Transparency is a Second Best Solution in Tax Exemption Jurisprudence

What’s the benefit of transparency in tax exempt hospital jurisprudence if there are too few quantifiable mandates?  Apparently, transparency has its benefits every once in awhile.  In a follow-up to a story we blogged about last week, The NY Times reports that a Minnesota exempt hospital has “paused” its pay to play policy:

Allina Health, a large nonprofit health system based in Minnesota, announced on Friday that it would stop withholding care from patients with outstanding medical debt as it “re-examines” its policy of cutting off services for those who have accrued at least $4,500 in outstanding bills. The health system will now temporarily halt this practice but will not restore care for indebted patients who have already lost access. Although Allina’s hospitals treated anyone in emergency rooms, other services were cut off for indebted patients, including children and those with chronic illnesses like diabetes and depression, The New York Times reported last week. Patients weren’t allowed back until they had paid off their debt entirely. Allina’s chief executive, Lisa Shannon, called the move a “thoughtful pause” while the company re-examined the policy.

IRC 501(r) doesn’t mandate much more than transparency. It doesn’t really mandate any particular substantive charitable practice, except the requirement to treat all comers at emergency rooms.  It doesn’t even require an emergency room though.  But anybody who has read a revenue procedure knows that procedure is sometimes substance.  In this regard, IRC 501(r)(6) might hold the biggest threat to pay to play in tax exempt hospitals.  That provision states:

(6) Billing and collection requirements.  An organization meets the requirement of this paragraph only if the organization does not engage in extraordinary collection actions before the organization has made reasonable efforts to determine whether the individual is eligible for assistance under the financial assistance policy described in paragraph (4)(A).

Forever cutting off a poor patient with an amount due might be considered “extraordinary collection action” but those actions aren’t prohibited just delayed. It’s just procedure and transparency again. Still Allina’s move highlights the importance of transparency in tax exemption jurisprudence.  Without actual mandates, the next best thing is transparency allowing for public shaming.  Without IRC 501(r) the Times might not have known about Allina’s strict pay to play policy and in the absence of outrage perhaps nothing would have changed

darryll jones