Congress should be careful when considering whether to legislatively require nonprofit hospitals to meet national minimum standards to remain tax-exempt, because the legislation could impose unfair burdens and costs and potentially damage the hospitals' bond ratings, an attorney warned earlier this week.

Douglas Mancino, a partner at McDermott Will & Emery LLP in Los Angeles, who has worked with nonprofit hospitals for 35 years, told the Senate Finance Committee that nonprofit hospitals may not be able to adequately serve their communities if laws are enacted that endanger their tax exemption or limit their revenues. Mancino made the comments in a five-page letter sent to the committee on May 26, stressing that his views do not necessarily reflect those of his firm.

The committee, which is considering ways to finance health care reform, suggested last month that nonprofit hospitals meet certain standards in order to keep their exempt status and the ability to issue 501(c)(3) bonds.

One suggested standard was that nonprofits give a certain minimum level of charitable care, but Mancino warned that this would degrade bond ratings.

"Although it may not be politically correct to say so, mandated charity care levels will erode operating margins, which will have the effect of degrading bond ratings, which in turn will increase [the] costs of capital," he wrote.

Measuring how much charitable care a hospital provides by the amount of money it spends on it would be a mistake and could result in "potentially bad policy decisions," he added.

"The provision of low-cost prenatal care and education to low-income expectant mothers surely has to be preferable to providing high-cost, post-delivery care to low-birth-weight babies in neonatal intensive care units," he said.

Though the committee is also considering requiring nonprofits to conduct community needs analyses, Mancino said such action would be premature. The new Form 990 created by the Internal Revenue Service includes an extensive Schedule H requiring nonprofit hospitals to give detailed financial and other information concerning the community benefits they provide. Hospitals must begin using the form next year.

Mancino argued that any law requiring these analyses should be postponed until the IRS has had the chance to analyze the findings from the forms and to determine whether additional reporting is needed. Hospitals already are restructuring their accounting systems to meet the new form's requirements, he said, and "imposing additional record keeping and reporting requirements on hospitals at this time would impose an unreasonable administrative and cost burden."

The committee also should be cautious about requiring hospitals to follow certain procedures before taking collection actions against patients so that it does "not inappropriately impair nonprofit hospitals from reasonably collecting what is due them."

He also said that nonprofit hospitals are already required to treat all persons who come into their emergency rooms, regardless of ability to pay, another item the committee is considering.

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