Meds Update: Mayo Clinic is an “Educational Organization”; More Charity Care Complaints (including for Mayo)

On remand from the Eighth Circuit, the U.S. District Court for the District of Minnesota in Mayo Clinic v. United States, No. 16-cv-03113 has concluded that the Mayo Clinic’s primary purpose is educational and therefore it qualifies as an “educational organization” exempt from unrelated business income tax on its debt-financed income. As a result, the Mayo Clinic is eligible for an $11.5 million refund (plus interest). Especially given this was a factual conclusion, it is uncertain whether the government will appeal the result since it would presumably be subject to clearly erroneous review. Nevertheless, the decision could have major implications not only for nonprofit hospitals and other tax-exempt organizations that have unrelated debt-financed income, but also for tax-exempt organizations that could plausibly seek educational organization status so as to escape private foundation classification. It is likely in part for this reason that the IRS issued an Action on Decision refusing to accept the Eighth Circuit’s decision that lowered the bar for qualifying as an educational organization, which bar the District Court applied. Coverage: Law360, Tax Notes.

Ironically, on the same day the court issued this decision the Post Bulletin published a story headlined They could have qualified for charity care. But Mayo Clinic sued them, that included this damning information:

The Post Bulletin interviewed 20 patients sued by Mayo Clinic for unpaid bills and determined that 14 could have qualified for charity care based on the household income information provided during the interview. Yet all but one were forced to pay their bills in full after they were sued, often through wage garnishment. Most had no idea charity care was an option .

Of course the Mayo Clinic is far from alone among nonprofit hospitals in facing complaints relating to charity care. The L.A. Times also recently reported that Hospitals had to put charity care rules on their websites months ago. Some didn’t do it. A new California law requires hospitals to “prominently post their financial assistance policies on their websites,” but “more than nine months after the California law went into effect, some hospitals still had not put up their charity care policies in readily apparent spots on their websites, The Times found after reviewing websites for hospitals around the state.”

Lloyd Mayer