SEE NEW GREAT BOARDS BRIEFING PAPERS on the new IRS Form 990, the IRS preliminary community benefit report, and a far-reaching proposal from Sen. Charles Grassley to create "two tiers" of tax-exempt hospitals at http://www.greatboards.org/.
NEW ALLIANCE broadens Bader & Associates' services in governance, strategic planning, hospital-physician relationships and strategic financial analysis. For details go to http://www.greatboards.org/consulting/partners.asp.
COMING SOON: FALL ISSUE OF GREAT BOARDS will feature articles on best practices for public hospital governance, strategic planning, and the value of local hospital boards in a health system. Look for it later this month. See the summer issue -- featuring an interview with Jim Conway, MD of the Institute for Healthcare Improvement on engaging boards in improving quality and patient safety, plus articles on aligning hospitals and physicians and "red rules" for board conduct -- now at www.GreatBoards.org.
Illinois judge reverses Provena hospital's loss of tax exemption
In a case hospitals are watching as a harbinger in the national debate over tax exemption for not-for-profit hospitals, an Illinois judge reversed the state's decision to deny property-tax exemption to Provena Covenant Medical Center in Urbana. The judge said the hospital is deemed to be tax exempt on charitable and religious grounds and entitled to the return of property taxes totaling about $5 million paid since its exemption was revoked in early 2004. Attorney Patrick Coffey, a partner with Lord, Bissell & Brook in Chicago who represented the hospital, said the ruling "indicates the court's clear rejection of the Illinois Department of Revenue's primary contention -- that some specific quantity of charity care is required in order to qualify for property-tax exemption." Stay tuned: an appeal of the current ruling is considered likely. For more information, go to: http://www.provena.org/body.cfm?id=289&action=detail&ref=576&fromid=1&graphic2 and http://www.chicagobusiness.com/cgi-bin/news.pl?id=25730&seenIt=1.
IRS issues report on community benefit
The Internal Revenue Service has released an interim report summarizing responses from almost 500 tax-exempt hospitals to a May 2006 questionnaire about how they provide and report benefits to the community. The mean (average) community benefit expenditure reported by hospitals, as a percentage of the individual hospital's total revenues, was 9%, and the median was 5%. But performance varied widely: About 22% of hospitals reported 1.9% or less of their total revenue spent on community benefit, while another 27% hospitals reported 2% to 4.9%. The IRS found that the hospitals surveyed provided $9.3 billion in community benefit expenditures. After uncompensated care, the next largest expenditures were for medical education and training, research, and community programs. The IRS plans to issue a final report by the fall of 2008, including information on the executive compensation aspects of its study. Meanwhile, IRS will conduct compliance checks of individual hospitals to test the reported results. For links to the full report, an executive summary and the questionnaire, go to: http://www.irs.gov/charities/charitable/article/0,,id=172267,00.html .
The same day, Sen. Charles Grassley, (R-Iowa), ranking member of the Senate Finance Committee, released a discussion draft prepared by his staff that would create two tiers of tax exempt hospitals. To qualify for a 501(c)(3) designation, hospitals would need to devote a minimum of 5% of annual patient operating expenses or revenues to charity care, whichever is greater (not including bad debt). These hospitals would be able to issue tax exempt bonds and accept tax-deductible donations. Second tier, 501(c)(4) hospitals could qualify for tax-exempt status by conducting a community needs assessment every three years, and devoting a minimum of 5% of annual patient operating expenses or revenues to community benefits, a much broader concept than charity care. The American Hospital Association says such regulation is premature and unwarranted. Mindy Hatton, AHA senior vice president and general counsel, said, "The IRS report shows that hospitals provide a broad range of benefits to their community. The IRS is vetting new reporting schedules (see story below) that will provide the public with greater and more consistent information about hospitals' service to the community. With this significant work going on, the proposals in the minority staff's draft report are not needed." Since this is a minority staff report, it is uncertain whether these recommendations will go forward, but they will clearly play a role in shaping the ongoing debate over the status of tax-exempt hospitals. For a copy of the discussion draft, go to: http://www.senate.gov/~finance/press/Gpress/2007/prg071907a.pdf. Great Boards has published a briefing paper at http://www.greatboards.org/
IRS Issues Draft Form 990 for Tax-Exempt Organizations
In June 14th, IRS issued a draft revision of the Form 990 return that not-for-profit organizations file each year. The revision includes a 10-page core form to be filled out by all tax-exempt organizations, with 15 additional schedules that apply to some organizations. The new form requires substantial details on governance, charity care, community benefit, compensation, tax-exempt bond financing and dealings with affiliated organizations. The IRS hopes to use the new form for the 2008 tax year (returns filed in 2009), but AHA -- while supporting greater transparency -- says the form asks for too much, too soon and in ways that extend the community benefit standard beyond current law. Great Boards has published a briefing paper at http://www.greatboards.org/ . For the IRS background paper, go to http://www.irs.gov/pub/irs-tege/form_990_cover_sheet.pdf . For the AHA comment letter, go to http://www.aha.org/aha/letter/2007/070821-let-IRSSchH.pdf
