Montana health officials aim to increase oversight of nonprofit hospitals

Montana health officials are proposing to oversee and set standards for charitable contributions that nonprofit hospitals make to their communities each year to justify their access to millions of dollars in tax credits.

The proposal is part of a package of legislation that the state Department of Public Health and Human Services will ask lawmakers to approve when they convene in January. It comes two years after a state audit department called for a more oversight role and nine months after a KHN investigation found some of Montana’s wealthiest hospitals lag behind state and national averages in community giving.

Montana State Sen. Bob Keenan, a Republican who has questioned whether nonprofit hospitals deserve their charitable status, said the proposal is a start that could be expanded later.

“Transparency is the name of the game here,” Kenan said.

The IRS wants nonprofit hospitals to count what they spend to “promote health” to benefit the “community as a whole.” How hospitals calculate such contributions to justify their tax deductions is opaque and varies widely. National researchers who study community benefits have called for tightening standards for what counts toward necessity.

Montana is one of the latest states to consider imposing new rules or expanding oversight of nonprofit hospitals amid questions about whether they pay their fair share. Dr. Vikas Saini, president of the national health care think tank Lown Institute, said Californians at both the state and local levels are investigating whether hospital community facilities should be monitored and new standards implemented. Last year, Oregon instituted a minimum amount that nonprofit hospitals must spend on community benefits. And Massachusetts has updated its community facility guidelines in recent years, pushing hospitals to provide more detailed assessments of how costs line up with identified health needs.

Montana hospital industry officials said they want to work with the state to craft the proposed legislation, which they said the industry would support if it didn’t conflict with federal rules. Saini said that to have an impact, any legislation would have to go beyond federal requirements.

In recent years, more people like Keenan and Saini have questioned whether nonprofit hospitals are contributing enough to their communities to deserve the big tax breaks they get when they become the city’s biggest businesses.

“Hospitals are like pillars of the community, but people are starting to ask these questions,” Saini said.

Saini’s institute annually reviews what hospitals pay and finds that most nonprofit systems nationwide spend less on “meaningful” benefits than the estimated value of their tax breaks. Measures the institute counts include patient financial support and community investment in services offered to harm, including food assistance, health education, or addiction treatment.

The 2020 Montana audit found that the state’s hospitals benefit ambiguously and inconsistently, making it difficult to determine whether their charitable status is justified. However, state lawmakers did not address the issue in their 2021 biennial legislative session, and a Legislative Audit Department memo issued in June found that the state health department has “made no meaningful progress” toward developing nonprofit hospital charitable giving since then.

KHN found that about 50 nonprofit hospitals in Montana directed about 8% of their total annual expenditures, on average, to community benefits in the tax year ending in 2019. The national average was 10%.

In some cases, hospitals’ paying percentages have since declined. For example, in the tax year ending in 2019, Logan Health-Whitefish — a small hospital that is part of the larger Flathead Valley Health System — reported that less than 2% of its overall spending went toward community benefits. In its latest available documents, for the period ending in 2021, the hospital spent less than 1% of its spending on community benefits while making $15 million more than it spent.

Logan Health spokeswoman Melody Sharpton said the medical system’s overall community benefit equals about 9% of its spending, which goes to its six hospitals. It also has clinics across the valley. “It’s important to consider our institution’s community facilities as a whole because our facilities work together to ensure that the appropriate care is provided in the appropriate facility to meet the health needs of our patients,” said Sharpton.

State health officials asked lawmakers to allow the agency to draft a bill that would give the health department clear authority to require hospitals to submit annual reports that include data on community benefits and charity care. The measure would allow the department to set standards for those community benefit costs, the department described in its proposal.

“We see a great need here to move the ball forward,” state health department leader Charlie Brereton told lawmakers in August.

Montana Hospital Association President Rich Rasmussen said his organization wants to work with the health department to honor the law but said the definition of what counts as a facility should be broadened so hospitals can respond to the most pressing needs in their area.

Moreover, he said, hospitals are already working on their own reporting standards. This year, the association created a handbook for members and set a 2023 goal for hospitals to uniformly report their community benefits, Rasmussen said. The association declined to provide a copy of the handbook, saying it will be available to the public after hospitals receive training on how to use it later this fall.

The association plans to create a website that will serve as a one-stop shop for people who want to know how hospitals are reporting community benefits and addressing local health concerns, among other things.

State Rep. Jane Gillette, a Republican, said she supports increased health department oversight and the idea behind the association’s website but doesn’t think the hospital industry alone should create that public resource. Gillette said he plans to introduce legislation that would require hospitals to report community benefit data to a group outside the industry — such as the state — which would then post the information online.

In the past, hospitals have resisted efforts to impose new rules on community benefit spending. In an interview with KHN last year, Bozeman Health’s then-chief advancement officer, Jason Smith, said the system supported efforts to improve reporting contributions “beyond the new law,” adding that hospitals “could do better without setting up state oversight agencies. Arena with us.”

Asked if the health system still stands by that statement, Denise Juneau, Bozeman Health’s chief government and community affairs officer, said hospital officials hope any new law will align with existing federal guidelines. He said Bozeman Health will continue to work with the Montana Hospital Association to define and provide information on improved community facilities with or without the new law.

A lawmaker would have to support the state’s proposal by mid-December to keep it alive.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Along with policy analysis and polling, KHN is one of the three main operating programs of the KFF (Kaiser Family Foundation). KFF is a non-profit organization that provides health information to the nation.

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