tax-exempt status of nonprofit hospitals in 2007 and 2012.
Recommendations from the 2007 report, for closer monitoring by
the Franchise Tax Board, have largely been implemented. 2012
recommendations, for a mandatory format and methodology for
tax-exempt nonprofit hospitals to follow when presenting
community benefits in their plans, and for tax exemptions to
be based on a certain level of community care, have not been
adopted by the Legislature.
4)Health reform . The Affordable Care Act (ACA) includes new
reporting requirements. Nonprofit hospitals are required to
report to the IRS the results of the community needs
assessment and if all identified needs are not addressed, they
are required to provide reasons. Hospitals also must submit
audited financial statements to the IRS. These reporting
requirements are in addition to the preexisting requirements
of Form 990 and Schedule H. Failure to comply makes hospitals
subject to an excise tax penalty of $50,000 and the loss of
federal tax exemption.
5)Support . In addition to CNA, supporters include various
consumer and labor organizations
6)Opposition includes hospitals and clinics, Service Employees
International Union (SEIU)-UHW, and the California Chamber of
Commerce.
Analysis Prepared by : Debra Roth / APPR. / (916) 319-2081