IRS Needs to Monitor Nonprofit Hospitals

Non-Profit Health Industry

Author and researcher Thomas Wallace refers to the healthcare industry as a "…rapidly advancing, technologically enhanced medical culture" that is transitioning into "the same politically enabled monolithic corporate model" that practices "skullduggery" as the big financial institutions in the United States (Wallace, 2013). What is happening in healthcare contributes to the ongoing "destabilizing" of the middle class economy, and moreover, kicks dirt in the faces of a "majority of citizens whose incomes have stagnated for over three decades" (Wallace 60). Moreover, the nonprofit hospitals and clinics are raking in very large sums of money, some with questionable status as to whether they should truly be a nonprofit entity or not. The purpose of nonprofit status from the perspective of the IRS is that hospitals will provide charitable services. However, "Its commitment to charity is dwarfed by its preoccupation with profits," wrote Pittsburgh's lead lawyer during a suit challenging the University of Pittsburgh's tax-exempt status (Rosenthal, 2013). In fact, the University paid 20 executives "more than $1 million annually" (Rosenthal, p. 2). This paper delves into the nonprofit vs. for-profit status of healthcare services in the U.S.

Healthcare facilities get beneficial tax breaks that come with nonprofit status

"A nonprofit hospital's tax-exempt status may carry through its 501(c)(3) status even after the hospital merges with a for-profit entity, and the resulting joint venture organization is exempt from paying taxes despite its very visible profits" (Pan, 2013).

Wallace points out that Stamford Hospital in Connecticut -- an official nonprofit institution -- listed expenses for laboratory work at $27.5 million in 2012. But Stamford charged patients $293.2 million, "over ten times its costs," Wallace explains on page 62. That certainly sounds like an unethical scheme to rip-off patients who don't really know the actual costs of medicine and services. Still on the subject of Stamford Hospital, in his investigative article in Time magazine, Steven Brill points out that a 64-year-old woman felt chest pains one night and was rushed by ambulance to Stamford's emergency room.

The nonprofit hospital ran tests on her for about three hours and she had a brief interaction with a doctor; she was told she had indigestion and sent home. She got a bill for $995 for the ambulance ride; $3,000 for the doctors fees (after having only a short moment with a physician), and $17,000 for the hospital (Brill, 2013). The unethical nature of these outrageous fees hospitals charge are compounded by the fact that hospitals hide from taxes due to their questionable nonprofit status; it all seems like a scam and the government seems to be looking the other way.

Wallace writes that hospitals in Texas and elsewhere prescribe the cancer "wonder drug" Rituxan to patients with great regularity. Notice how price gouging of patients takes place using this drug as an example: a) it costs the pharmaceutical company about $300 to produce and ship the drug; b) the hospital or clinic pays about $3,500 for the drug; and c) the hospital charges patients $13,702 on average for the drug (Wallace, 62). "In healthcare, being nonprofit produces more profit," according to research of 2,900 nonprofit hospitals by the Bank of America and McKinsey & Company (Wallace, 63).

Donations to nonprofit hospitals and other healthcare facilities