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Assembly to Consider Bill to Hold Hospitals Accountable on Charity Care Obligation

California Nurses Association Press Release, 3/27/13

Contact Information | Media Center

Health Committee to Also Review Bill on Transparency for Insurers

The California Assembly Health Committee will hold the first hearings April 2 on two bills sponsored by the California Nurses Association, including one that has already drawn considerable interest on holding hospitals more accountable in meeting their charity care and community benefit obligations.

A second CNA-backed bill to require the state Department of Managed Health Care to provide public notice and information about new managed care applicants will also be considered April 2.

What:                   Assembly Health Committee Hearing on Health Bills

When:                  Tuesday, April 2, 1:30 p.m. – 4:30 p.m.

Where:                 Room 4202, State Capitol, Sacramento

Charity Care Accountability

AB 975, jointly authored by Assembly member Bob Wieckowski of Fremont and Assembly member Rob Bonta of Oakland, addresses the issue of charity care obligations by nonprofit hospitals that, according to a CNA report last year, are rewarded with nearly $2 billion in tax exempt benefits beyond what they return to communities.

The bill would:

  • Clearly define charity care to ensure it is care for the poor, not marketing, cutting of services or other schemes, and redefine genuine community benefit, and assure greater public transparency.
  • Require private hospitals to justify their non-profit exemption if their operating revenues exceed 10 percent of their operating expenses.
  • Exempt all public county and district health systems, UC, VA, and small rural hospitals.

The need for the bill was evident in a CNA report last year which the disparity between what many California private non-profit hospitals receive in tax benefits compared to what they provide in charity care. Half of California’s nonprofit hospitals provide 2.46 percent or less of their operating expenses on charity care, far less than the former federal requirement that they spend 5 percent of gross revenues on charity care or risk losing tax exempt status.

The ripple effect especially hits California cities and counties which lose more than $1 billion as a result of the tax exemption and what the counties pay directly to hospitals in their geographic area to provide hospital care for the poor.

A Bank of America survey, Time magazine reported recently, noted that nationally nonprofit hospitals average higher operating profit margins than for-profit hospitals after the for-profits’ income-tax obligations are deducted. “In health care, being nonprofit produces more profit.”

The California State Auditor also released a report last year on non-profit hospitals. At a hearing in August, 2012, Grant Parks, Principal Auditor of the Auditor’s Office, noted that “state law is fairly permissive on what can be counted as community benefit…It’s like the Wild West of what is required.” 

In a letter to the committee earlier this month, CNA noted that one way non-profit hospitals accumulate their enormous wealth is “through abuse of their tax exempt status, partly by counting such dubious practices as marketing and cutting costs (meaning services, not executive salaries) as a supposed community benefit. AB 975 will fix this practice by setting clear guidelines on what is considered legitimate community benefits and by enforcing improved guidelines on transparent reporting of charity care through rigorous financial penalties for hospitals that fail to meet reporting requirements.”

Early endorsers of AB 975, in addition to CNA, include the California Labor Federation, California Professional Firefighters, California Tax Reform Association, California Conference of Machinists, Engineers and Scientists of California, UNITE-HERE, Utility Workers Union of America, Professional and Technical Engineers, Amalgamated Transit Union California Conference Board, Teamsters, and United Food and Commercial Workers Western States Council.

Public Transparency and Accountability for New California Health Insurers

The Health Committee will also consider AB 578, authored by Assembly member Roger Dickinson of Sacramento. The bill coincides with the implementation of the federal Affordable Care Act. One result of the ACA is that more healthcare insurance companies and other industry players are seeking to cash in on the lucrative profits of enrolling additional members who are required to buy insurance.

Insurers, including hospitals moving to set up their own insurance operations to participate in the ACA-required health exchanges, would be covered by the public notice and transparency provisions of the bill. AB 578 would also direct the DMHC to invite written public comment and hold a public hearing prior to approval of an application. 

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