Quality Indicators linked to better outcomes
If the lowest-performing U.S. hospitals performed as well as top-performers on specific quality measures, 2,200 fewer Americans would die each year, find researchers in a new study published in the July/August issue of Health Affairs. For their study, "The Inverse Relationship Between Mortality Rates and Performance in the Hospital Quality Alliance Measures," researchers at the Harvard School of Public Health and Brigham and Women's Hospital examined the relationship between hospitals' performance on Hospital Quality Alliance (HQA) indicators and mortality rates. "[W]e found that high performance on the HQA was associated with 7 percent to 15 percent lower odds of death for each of three clinical conditions," says lead author Ashish K. Jha, M.D., M.P.H. For the study, go to http://content.healthaffairs.org/cgi/content/abstract/26/4/1104
Medicare No Longer Will Pay for Treatment of Preventable Errors, Will Require Reports on 32 Quality Indicators
CMS announced it will stop compensating hospitals for treating "reasonably preventable" hospital-acquired conditions such as pressure ulcers, urinary-tract infections, and patient falls. Under the new rule, hospitals cannot bill Medicare patients for charges associated with hospital-acquired complications; hospitals will be responsible for the extra costs. Preventable conditions covered by the rule also include injuries from prolonged use of catheters, mediastinitis, and "never events" such as objects left in the body during surgery, air embolisms and blood incompatibility. Private insurers are considering similar changes. The rule, mandated by a 2005 law, will take effect in October 2008. CMS officials said that next year they plan to add three additional conditions to the list. CMS also plans to add five new quality measures, bringing to 32 the number of measures hospitals must report to qualify for the full market basket update. The new measures include 30-day mortality for Medicare patients with pneumonia and four new measures involving surgical care improvement. The changes are part of a broader set of payment changes announced in April. For more information go to http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=2116&intNumPerPage=30
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P4P on the rise but still in infancy, according to PricewaterhouseCoopers study
Private insurers are using a wide range of measures and payment incentives in their pay-for-performance programs, according to "Keeping Score," a study of ten large commercial payers by the Health Research Institute of PricewaterhouseCoopers. The report covers eight P4P programs for physicians and four for hospitals. The physician programs used nearly 60 performance measures; not one was common to all the plans. Payment levels ranged from 1% to 8% of total base physician reimbursement, which most insurers called too low to significantly change provider behavior. Hospital programs tend to be less evolved at this point; they tend to be customized through individual contract negotiations, and are likely to develop further depending on how CMS shapes its programs, the authors said. "Pay-for-performance programs are an important tool to link financial payment with quality improvement," the report concludes. "But the wide variation in program structures, performance metrics, and rewards structures mutes their potential impact." For more information, go to: http://www.pwc.com/extweb/pwcpublications.nsf/docid/B3EE8535D12D369385257328005907C4.
FTC ruling finds Evanston Northwestern-Highland Park hospital merger anti-competitive but remedy falls short of dissolution
In a widely watch decision, the Federal Trade Commission ruled that Evanston Northwestern Healthcare Corp.'s (ENH) acquisition of Highland Park Hospital (Highland Park) in 2000 was anticompetitive and violated Section 7 of the Clayton Act. The Commission's opinion, authored by Chairman Deborah Platt Majoras, affirmed an October 2005 ruling by Chief Administrative Law Judge (ALJ) Stephen J. McGuire, with some modifications, and ordered an alternate remedy to restore competition in the market. The Commission's order, which is available on the FTC's Web site, requires ENH to establish separate and independent contract negotiating teams -- one for Evanston and Glenbrook Hospitals, and another for Highland Park -- that will allow managed care organizations (MCOs) to again negotiate separately for the competing hospitals, "thus re-injecting competition between them for the business of MCOs." The remedy differed from that ordered by ALJ McGuire, who ruled that ENH should be required to divest Highland Park altogether. For the decision go to, http://www.ftc.gov/opa/2007/08/evanston.shtm . For a legal analysis by McDermott, Will & Emery, including recommendations for hospitals considering or implementing mergers, go to http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/81a7f14a-cf7c-4241-845a-4d867252d85b.cfm
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Barry S. Bader, Bader & Associates
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